Portfolio Management Formulas : Mathematical Trading Methods for the Futures, Options, and Stock Markets (Hardcover)

by Ralph Vince (Author) "Toss a coin in the air..." (more)
Key Phrases: mandated exit date, constant contract basis, fixed fractional trading, Normal Distribution, Normal Probability Distribution, Reinvestment Accum (more...)

Editorial Reviews

Product Description
Explores two neglected mathematical tools essential for competing successfully in today's frenzied commodities markets: quantity, which shows the proper amounts a trader should trade for a given market and system, and intercorrelation of returns (diversification), which shows not only which markets and systems to trade, but how to diversify with respect to trading the right quantities for each market. By using these lesser known tools in conjunction with the more popular trade/system selection tools, readers will see mathematically how success in the markets can be achieved, and how ``success'' without using all three is most likely incidental. In addition, non-stationary distribution of profits and losses and drawdowns are incorporated into the discussions to expose traders to the highs and lows of commodities markets and how best to leverage their assets.

From the Publisher
Explores two neglected mathematical tools essential for competing successfully in today's frenzied commodities markets: quantity, which shows the proper amounts a trader should trade for a given market and system, and intercorrelation of returns (diversification), which shows not only which markets and systems to trade, but how to diversify with respect to trading the right quantities for each market. By using these lesser known tools in conjunction with the more popular trade/system selection tools, readers will see mathematically how success in the markets can be achieved, and how ``success'' without using all three is most likely incidental. In addition, non-stationary distribution of profits and losses and drawdowns are incorporated into the discussions to expose traders to the highs and lows of commodities markets and how best to leverage their assets.

Product Details

• Hardcover: 288 pages
• Publisher: Wiley (October 19, 1990)
• Language: English
• ISBN-10: 0471527564
• ISBN-13: 978-0471527565
• Product Dimensions: 9 x 6.3 x 1.1 inches
• Shipping Weight: 1.2 pounds (View shipping rates and policies)
• Average Customer Review: 3.8 out of 5 stars See all reviews (6 customer reviews)
• Amazon.com Sales Rank: #429,923 in Books (See Bestsellers in Books)

Customer Reviews

Most Helpful Customer Reviews

23 of 25 people found the following review helpful:

5.0 out of 5 stars Excellent coverage of a difficult topic, November 20, 2000

By	John Fairbanks "John Fairbanks" (Houston, TX USA) - See all my reviews (REAL NAME)

... this book is incredible. I have a degree in mathematics and the principles expressed are extremely sound -- but far more important than the formulas are the first couple of chapters which cause you to view trading in a very different, and statistical, manner. Although the theories in this book can really only be applied to a trading system (which I haven't really used), after reading this book over several times I understand that there is a mathematical certainty that I will eventually lose my trading capital if I don't start approaching trading in a more systematic fashion. Anyway, I highly recommend it -- the sections on gambling theory alone are worth buying it.

23 of 28 people found the following review helpful:

2.0 out of 5 stars Beware applying optimal f to actual trading, March 1, 2000

By A Customer

The problem with optimal f is that the calculation is highly dependent on the largest loss on a trade (not drawdown) experienced in backtesting. If you use optimal f and the largest loss in actual trading is greater than the loss experienced in backtesting, you will go bankrupt. Vince deals with this problem in an offhanded manner by suggesting that the actual f you use should be "padded". OK, so in the end you don't even use the actual optimal f, you pad it. And how much do I pad it by? Vince is silent on this question. So the purpose of optimal f - to decide by formula how much capital to allocate to a trade - is totally negated by the fact that you must "pad" optimal f. And you must pad it by a qualitativly determined amount because, again, Vince gives no formula on how much to pad it by. Optimal f is totally useless for system traders or any other trader for that matter.

8 of 10 people found the following review helpful:

5.0 out of 5 stars Top notch, August 2, 2005

By	Pushin' Fifty (St Louis, MO) - See all my reviews

I found this book to be amazingly good. Equities traders should be forwarned that "Optimal f" is employed here for commodities traders that can make use of big margin, but Vince may have addressed this issue in his more recent books.

It seems a quite a few people get angry or perplexed by optimal f, and the reasons boil down to a handful: Objection: Employing Optimal f will introduce you to levels of risk (large drawdowns) you find disagreeable. Response: That's OK, the mathematical reasoning is not invalidated by the extent to which one is risk averse. If you don't like using the largest historical loss to calculate Optimal f, you can use far larger datasets to produce more radical outliers, or even estimate catastrophic (percentage) losses.

Objection: The whole scheme seems a little too radical. Response: This is the very thing that makes the book so refreshing. Vince has done his own thinking, and he has done quite a bit of thinking very carefully. I wish I had him on my team.

Objection: The book contains too much math. Response: yes, this is mathematical stuff we are dealing with. You can trade more simply, but some of us want ideas for a better edge.

Objection: The book contains primitive math. Response: this is a product of the author's kindly tone. He is not attempting to astound you with his knowledge, but advancing new ideas in plain language, and try to keep the stragglers up with the main pack as they read. I found the tone conciliatory and courteous.

Throughout, Vince does his own thinking, and the burden of the book is not what you usually find. Most trading books I have read contain a little useful material, but seems to have been launched mainly to gain the author fame and income. This book is different. Vince has real ideas, thinks way beyond the "safe zone" and the book has completely reshaped my understanding of money management.