TheRumpledOne wrote: aliassmith wrote:
I think there is more to it than the STOP LOSS and POSITION SIZE formulas.
I remember MO trying to explain this to you years ago. You should really run away fast because whenever you see OPM come out somewhere you pop up and are negative about it. OPM and Moving Averages must be trigger words for you.
SPACE Is a methodology of using OPM. If you hate OPM we can call it Donational Investment Capital.
Negative? No, it's just that from the study and research that has been done, thinking of winnings as "house money" or "OPM" leads most to ruin.
If a concept is presented as a formula, then I can grasp it and code it. I can only code what I understand.
Based on Space Calculator, its the Position Size Formula. Risk/Stop Loss Distance. Where risk is notated in money terms and Stop loss Distance is the edge of your box/space.
You're talking about similar, but different scenarios with the idea of "house money" and OPM. House money idea comes into play because its believed that past winnings will make the gambler take "riskier" plays. OPM and space seem to overcome that idea since you're still using the same risk amount $$. The difference is that now you have an increase from your starting amount but your total risk remains the same. Just because you won $100, doesn't mean your box (space) is going to get larger...it stays the same as before the win. With OPM, you're creating a buffer so to speak. This buffer, for an inexperienced trader without a trading plan, can very well have a house money effect. For an experienced trader with a trading plan, it works to protect your account from busting. This is because the trader with a trading plan WON'T risk more simply because he has "OPM" the risk will continue being the same and the trade setups will continue being the same as well. It fits the sword and shield analogy. You're pushing against your adversary, not wanting to give back an inch, creating as much space as possible from your starting point to protect you if you happen to need the shield. The goal is to not lose the account.
As mentioned, I would argue that the idea of space and OPM actually counteract the house money effect.