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Ed,
You are correct, the answer is 25% for that particular example.
You need a money management algorithm to figure out the exact trade
size. The one I use is proprietary. I found it to be the only way
to make the profits explode at the same time control the risk so
that it is within acceptable levels, i.e., cuts your losses short
and lets your profits run. Is it the Holy Grail? Maybe. Only time
can tell the difference. Do you know exactly where to place stops
on entry and where to take profits? If you have figured that out,
then you can design a system and trade it successfully, because that
is what determines the trade size...
rgds, Pal
--- In amibroker@xxxxxxxxxxxxxxx, "ed nl" <ed2000nl@xxxx> wrote:
> hi,
>
> I was refering to the example he gave with flipping a coin. If you
win (your chance of winning is 50%) you make 200% of the amount of
money you placed in that bet. If you loose you loose it all (100%).
The question was how much of my account do I risk for each bet. The
answer is 25%.
>
> Reading about your money management sounds to me like things I am
already using and really are pretty obvious. I spread my risk by
only using 5% om my account for each trading signal I get. Entry and
exit are carefully planned and I calculate my systems using "worst
case scenario" meaning if my entry signal tells me to enter on the
limit at 22$ (long position) and the price opens at 21.50$ my
backtest will chose 21.50$ as the buy price. In practice we will
always have some slippage. Therefor I test my systems to enter at my
buylimit (22$) or if the high that day was less than 22$ I enter at
the high. And ofcourse include a stoploss for each trade
>
> I thought there was some kind of miracle fraction (the miracle
fraction method) I could calculate so that my profits would explode.
>
> Ed
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