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Hi Ray:
1) The account size is $25,000.
2) The largest losing trade is $2,050.
3) The Optimal f is 27%.
=============================================================
4) $7,592 = ($2,050 / 0.27).
5) 3.29 units = $25,000 / $7,592.
I don¡¦t understand what to do with this step(4) and (5), could you
please describe more? Does this step only use for comparing two
system for better performance?
=============================================================
6) Then I will take $25,000 x 27% = $6,750 for risk and assume the
amount for total loss.
7) If the price of stock is $1 and set stop loss level at $0.5 and
the total risk is $6750, then I will buy 6750 x $1 x 2 = 13500 units
of share at $13500.
If I want to buy the stock at $1 with stop loss level at $0.5, which
I defined as the major support area, then I will purchase 13500
shares for $6750 risk for total lose. Am I right?
Thank you
Eric
--- In equismetastock@xxxxxxxxxxxxxxx, "Raymond McBoyd"
<rmcboyd@xxxx> wrote:
>
> To apply the Optimal f and find the optimal value to risk for an
> account, follow the steps below:
>
> ?Establish the account size. This is the starting account size and
> should be obvious to traders.
> ?Establish the size of the single largest losing trade. Traders will
> need to look at the trades to figure this out.
> ?Use the included software to calculate the Optimal f
> ?Divide the largest loss by the Optimal f. ?Divide the account value
> by the results of step 4.
> ?Repeat after each trade.
>
> The results from step 5 will tell traders how many units/contracts
to
> take on each trading signal for maximum growth to their accounts.
Here's
> a real example:
>
> ?The account size is $25,000.
> ?The largest losing trade is $2,050.
> ?The Optimal f is 27%. ?$7,592 = ( $2,050 / 0.27 ).
> ?3.29 units = $25,000 / $7,592.
>
> When comparing the Optimal f value of two systems, all other things
> being equal, it is wise to pick the account with the larger value.
The
> system with the largest Optimal f value will have the potential to
grow
> the quickest, if the proper Optimal f Position Sizing
technique/approach
> is used.
>
> The Optimal f graph is usually displayed as an arch. The optimal
value
> is the peak of the curve. This peak is usually called the Optimal
f. In
> this optimal value lies the tools for growing an account the
fastest.
> But it is necessary to go through the steps above before the data is
> truly useful to traders.
>
> I hope this is helpful
>
> Ray
>
>
> > Message: 4
> > Date: Tue, 10 Aug 2004 09:15:26 -0000
> > From: chichungchoi
> > Subject: Money Management for Ralph Vince's "Portfolio Management
> > Formulas"
> >
> > According to Optimal f. Read Ralph Vince's "Portfolio Management
> > Formulas", Now, I know this formula, but one thing I don't
> > understand is to find any $2 profit with $1 risk opportunity.
> > Profit and risk depend on support and resistance levels, but
those
> > levels have no clear solid definition on where it is. How do I
know
> > which conditon will fit for the opportunity of $2 profit with $1
> > risk? If I think current condition is $2 profit with $1 risk, but
> > other people will see it $1 profit with $1 risk. It is very
> > depended on the levels of support and resistance. Does anyone
have
> > any idea?
> > Thank you
> > Eric
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