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I’ve been watching the discussion of
position size and the optimal f concept. It is quite difficult to determine a
good optimal f value. The best way is likely by Monte
Carlo simulations. There are a few relatively inexpensive programs
to run Monte Carlo simulations, but I do not
know if they would interface with MetaStock. One program from PariTech might be
of value.
<font size=3
face="Times New Roman">
From:<font size=2
face=Tahoma> chichungchoi
[mailto:no_reply@xxxxxxxxxxxxxxx]
Sent: Wednesday, August 11, 2004
12:12 AM
To: equismetastock@xxxxxxxxxxxxxxx
Subject: [EquisMetaStock Group]
Re: Money Management
If I just follow the triggered BUY/SELL signal and not concern about <font
size=2 face="Courier New">
the support and resistance levels,
1) The account size is $25,000.
2) The largest losing trade is $2,050.
3) The Optimal f is 27%.
Should I just buy long $25,000 x 27% = $6,750 for
6750 share at $1?
and sell short $25,000 x 27% = $6,750 for 6750
share at $1?
Could you please give any suggestion?
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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