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Peter,
You are right. The paradox of optimal f is the the better (read: higher edge) the system, the higher the optimal f, in general.
But *if* that edge is for real and will hold up in the future, mathematically, you *will* grow you equity the fastest by trading at optimal f. However, there is no rule that you have to trade your system full out at 'optimal f'. You can just as well choose to trade 'to the left of the peak' by trading at some fractional f level. Just realize that you will be paying a big price in terms of reduced profits. When you back off f, you reduce drawdowns arithmetically, but you reduce profits exponentially.
You really should get Vince's book. He explains it all very well...much better than I could with my poor typing skills <g>.
Note, on a decent system margin constraints will force you to trade at a reduced f level, especially when you get into trading portfolios.
Scott Hoffman
-----Original Message-----
From: Peter Ryan [SMTP:pryan@xxxxxxxxxxxxxx]
Sent: Wednesday, September 09, 1998 4:49 PM
To: 'Scott Hoffman'
Cc: 'omega-list@xxxxxxxxxx'
Subject: RE: optimal f and futures lots traded
Scott,
Thanks for the reply. It driving me mad trying to be sure of the final
step.
(I think you mean as soon as I have lost $350 per contract per trade, I
have lost 35% of my capital - $7000))
So my f = .35 seems dangerously high. Do you know what the
characteristics of systems with an f of .1 to .2 would be.
Thanks
Peter
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