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Hi
Assuming you are a profit maximiser, then you want the system with the
highest f. Consider if you had the perfect system, it would have an f
of 1.0 - ie you would bet all your wealth on each trade as it would be
always be a winner.
Of course, the better your system the higher its optimal f, but the
catch is if it starts losing then your account equity will collapse too
- no free lunch but then again with such a great system you will recover
from drawdowns quicker than by any other method, by trading optimal f.
To apply optimal f, you need to satisfy the underlying assumptions -
system with a positive expectation (this is very different from having a
winning system in the past - ever heard of a system blowing up despite
all the killer TS performance stats?) and profit maximising motive (cf
drawdown minimising motive - where do you fall in that continuum).
If you believe you've got those 2 things, then shoot for the system with
the highest optimal f. Read and reread and reread Ralph Vince's books -
all will be revealed . . . oh did I mention the need for lots of capital
too?
Later
Peter
Peter Ryan wrote:
>
> I follow your reasoning about the higher the f, the higher the number of
> contracts traded.
>
> Which gets me back to - shouldn't we be looking for systems with a low
> optimal f.
>
> Am I correct in thinking that if optimal f is .10, then when the largest
> losing trade is encountered 10% of the stake is gone, and if optimal f is
> .2, then when the largest losing trade is encountered, 20% of the stake is
> gone.
>
> Peter
>
> <<<<
> Number of contracts= Account size/ f$
> f$=Max loss/f
> So, Number of contracts= Account size/ (max loss/ f) or
> Number of contracts =(account size*f)/(max loss)
> so the higher the f, the bigger the number of contracts.
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