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Hey Dave
Check on pg 81 about comparing trading systems in the Mathematics of
Money Management book.
Have a look at the example that follows on pg 81. You want to maximise
geometric mean (return) whilst at the same time minimise optimal f
(risk). And yes of course these are contradictory!!!
In practice I found that systems with higher gmeans also tend to have
higher optfs - I think this is what Vince is alluding to in your quote
below. It is very difficult to design high return low risk systems -
shame huh?
So that leaves us with a tradeoff, the question is how to choose between
different combinations of gmean/optf?
I don't have a thoroughly researched answer to that question. Frankly I
am more concerned with first satisfying the underlying assumptions, like
the system having a positive mathematical expectation (not
historical!!!). Crystal ball please...
The rest comes easy-er . . .
Later
Peter
>
> Peter,
>
> Your quote of Vince's statement that, "...the lower the optimal f, the
> better the system" takes me by suprise.
>
> I have read all three of Vince's books and do not recall him making such
> a statement. As a matter of fact, on page 42 of his latest book, The
> New Money Management, he states, "One quickly realizes that the better a
> trading approach appears when traded on a one-unit basis, the higher the
> optimal f is". This statement appears to directly contradict the
> statement which you had quoted.
>
> Would you do me the favor of citing the book and page number containing
> the statement you were referencing? It's quite obviously a passage I
> need to go back to and re-read.
>
> Thanks.
>
> Dave
>
> > Subject:
> > Re: optimal f values
> > Date:
> > Fri, 11 Sep 1998 14:52:04 +0800
> > From:
> > HeyPeter <heypeter@xxxxxxxxxxxxxx>
> > To:
> > omegalist <omega-list@xxxxxxxxxx>
> >
> >
> > Oops . . took my own advice and read Vince's books again.
> > I was incorrect in stating the higher the f the better the system.
> > Someone was correct in stating that TWR was what you wanted to maximise
> > ie geometric mean. To quote Vince:
> >
> > "The higher the geometric mean at the optimal f, the better the system.
> > Also, the lower the optimal f , the better the system."
> >
> >
> > Apologies
> >
> > Peter
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