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Well, glad to get a response!
Turns out after a bit of work, I was able to come up with some answers:
>1./ The formula for Optimal F that I've seen is determined by the
>sequence of wins & losses expressed in points gained/ lost per trade.
>Wouldn't it make more sense for the formula to use percentage gains/
>losses instead?
Well, not really. I converted all the components of the calculations to
a percentage basis & I got the same results for optimal f. This was a
bit of a chore, & I may have made a mistake in logic somewhere, but for
now I'm satisfied that the standard method is OK (ignoring for the
moment my earlier criticism about trade sequences being non-stationary.)
>2./ I'm not quite sure how to apply Optimal F on the equity side.
>Assuming that your number of contracts to trade is 10 (= Equity/ f$,
>where f$ = MaxLoss/ Opt F), does this mean that you should buy 10
>shares? Or does the current price of the stock come into play somehow?
The trade history is always expressed in pts gained/ lost trading a
single contract. If you have defined 1 contract as 100 shares, then in
the example above you would be trading 1,000 shares.
Mark's approach to betsize selection is a good one, and seems to mirror
what I think has been called Secure F: maximizing equity growth subject
to the constraint of a maximum drawdown of X%.
The software he is referring to is presumably Technical Recipes. Anyone
have contact information (phone/ website)?
A final comment:
Make sure you take slippage & commissions into account when calculating
betsizes. It's no good just plugging in the difference between entry &
exit prices. This can get tricky because often optimal f will have you
trading everything from 1 to several 1,000 contracts and S&C will
obviously vary quite a bit depending on your trading size.
OK. Thanks,
Cab Vinton
cvinton@xxxxxxxxxxx
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