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Hi Mark.
Depends what your trying to do... There's a subtle difference between
maximizing the expected dollar value of your acct after a fixed number of
trades and maximizing your expected return. If your odds of winning or
losing are static then the former leads you to leverage your acct more and
you rarely make a killing but usually go bust -- nevertheless, this approach
DOES maximize the expected dollar value of your acct. "Optimal f" and all
its variants are just takeoffs of the Kelly criterion in which you optimize
your expected RETURN and end up w/ a strategy in which you're always
investing a fixed fraction of your bankroll -- but you never go bust.
Since the markets are not static, there's no "right" answer -- only rational
best-guesses. My best guess is that ploughing ALL your profits back in to a
bigger position (and hence increasing your leverage) is bad money-management
and will lead you to have much higher odds of going bust than an approach
where you increase your risk in proportion with your overall account value.
If you have a winning strategy, then be conservative and bide your time. If
it works then you can wait an extra year to get rich...
Remember, it's easy to have a great system and still go bust w/ bad money
management (a.k.a. too much leverage).
Alex
-----Original Message-----
From: Mark Brown [mailto:markbrown@xxxxxxxxxxxxx]
Sent: Friday, February 04, 2000 9:23 AM
To: Alex Dannenberg
Cc: omega-list@xxxxxxxxxx
Subject: Re[7]: Rocket Science
Hello Alex,
AD> I usually stay out of these sorts of discussions, but this is just too
AD> flagrant and/or misleading to let it go by...
flagrant? ok i'll buy that so what?
AD> Just realize this: To increase your order size in periods of high
AD> volatility, be it the vol of your equity or that of the market, is
AD> tantamount to saying that your final results will be dominated by
AD> how you do during these occasional volatile periods.
the addition contracts are put on ONLY out of profits made so what
skin is it off the accounts balance? wanna make money or set on the
sidelines worrying?
AD> -Alex
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