|
PureBytes Links
Trading Reference Links
|
> 1. How many contracts do you trade on your first trade? The method
> explains how to change your size once you have begun trading, but I am
> unclear on how to size your very first trade.
Jones covers this, at least in part, in his book (pp.94-95). Note that his
formula only provides the minimum required starting equity so that margin
requirements are always met. Jones' formula does not take into account the
max historical drawdown, nor does he really adequately discuss the impact of
varying your account's initial capitalization (IMO).
> 2. I do not understand why different
> trades should represent differing amounts of risk for your account if
> the outcome of each trade is unknown and as the same probability of
> success or failure.
I agree, this is a critical question, one which crops very often in reading
Jones' book. I don't have a good answer, but my guess is that Jones is
implicitly assuming the existence of a utility function which describes the
investor's varying willingness to accept risk as the value of his/ her
account changes.
I think it would be fairly simple to test Fixed Ratio vs. Fixed Fractional
for a variety of systems, starting equities, risk tolerances, etc.
Cheers,
Cab Vinton
cvinton@xxxxxxxxxxx
|