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> Using opt f, you calculate your bet size as
> PositionSize = AccountSize / (MaxLoss / f)
There's another fallacy. That implies that you decrease size as you have
a string of losers. Chuck Lebeau, in "Bulletin 39: Some Practical
Thoughts About Money Management", did a simple coin flipping sim that
showed that decreasing size when you have losers decreases returns, no
matter what order the winners and losers come in. The reason, your
biggest bets are placed on losing trades and your smallest bets are
placed on winning trades. (Think about it a minute, it's true.)
A better approach is to start with a more conservative bet size and,
once you make enough to increase your size, stick with the bigger size
through a drawdown. Gives a much smoother equity curve than starting
with big bets and decreasing when you have losers. This assumes constant
volatility. Changing bet size with changing volatility (risk) is a
separate subject and a good thing to do. You want to risk an equal
dollar amount on each trade so, if volatility goes up, your stops should
get wider and your size should get smaller.
--
Dennis
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