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At 6:01 PM -0700 7/16/00, Jess O'Leary wrote:
>...and I've come to the conclusion that something based on net
>profits is what I want to use.
This works OK if you leave all profits in your account. But most
people tend to remove some of the profits so you might be happier
basing the trade size on your account size rather than on net
profits.
>I read about one relatively simple strategy in Charlie Wright's book
>that is based on net profits and goes something like this:
>
> AccountRisk = NetProfit * RiskPercent;
> Num = AccountRisk / WorstCase;
> If Num < 1 then Num = 1;
I would tend to calculate the risk of each individual trade rather
than use some worst-case value. Something like the following:
AccountRisk = AccountSize * RiskPercent;
TradeRisk = AbsValue(EntryPrice - StopPrice) * BigPointValue;
Num = Floor(AccountRisk / TradeRisk);
You will find that with many systems the TradeRisk varies
significantly from trade to trade. Also, I would round the number of
contracts down and not force the minimum of 1 contract. This will
cause you to pass on any high-risk trades.
Bob Fulks
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