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Replying to your message of Monday, August 5, 2002, 5:50:35 PM,
> Paul Zislis wrote:
>>Following is a formula I know to be correct:
>>
>>NewSize = SQRT(2*CurrentProfit/delta + .25) + .5
> This gives the same result as my formula:
> NewSize = SQRT(2*NetProfit/delta + 1/4 + (StartSize^2 - 1))
> when rounded to the nearest integer IntPortion(NewSize+0.5) and
> when StartSize=1. I implemented it this way in ProSizer to account
> for the initial lot size one starts with. You can't just take the
> original Ryan Jones formula and add your initial size on the end,
> because you will never trade less than the minimum size.
Correct. Jones' book does not deal with issues such as starting with
more than a single contract. Your formula is an enhancement to
the method that Jones' book describes.
> By putting StartSize inside the square root, NetProfit can go
> negative for a bit, offset by the initial size, before the square
> root argument goes completely negative. In this way the size to
> trade gets reduced from your inital lot size down to 1 lot as the
> NetProfit goes more negative.
Interesting idea.
>>Also, the above formula is only the basic Fixed Ratio during equity
>>runups. It is more complicated to implement the calculations for
>>when your account is in a drawdown. Jones suggests several methods
>>for handling drawdown.
> If your equity is in a drawdown but not down to the original
> starting level, the fixed ratio formula works fine in either
> direction. The problem occurs when you get into a negative net
> profit area. The original formula will keep trading your minimum
> lot size all the way to zero if you let it. My modification of the
> formula will trade less than your minimum lot size, to a minimum of
> 1 contract. Assuming of course that your minimum size started out
> greater than 1.
While it is true that you can use the same formula in drawdown as in
equity runup, Jones' book goes into several other variations of
how to manage drawdowns. They are worth looking into.
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