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Okay... but what, if any, is the "practical" upshot of this if your primary
trading vehicle is a portfolio of futures and you're a regular Joe with an
account size of 100K or less? The hypothetical account size/growth achieved
through Fixed Fractional or Fixed Ratio looks splendid on paper ...but have
you ever tried placing an order to trade 1.6 futures contracts -- because
that's the current bet size/percentage your money management strategy calls
for? It appears to me that to follow/utilize either a fixed fractional or
fixed ratio approach your account size would have to be HUGE ...like the
ability to trade 10 - 100 contracts of every item in your portfolio,
depending on how closely you intended to follow the bet size gradient. This
just sounds like a statistical pissing match to me, unless your primary
trading vehicle is stocks, or you're a professional CPO, CTA or Hedge Fund
manager with a fair amount of money under management. Am I missing something
here?
----- Original Message -----
From: "Paul M. Zislis" <pzislis@xxxxxxxxx>
To: <omega-list@xxxxxxxxxx>; "_Craig" <craigbud@xxxxxxxxxxx>
Sent: Sunday, August 25, 2002 11:24 AM
Subject: Re: Geometric Capital Growth / Optimal-f
> Replying to your message of Saturday, August 24, 2002, 12:16:32 PM,
>
> > I am trying to work out a good way to maximize the geometric growth of
> > capital in a fixed portfolio of trading systems and stocks.
Traditionally,
> > I have traded using a fixed equity model and the profits were not
> > invested but withdrawn.
>
> > I could take the empirical optimal-f for each market in the portfolio
> > and then readjust the bet sizes as the capital grows.
>
> Optimal f gives optimal growth based on historical results. But,
> since the future is likely to be somewhat different from the past,
> trading at optimal f may well cause your account to go bust. To
> reduce the likelihood of going bust you should consider backing down
> from optimal f to a less "optimal" (but also less risky) level of
> trading. You might also want to consider the level of f (or Delta, in
> the case of Fixed Ratio) to trade at based on a portfolio level
> analysis.
>
> > Perhaps it's better to grow the portfolio as the equity grows by
> > adding new markets and systems.
>
> Diversification through adding systems and markets can be useful in
> reducing risk if your portfolio is not diverse enough. If you think
> you have sufficient diversity then I would study position sizing
> strategies such as Fixed Fractional and Fixed Ratio.
>
> > Is there a methodology that shows an optimal or best way to simply
> > allow the geometric growth of capital (re-investing profits) to reach a
> > certain size and then withdraw a specified amount of capital to reduce
> > it to a "minimum size", and do this over and over again every time
> > the capital reaches its "maximum size"?
>
> I have been testing position sizing strategies that look at this
> issue. I define the following portfolio money management parameters:
> 1. withdraw level (when profit reaches or exceeds this level I
> withdraw some equity from account)
> 2. withdraw amount (this is how much I withdraw when I reach the
> withdraw level)
> I keep track of and report the number of withdrawals I've made, their
> dates and the total amount withdrawn. I subtract the amount withdrawn
> from a global variable that represents current account profits.
> Position sizing decisions are partially based on this global variable
> so that I automatically start trading fewer contracts after an equity
> withdrawal.
>
> Since the testing platform I use allows me to run tests on a portfolio
> using iteration of money management parameters, I am able to test the
> effects of varying withdraw levels and withdraw amounts.
>
> Lest anybody misunderstand, I am a trader, not a vendor. I've put a
> lot of energy into building and/or buying tools that I find useful for
> my personal trading analysis but I do not sell any such tools.
>
> Paul Zislis
>
> > Thanks,
>
> > -c
>
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