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If your system is profitable on one contract, the theory is, to get 10
times the profit, just buy 10 contracts, thus turning a $44,000 profit
into $440,000.
But, your maximum drawdown will increase by a factor of 10 as well! If
this drawdown happens on your first trade, will you be 1) able to
withstand it? and 2) be able to mentally continue trading the system?
The optimal f type systems are useful in that they 1) require you to
obtain enough simulated or real-time trading history to gather actual
statistics on won/loss probabilities - no anecdotes here - and thus 2)
give you an idea how much drawdown you will LIKELY incur.
It works on the obvious principle that you should only trade more
contracts (and thus incur more possible drawdown) if your account grows.
That's the secret - if your win/loss ratio stays the same, how much more
(drawdown) in absolute dollars can you stand? Likely it will be more than
when your account was smaller. A keyword is, "if the won/loss ratio stays
the same". If it doesn't, you have to recalculate you expected drawdown
in absolute dollars and decide if you can still stand it. Fixed ratio is
just a way of letting someone else compute how much more. $1500 please.
Larry Lewis
-----Original Message-----
From: Proffittak@xxxxxxx (reply to: Proffittak@xxxxxxx)
[SMTP:Proffittak@xxxxxxx (MIME) (actually from:
owner-realtraders@xxxxxxxxxxxxxx)]
Sent: Friday, August 14, 1998 8:17 AM
To: realtraders
Subject: Re: SMARTTRADING...YEA RIGHT
In a message dated 98-08-13 20:26:49 EDT, you write:
<< Before MM the ratio of Net profit to Largest DD is 7.14/1.
After MM, the ratio drops to 5.26 !!!!
To reiterate, what's the point in selling the sofware for fixed ratio
MM??
$ 1500 is the point, and if you doin't do your analysis properly as per
above,
$ 1500 will soon be parted from thee....
Alan >>
good morning
if you can post to all the steps necessary to use the fix ratio in
an
exell format or even simple explanation of words one and all would
love
to know how to save 1500 and do it manually(converting sys 44000 to
440000
using fix ratio)
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