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Scot,
Who is "we"?
Cheers,
Norman
Scot Billington wrote:
> We use optimal f in a little different manner. During most winning trades
> your risk increases intratrade as the market moves in your direction more
> quickly than you move up your stop. If you have a profit objective, you
> have more risk as you near the objective etc.
>
> We take a very small % initial risk which allows us roughly 100 consecutive
> losses before we hit a 50% drawdown. As the trade moves in our favor,
> creating more risk, we accept that extra risk since it is not our 'core
> captial' (total equity not at risk in other positions) at risk. We allow
> the intra trade risk to increase up to 80% of our approximated optimal f.
> If a market moves enough in our direction to reach optimal f, meaning the
> risk has expanded multiple times, we reduce the risk by reducing our
> position size. This is done by either covering contracts or selling options
> vs. them. This in essence pins our risk to the optimal f for the duration
> of the trade.
>
> I find this strategy very useful. It minimizes initial risk and therefore
> risk of ruin. It also allows you to take more risk when you are winning on
> a trade by trade and portfolio basis. Large winning trade may operate right
> at the optimal number. It has improved our risk/return ratio on the trades
> on which it was used by over 7-1.
>
> sb
>
> ----- Original Message -----
> From: "Glen Wallace" <gcwallace@xxxxxxxx>
> To: <realtraders@xxxxxxxxxxxxxxx>
> Sent: Wednesday, March 01, 2000 8:19 PM
> Subject: [RT] Re: Fixed Ratio or Fixed Fractional?? Pros and Cons of Each
> ..
>
> > Gary:
> >
> > Back testing over a long period of time over all kinds of market
> conditions
> > will tend to give you a more representative largest loss. Probably not
> the
> > career-ender loss that's in store for a person if they do this long
> enough,
> > but I suppose that's the risk ya' take :)
> >
> > In my opinion, the key is to stay to the left of the optimal f peak (for
> > those not familiar with optimal f, picture the peak of a normal
> distribution
> > curve) and accept a lower return for the reduced risk. Not too far to the
> > left, mind you, because the reduction in return is not proportional to the
> > reduction in risk. Trading at less than optimal and how much less is up
> to
> > the individual and their own risk threshhold.
> >
> > I would be interested in hearing more about your friend's Conservative f
> > technique. Also, be careful with substituting average loss for largest
> > loss. The effect of this is to reduce your equity-per-contract figure
> (f$)
> > which, in turn, might make your position sizes too big when you hit a
> string
> > of large or largest losses.
> >
> > Regards.
> >
> >
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