Optimal f
(optimal fixed fraction) - method of estimating the optimal
% of risk has been improved by Raplh Vince. Using the optimal
f strategy, you can optimize your system for the
variable f (with "f" being
the amount of capital invested in each trade) so that your
system achieves the highest net profit (or TWR as defined
by R. Vince.) Optimal f is calculated the
optimal value of f is independent of the
order in which the trades take place. Changing the order or
sequence of trades does not affect the final out-come. Most
people think that the optimal fixed fraction is that percentage
of your total stake to bet. This is absolutely false. To define
how much shares you have to trade we use the next formula:
Number_of_shares = (Optimal_F * Current_Capital / starting_risk_per_unity_of_assets)/Security_Price
where starting risk = maximal loss at trade(in
%).
Example:
Current Capital - 25000$
Security Price - 25$
Optimal f - 0.30 (it's
calculated on the basis of the historical data)
Maximal Loss at trade - 50% (it's calculated
on the basis of the historical data)
In this case you can buy (0.3 * 25000/0.5)/25
= 600 shares |
