Optimal f

Discussions about Money Management and Risk Control.
ksberg
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Post by ksberg »

Forum Mgmnt wrote:If 3% is considered conservative, it's no wonder most traders lose money.
LOL ... maybe a better term is realistic. IMHO, the numbers are starting to sound more in-line with reality (e.g. 1-2% vs. 8%). BTW: why would I bet 3% if it meant a nearly 50% chance of creating a 50% drawdown? To me, that doesn't make sense, and doesn't appear to be conservative.

One other triangulation on reality here. I think this optimal value all depends on the system and approach. Afterall, with 4 units scaling, default Turtle is really risking 4% per position. I have one option for "scaling into size" in my trade engine. Using this with "R11" would be betting 0.75% per trade at the above level; less than Turtle. The key difference is that Turtle doesn't always risk 4%, because not every signal scales.

Ok, so far we hadn't formally considered how to optimize systems that scale. Elsewhere in the forum, discussions suggested treating each scaled unit as a separate system [good idea: I just can't recall who mentioned it]. Using that technique would mean creating separate trade sets for each unit (all unit-1 trades, all unit-2 trades, etc), and optimizing on each set. We'd then have an idea of what would be optimal for each scaled unit.

Cheers,

Kevin
yoyo2000
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Post by yoyo2000 »

c.f.,do you plan to publish your article ?
I'm longing for it :D
Trading Leech
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Post by Trading Leech »

I skimmed through this thread. Does it basically mean that Ralph Vince's "optimal f" sucks and I shouldn't bother learning it, or is it more to it than that?
sluggo
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Post by sluggo »

Ralph Vince's first book (you can find it on Amazon) introduces his optimal-f concept. I read this book and found it staggeringly valuable. Whether you will find it valuable, or useless, or something in between, is hard to predict.

One way to label this book is to call it "The Optimal f Book."

However, I think a much more useful description is "The Fixed Fractional Positionsizing Book."

Certainly that's how it worked out for me. I don't now, and never have, traded the Optimal-f concept. On the other hand, as soon as I read this book, I immediately started trading with fixed fractional positionsizing, and have done so ever since.

Your mileage may vary.

I happen to think his second book (copyright 1992) explains his ideas a bit more clearly. But in retrospect I'm glad I read the first book first, it's full of breathless exhilaration & excitement. It's also got some fairly sloppy algebra in places; let the reader beware, before trading any of this stuff, double-check RVs work with your own pencil and paper. Then simulate it on a good backtesting program like Trading Blox. Won't you feel dumb if you lose money because of a typo in a book published 20 years ago?
Trading Leech
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Post by Trading Leech »

sluggo wrote:Ralph Vince's first book (you can find it on Amazon) introduces his optimal-f concept. I read this book and found it staggeringly valuable. Whether you will find it valuable, or useless, or something in between, is hard to predict.

One way to label this book is to call it "The Optimal f Book."

However, I think a much more useful description is "The Fixed Fractional Positionsizing Book."

Certainly that's how it worked out for me. I don't now, and never have, traded the Optimal-f concept. On the other hand, as soon as I read this book, I immediately started trading with fixed fractional positionsizing, and have done so ever since.

Your mileage may vary.

I happen to think his second book (copyright 1992) explains his ideas a bit more clearly. But in retrospect I'm glad I read the first book first, it's full of breathless exhilaration & excitement. It's also got some fairly sloppy algebra in places; let the reader beware, before trading any of this stuff, double-check RVs work with your own pencil and paper. Then simulate it on a good backtesting program like Trading Blox. Won't you feel dumb if you lose money because of a typo in a book published 20 years ago?
Thanks for these great insights! I will get Ralph's first book and see what I make of it.
Eventhorizon
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Post by Eventhorizon »

You will enjoy it. Pay particular attention to Sluggo's comment about typos.

I have Handbook of Portfolio Mathematics and Leverage Space Trading Model. Both have typos, and both sometimes leave you with a lot of work to do to follow what's going on.

Persevere, and ask questions - I would certainly enjoy engaging in discussions of Ralph's work.
Trading Leech
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Post by Trading Leech »

Eventhorizon wrote:You will enjoy it. Pay particular attention to Sluggo's comment about typos.

I have Handbook of Portfolio Mathematics and Leverage Space Trading Model. Both have typos, and both sometimes leave you with a lot of work to do to follow what's going on.

Persevere, and ask questions - I would certainly enjoy engaging in discussions of Ralph's work.
Sounds great.

I got the "Leverage Space" book, but I got lost quickly. I just lost the thread. It wasn't the difficulty of the maths, but much rather he seems to be assuming that one has read his previous books, even though he doesn't admit it outright.

So now I'm waiting for his first book and plan on reading that first. Maybe I'll create a new thread around it later. (This thread is getting quite big.)
fab1usa1
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Post by fab1usa1 »

About 10 years ago I purchased a VHS tape of Mr. Vince presenting his money management techniques in front of a live audience. At its conclusion he invited his audience to contact him via email with any questions. I took him up on his offer. He was very gracious and flattered that someone actually bought his video! We had several email exchanges, and in one of those emails was a spreadsheet that helped me put Optimal-f in action.

Moral of the story: when all else fails, contact the author.
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