Resolved Question
Optimum account risk?
Is there a scientific method of determining the optimum account risk, if the win percentage of the trading method is known?I've seen references to optimum f, and that may be it, but I haven't researched it and here I am being lazy and wanting to piggyback the knowledge of someone who's done their homework.What I'm after really is a simple formula that would, with very good safety margin, provide the ideal account risk also taking into consideration to something like double the longest expected losing streak.Anyone?
over 2 years ago
Best Answer - Chosen by Asker
Hello, the "optimal f" determines the optimal position size based on the winning percentage and the payoff ratio however sometimes will lead to large drawdowns, for a safer position size divide the "optimal f" by 2 or 1.5
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**Look at the link bellow:
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Win/Loss: Average winner / Average looser
Win Prob: Number of losers / Number of winners
Lines Qty: Number of simulations (optimal: 1000)
Kelly Value: Optimal f (multiply by 10 to get your position size percentage)
Math Expect: Must be > than 0.0 (preferably > 0.1)
MIN Value: Max percentage growth
MAX Value: Min percentage value reached (drawdown)
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Here you have the formulas for excel:
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C4 = "Payoff ratio"
C5 = "Win %"
C6 = "Lose %"
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Lose % =(100%-C5)
Optimal f =(C5-((1-C5)/C4))*10
Profit Factor =(C5/C6)*C4
Math Expect =(1+C4)*(C5)-1
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Hope this helps... Cheers
over 2 years ago
Source(s):
Answers (2)
Hello, the risk management i would recomend is between 1% - 4% of your account. And would combine with a trading stratagy that has an r multiple of 3:1 or more. Hope this helps.
over 2 years ago
Source(s):
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As a general rule, I would suggest not risking more than 1% of your account on any trades. This will help you withstand a string of losses and protect your capital. Also, try using a reward to risk ratio of more than 1:1 if possible. In the long run, you could be profitable on just 50% of your trades but still end up profitable in the end.
over 2 years ago
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