Money Management | JUL 1998
Secure Fractional Money Management by L. Zamansky, Ph.D., and D. Stendahl
Secure Fractional Money Management by Leo J. Zamansky, Ph.D., and David C. Stendahl Here's how to find a new fractional value of capital to invest in every trade to maximize returns subject to a constraint on drawdown, using a variation of the optimal f money management strategy. Over the past four years, we have developed and applied evaluation software to trading systems that use money management techniques and have studied the impact of these techniques on trading systems. A new money management strategy called secure f is one of the outcomes of that work, and here, we will demonstrate how to find a new fractional value of capital to invest in every trade to maximize returns subject to a constraint on drawdown. Secure f can be a conservative strategy or an aggressive one, depending on the level of acceptable maximum drawdown selected by the trader in question. It is a modification of the optimal f strategy that was introduced by Ralph Vince in his Portfolio Management Formulas. Secure f differs from optimal f because it takes historical drawdowns into account and uses information about the prices of the underlying security. OPTIMAL F Optimal f is a money management strategy that can be used to improve and maximize system performance by finding the best percent of capital to invest in each trade. This strategy determines which percent of equity invested in a trade would have yielded the highest return based on a sequence of past trades. Because traders are able to employ a variety of money management strategies, it can be useful to know what would have been the optimal amount to invest in each case. The concept of percent or fractional strategy itself comes from the Kelly formula, which estimates the percentage of your capital to trade when the amounts won and lost are not equal:
by L. Zamansky, Ph.D., and D. Stendahl
Technical Analysis of STOCKS & COMMODITIES
The Traders’ Magazine since 1982
has had over 1,226,237 subscribers from 174 different countries.
37,000 Page Traders’ Archive for $89.99
To continue reading, sign-up for trial access to Traders.com and the S&C Archive — 37,000 pages of trading ideas!
After verifying your email address, you will have limited access to the S&C Archive, as well as access to a Digital Edition of S&C, and access to Traders.com Advantage and Working Money for 30 days.
Not a subscriber to Technical Analysis of
STOCKS & COMMODITIES magazine?
Click
here to subscribe, or request
a trial subscription.
Log-in now to view articles from the S&C Archive.
Your Subscriber ID is located at the top of your magazine label, highlighted here in red.
Your last name can be found on the second line, highlighted here in blue.
*If you have a company name on the label, that can also be used. It will appear below your name on the label.
If you do not have a Subscriber ID on your label, you can find it on your statement or renewal form.
For help locating your Subscriber ID number, please call us at 1-800-832-4642 or send an email to Survey@Traders.com. If sending an email, please include your name and mailing address.