Ralph Vince - Portfolio Mathematics

Optimalf 125

Atf=.23

TRADE HPR

9 1.121764

18 1.243529

7 1.094705

1 1.013529

10 1.135294

− 5 0.932352

− 3 0.959411

− 17 0.77

− 7 0.905294

TWR=1.095634

Atf=.24

TRADE HPR

9 1.127058

18 1.254117

7 1.098823

1 1.014117

10 1.141176

− 5 0.929411

− 3 0.957647

− 17 0.76

− 7 0.901176

TWR=1.095698

To Summarize Thus Far

In the previous chapter we demonstrated that a good system is the one with
the highest geometric mean. Yet, to find the geometric mean you must know
f. Understandably, the reader must be confused. Here now is a summary
and clarification of the process:

1.Take the trade listing of a given market system.

2.Find the optimal f, either by testing various fvalues from 0 to 1 or
through iteration. The optimalfis that which yields the highest TWR.

3.Once you have foundfyou can take the Nth root of that TWR corre-
sponding to yourf, where N is the total number of trades. This is your
geometric mean for this market system. You can now use this geometric