CHAPTER 5
Characteristics
of Optimal f
Optimalffor Small Traders Just Starting Out
JUST STARTING OUT
How does a very small account, an account that is going to start out trading
one contract, use the optimalfapproach? One suggestion is that such an
account start out by trading one contract not for every optimalfamount in
dollars (biggest loss/−f), but rather that the drawdown and margin must
be considered in the initial phase. The amount of funds allocated toward
the first contract should be the greater of the optimalfamount in dollars or
the margin plus the maximum historic drawdown (on a one-unit basis):
A=MAX{(Biggest Loss/−f), (Margin+ABS(Drawdown))} (5.01)where: A=The dollar amount to allocate to the first contract.
f=The optimalf(0 to 1).
Margin=The initial speculative margin for the given contract.
Drawdown=The historic maximum drawdown.
MAX{}=The maximum value of the bracketed values.
ABS( )=The absolute value function.
With this procedure an account can experience the maximum drawdown
again and still have enough funds to cover the initial margin on another