What are the Optimal F, Kelly, Fixed Fractional Trades and Williams formulas?
A. The following formulas are available for dynamic position size calculation: Optimal F formula. This method of estimating the optimal risk percentage has been improved by Raplh Vince. While Kelly’s formula use only the average values from the past trades, Raplh Vince proposed to take into account all trades. Kelly formula – defines the optimal percentage of risk that should be allowed to maximize the “usefulness” function presented as a logarithm of the capital. Fixed Ratio formula. A common problem of all those methods that use a fixed fraction of the capital is they either maximize the capital growth without taking the risk into account (i.e. the optimal f) or minimize the risk (i.e. expose to the risks not more than x% of the capital). Trying to solve this conflict Ryan Jones came to the conclusion that the relation of the number of lots traded to the capital growth required for increasing the number of lots by one (or by the minimum increment) should be a constant . The Larry Wil
