Your analysis, confirmed by your exchange with Mr. Vince, by my exchanges with Mr. Vince (who has copies of all my books and papers), and with the risk analysis procedures I have devised, described, and posted are all in agreement -- for practical purposes, optimal f is unsuitably high.
The depth of the drawdown you point out for a single example is typical of the drawdown of any system traded at optimal-f. 80% is not at all unusual. Recovery from an 80% drawdown requires that the account grows to 500% of its drawdown low.
Recovery is mathematically a function of the number of trades per time period, geometric return per trade, and length of time period.
Equally important, recovery depends on the relationships that give rise to the patterns that trigger trade entry and exit being stationary.
This response does not answer the original post but I think I have something to contribute to the subject of Optimal f and may be of interest to the group.
I have a great deal of respect for the work that both Howard Bandy and Ralph Vince have undertaken.
The Internet is filled with detractors of Optimal f. I believe that most people have not labored past the first few chapters, those chapters that describe an empirical method for finding Optimal f. Those who have read the entire book find a few more techniques that are more in line with reality.
That being said, I agree with Howard Bandy's response to the original post. And I believe that Ralph Vince would agree as well. I recently corresponded with Mr. Vince about a system I was exploring that had an Optimal f of 0.80 and a worst case trade of 4% loss. When I did all the calculations I found that I would have needed more than 13 times my existing equity to trade at Optimal f, a highly impracticable amount. Ralph wrote back to me and explained that my figures were mathematically correct but that oftentimes we run smack into reality and cannot really trade at the level suggested by our system.
He also explained that if I was able to trade at my calculated Optimal f that when my system actually did encounter a 4% loss on a trade that the real amount of my loss would be a drawdown of Optimal f percent or in my case 80%. Candidly, I don't think there is enough Pepto-Bismol in the world to relieve that kind of pain. Such is the nature of leverage.
Ironically, trading a more modest system produces an Optimal f that is more practical to trade.
Does this mean that we should completely reject Optimal f? Absolutely not! We simply have to realize that Optimal f gives us the optimal amount we should trade with a "risk be damned" attitude. Maybe not very practical, sometimes, but Optimal f does provide you with valuable information about the maximum amount you can expect out of your system.
Howard Bandy incorporates risk into the trading equation and dampens the volatility in a more practical sense.
Both works of research are important but it's important to understand what each is saying on the subject.
...howard feldman
On 01/23/2016 04:38 AM, queiroz_everton@yahoo.com [amibroker] wrote:
Hello,
Does anyone have the AFL code of Optimal F by Ralph Vince?
Best Regards
Everton Queiroz
Posted by: Howard B <howardbandy@gmail.com>
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