How much return do you expect ?

[priyanvada]

Optimal f (optimal fixed fraction) - method of estimating the optimal % of risk has been improved by Raplh Vince. Using the optimal f strategy, you can optimize your system for the variable f (with "f" being the amount of capital invested in each trade) so that your system achieves the highest net profit (or TWR as defined by R. Vince.)

Optimal f is calculated the optimal value of f is independent of the order in which the trades take place. Changing the order or sequence of trades does not affect the final out-come. Most people think that the optimal fixed fraction is that percentage of your total stake to bet. This is absolutely false. To define how much shares you have to trade we use the next formula:


Number_of_shares = (Optimal_F * Current_Capital / starting_risk_per_unity_of_assets)/Security_Price



where starting risk = maximal loss at trade(in %).

Example:

Current Capital - 25000

Security Price - 100 (hindalco?)

Optimal f - 0.30 (it's calculated on the basis of the historical data)

Maximal Loss at trade - 50% (it's calculated on the basis of the historical data)

In this case you can buy (0.3 * 25000/0.5)/100 = 150 shares.

... Ohh God! ... No words to express thanks Rajesh Sir! ... This looks very tough to me to understand ... anyway I will try to read this 10 times to get some better understanding ...

Only few queries remaining
...
1. Can I get the values for f and Maximal Loss at trade ready-made?
2. Is the purpose of this whole exercise is to know the optimum quantity of shares one should buy according to his trading capital and scrip history?
3. Does the calculation differ in any way for day trade / swing trade/ position trade ?

... Anyway thanks again for your kind reply!

 

[rajeshn2007]

... Ohh God! ... No words to express thanks Rajesh Sir! ... This looks very tough to me to understand ... anyway I will try to read this 10 times to get some better understanding ...

Only few queries remaining
...
1. Can I get the values for f and Maximal Loss at trade ready-made?
2. Is the purpose of this whole exercise is to know the optimum quantity of shares one should buy according to his trading capital and scrip history?
3. Does the calculation differ in any way for day trade / swing trade/ position trade ?

... Anyway thanks again for your kind reply!

1. No ready made- calculate based on any system/strategy you develop.
2. yes
3. it is done for swing/position trade. Not sure with intraday strategy.

 

[priyanvada]

1. No ready made- calculate based on any system/strategy you develop.

... Huh ... looks a tough job!

 

[vijayvaliya]

I think 20-25% return is a reasonable expectation. Eventhough factors like superior scrip selection, better timing may improve this return by 5-10%.

 

[rajeshn2007]

To add to this, there is some similar survey carried out in australia, where they find equity market investors expect for a return ranging from 14-24%. with a concentration around 18%. 64% of the investors trade less than 3 times in a year, 88% trade less than 12 times a year.

Trade less for more profit !