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There are a number of ways to optimize risk to maximize average profits.
Unfortunately they only maximize the average profits and tell us nothing
about the extremes of profit and drawdown. Average profit is not the whole
story. The lowest profit that is likely to occur need to be considered
also.
The best way to find the risk level to use for money management is with a
simulation that uses past trades as data for a Monte Carlo simulation.
Using this, it is possible to find the risk level that gives best profits
under the constraint of limiting drawdown. An additional benefit of this
approach is that complete curves of profits and drawdown can be studied.
Read more about this and see examples at www.tradelabstrategies.com
Larry Sanders
sanders@xxxxxxxxxxxxxxxxxxxxxx
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