Crazy Equity Curves Continued

Continuation of this post, I also found a toy model on the forum where you can play around with position sizing and portfolio allocation between cash, etc.

One consideration I forgot to mention but was also pointed out by an astute poster was that as capital grows in your “risky” strategy, you need a mechanism to rebalance capital. Otherwise there comes a point where the capital in ‘risk’ and the position size become a large portion of the overall portfolio capital and hence you risk even larger overall Draw Down. For example, if $50,000 of a $1MM account turns into say $100,000 and you risk 100% capital, well now your position size is ~9% of your overall portfolio…

ScreenHunter_01 Nov. 12 11.17

Advertisements

~ by largecaptrader on November 12, 2009.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: