Optimum risk level determination

[Dirk DC]

David,

Is there a way through TradeSim Monte Carlo testing to determine the optimum initial risk level (in % of Core Equity Balance) for a given max. drawdown and/or a given target return ?
The recommended initial %risk level lies between 0.5% and 3% of CEB (= consensus range from various sources). However some of the more sofisticated trading systems show quite a high Avwin/Avloss ratio (i.e. >5) and a high Return/drawdown ratio (i.e. >4). In my opinion these systems should be able to handle more initial risk than others. With capital preservation as #1 in mind, there is always a feeling that by just selecting a conservative initial risk % value, one makes excellent trading systems underperform.

cheers,
Dirk

[David Samborsky]

This is where a Money Management optimizer would be useful where you would step through a range of values and do a Monte Carlo analysis for each set. It would take some time depending on how many steps and how many iterations in each MonteCarlo analysis.

[Dirk DC]

David,

Thanks for the reply.
The link with a Money Management or Risk Optimizer is maybe an idea for one of the future versions of TradeSim.

cheers,
Dirk