OK, I think I get it. The calcs aren't done once per account balance value - each calc is done independently before it's action is taken.

So bottom line I have to choose - either take the $586 and party, leaving M/R as is; or put the party off until later and increase M/R to whatever Tests CR = $1.414. Correct?

Also the 2nd point: Per prior thread, if capital is removed any withdrawals done prior are pro-rata'd, since part of those withdrawals relates to capital no longer present. Also correct?

Thanks.

Yes, anything you withdraw is not available anymore for increasing the margin.

You need not make a difference between current and prior withdrawals when using the posted formulae. "W" means the total withdrawal, i.e. the sum of all your withdrawals since the first start.

Thanks jcl. So what you're saying is that a W in excess of (Capital+Profits)-Must_Remain is a reduction of Capital and M/R must be reset? I'll ponder that over the weekend...

Thanks.

Hi jcl. I've looked over the official formulas. Here's an example:



Rather than Balance=C+P-W, I'm using P=Balance-C+W, since Balance is directly available from the account. Available for Reinvestment is calculated after any Withdrawal (including negative = Capital add) is done. To make the New Margin math simple, I'm using original Margin = 1% of C.

The only time New Margin is not calculated is if the Available for Withdrawal is <=0 and no Withdrawal is done. This would mean the strategy is in a (hopefully temporary ) underperforming phase, no changes are being made, and just let it ride...

Do these numbers look correct? One of my main discomforts is reflected in the first 2 lines. In the 1st line, the account is up, no Withdrawal is done, so the earnings are reinvested by increasing to the New Margin. On the second line, the account Balance is the same so according to the official formulas the Available to Withdraw is the same since none of C, P, W, or Balance have changed. However, I've increased Margin due to reinvestment - shouldn't the Available to Withdraw be smaller to reflect this and prevent the account going margin call due to open trades entered using the increased Margin?

In the absence of Withdrawals, can the Margin be raised whenever a new Balance high occurs?

Thanks.

The numbers look correct, except that you should not withdraw more than the "available" value. The margin can be raised when the "Av.rei" value is above 4000.

Thanks jcl.

Sorry to beat this dead horse, but I want to give it one more try:

Per the official formulas, the New Margin automatically adjusts based on the Withdrawals that have been done, so any new trades would be OK if too much is Withdrawn since the New Margin has lowered to reflect the lowered Capital. Therefore, the reason for not exceeding the Available to Withdraw value must have to do with previously entered trades - they would become too big relative to that new, lower Margin and Capital. Correct?

If so, doesn't the same apply in the first 2 lines above? To blow the example up a little further, assume the Balance has been growing, I've not Withdrawn anything, I've been raising Margin per the formulas, bigger trades have been entered, and the Balance is now $16k and with open trades netting to -$10k currently. The account still has a $6k cushion before blowing up (more than the $4k cushion it started with, actually). The open trades don't affect the calculations above, so my Must Remain is $8k and my Available to Withdraw is $8k. It doesn't make sense to me that this $8k is correct, since all the trades that have been entered since I started raising Margin are bigger than the trades the original $4k would have supported. Doesn't Must Remain need to be bigger and Available to Withdraw smaller to prevent these larger trades blowing up the account?

Thanks.

The reason of not withdrawing more than available is the way the formula calculates the expected drawdown. The drawdown grows with the square root of number of trades, while the profit grows linear with the number of trades. Thus we're using the profit as a proxy of number of trades in the formula, just for simplicity's sake. But this assumption is violated when you increase the margin for reinvesting, as the profit then increases with a higher exponent. It's also violated for the same reason when you decrease the margin by withdrawing too much. In the former case the formula errs on the side of caution, in the latter case it errs on the side of risk. That's why you can withdraw less, but should not withdraw more than what's available.

Thanks for the detailed explanation, jcl! I think it's finally sunk in.

So in other words, reinvestment (including adding additional Capital) is a really good thing. Not only does it make the account grow faster, it also reduces the risk.

What's the relative benefit of this risk reduction? Are the other risks much larger and this benefit is insignificant by comparison, so just withdraw and party? Or is this particular risk reduction a significant benefit and funds should be reinvested whenever not needed to be withdrawn?

Thanks!

Also, to reconfirm what might now be obvious, when a new version of Zorro is released or an account is changed from one strategy to another (f.i., from Z1 to Z12), the procedure is:

a) Test the new or new version strategy to find the Margin setting that gives the same Capital Required as originally started with.
b) Replace the original Margin in the formulas with this new Margin setting.
c) Run the formulas as normal. Using the new Margin appropriate for the new or new version strategy will give the correct, updated Margin given the Balance and Withdrawals.

Correct?

Thanks.

Yes. When updating a Z strategy, the new setting of the Margin slider would be M = Ma * Av.rei/C, where Ma is the setting from step a).