What you do with your profits does not affect the performance parameters of a strategy.

But for the reasons mentioned in the manual, don't remove all your profit. Keep the square root of your capital growth. F.i. when your capital doubles, remove only 60% of your profit, and let 140% of the initial capital stay on the account. 140% = square root of 2.

Thanks jcl.

However, your statements are contradictory. Clearly what I do with the profits affects the performance of the strategy if I remove more than the square root of the capital growth.

But, I actually don't follow what you're saying. The manual talks about the square root in terms of reinvesting profits, and says the Z strategies don't. Why, then, for a Z strategy or any strategy which doesn't reinvest, can't 100% of the profits be removed?

Also, if it's the other way around and the square root thing applies to removing profits in non-reinvesting strategies, then the Monthly Income displayed by the Performance Report is not correct, is it? Since only 60% of that amount is available to be removed...

By removing the excess of the square root requirement, are we not opening up the system for a future margin call event?

Yes. It does not matter for the square root rule what you do with the profit: If you use it for reinvesting or remove it from the account has the same consequences for the same reason. Your non-reinvested capital must rise at least with the square root of time for keeping pace with the rising drawdown expectancy.

This is important for trading and should be understood, otherwise you're living risky even with a profitable system.

"square root of TIME"? (emphasis added) Now I'm even more confused... Please confirm that's some kind of typo...

Please also bear with some baby steps:

a) Is it true that the square root rule applies to all strategies whether they reinvest profits or not?

b) Is the application of the square root rule different for a strategy that reinvests profits vs. one that does not? (I.e., for the former does more Capital need to remain?)

c) I assume the square root rule is referencing the CR from the Performance Report, correct? (I.e., regardless of what additional Capital one may wish to add as a safety margin.)

d) The exact formula is Cmustremain = max(CR, CR + 1.414 * (AccountBalance - CR))? Or is it Cmustremain = max(CR, sqrt(AccountBalance/CR) * CR)?

e) When profits are reinvested this creates a new CR but the above formula sill applies? Even though the reinvestment happens at a later time?

f) Again, if these profits are not available to be removed without jeopardizing the strategy, then how can they be included in any Income figures? IOW, the Income figures on the Performance Report are all 40% too high?

g) What happens when I stop Trading, close all trades, and restart Trading? Does this accomplish a reset of the strategy and it is safe to withdraw all profits > CR before the restart?

Thanks.

a) yes b) yes c) yes d) neither, it's CR*sqrt((CR+Profit)/CR) e) yes f) no g) no.

Some feeling tells me that the answers won't help either and you have now questions h) to z). But it makes not much sense that you try to learn a formula what to withdraw in which situation. You must understand the _reason_.

Look in the manual about money management - there is everything explained. I've also added an example for withdrawing. http://manual.zorro-trader.com/kelly.htm

Thanks jcl.

d) Then in AccountBalance terms, the formula is Cmustremain = CR * sqrt((max(CR, AccountBalance) / CR)?

e) Is CRnew = CR + ReinvestedProfits?

f) I'm really not understanding something here. If the Performance Report shows Monthly Income of $100 and I remove $100 every month, haven't I violated the square root rule?

g) Why not? How does the restarted strategy know whether it was run before or not? Or if it was run more than once before?

Thanks.

No, it's CR+profit, not AccountBalance. Naturally, the account balance is smaller when you withdraw profits.

The answer to f) is yes and to g) that the God of statistics knows everything. You cannot deceive him by pretenting you just started the system the first time .

It is the trading time that matters. How often you restart the system is irrelevant.

Thanks jcl.

d) Ah, I see. It's based on running total profit since strategy start, irrespective or withdrawals, not incremental profit since the last withdrawal.

f) Then something's wrong, at least with the word choices. If it's only partially available to me, then only that part of it is Income. Put another way, if the posted figures are the Income I want from the CR invested, then to support that the Return/Profit must be way higher.

g) Still struggling with understanding this. Say 3 years ago I ran a strategy, made some profits, and withdrew them. At the time I stopped 3 years ago Cmustremain = 2 * CR. Now 3 years later I want to run it again. I run a WFO and lo and behold the CR is the same CR as originally Tested over 3 years ago. GODstatistics really knows I ran it before and now requires 2 * CR and will margin call me for restarting with only CR? Can you point me to a link that specifically describes how this works?

Thanks.

Hi jcl,

2 other questions:

1) (Variation of the last question:) For any run of a strategy, how does GODstatistics decide if it's the 1st time I'm running it and to treat me right, or that I've run it before and to margin call me? Would appreciate a reference link to help sort this out...

2) How is all this different for Z4/5?

Thanks.