Don't forget this case:

5) Person A blackmails person B's aunt for her $1200 trading returns, but is robbed by person C's nephew and loses $1000. Should person A invest the remaining $200 in Z9 or better in Z3, the square root of Z9?

Lovely test!
1) 1200
2) 1200
3) (trading capital of person B) + (square root of profit) + 1200. The situation is similar to fund with extra money your trading. Its not reinvesting
4) as point 3)
5) totally lost...

Thanks for the bit of humor, jcl!

But in the interest of any who read this thread later, I think it'd be good for you to explicitly state if the square root rule's trading time follows the Initial Capital, or each individual trader.

I.e., can one get around the square root rule by moving the funds/account around amongst relatives, friends, etc.? Or no matter how many traders/friends/relatives are involved the total trading time of the Initial Capital is what matters?

And in the case where Initial Capital isn't known, be very conservative!?

Thanks.

P.S. - @MatPed, or is it:

1) $1000
2) $1000
3) ?
4) ?

For example, if the $1200 came from, say, wages, then it's clearly the starting point. But if it came from any trading at all, is it "encumbered" with "baggage" and a smaller value must be used for Initial Capital?!

Ddlv,
we had already a similar discussion, I can not add much from what I already said. I do not understand why you make the SR rule so complicated, its easy.

1) You have a starting capital calculated from the needed capital for a TS
2) If you profit you should reinvest accordingly with SR rule.
3) If you add capital is like to start a separate TS so you do not need to reinvest using the SR rule.

Where you get the money to start trading is not relevant because you are at starting point.
You can have a margin call with your first trade if you are very unlucky. At the same time you can double your capital with the first trade using a fraction of the estimated needed capital, if you lucky.
If you survive in the market and you are profitable reinvest using the SR rule.

If you do not like my approach, use the most conservative condition you are confident with. You will be on the safe-side, maybe scarifying some profit, but in the long run it will not create much problem.

Ciao

Hi MatPed. If you're telling me I have a think head, you're in good company!

Just trying to understand...

What you've described is that the square root rule's Initial Capital is per trader.

So, an even simpler example:

Uncle J has been investing for decades and has grown his $1000 to $50000.

For Uncle J to safely continue investing, he should reinvest per the square root rule, and move his Margin slider accordingly.

But, lamentably, Uncle J passes away. As his sole heir, the $50000 becomes yours. And you can therefore begin investing it as the whole $50000 without regard to any history or square root rule, correct?

In fact, you can just have the name on the existing account changed to yours and run that Margin slider right up, waving at the square root rule as you go by, correct?

All just because the trader's name changed, correct?

Thanks.

hI DdlV I du not fully understand your first sentence anyway, I do not understand the distinction between the SR rule for Trader or for trading system.
This is what I do, without thinking too much, I guess...
I test the TS A and the results is that the required capital is 1.000€. i start the TS with 1.000€. The profit of the TS A will be reinvested accordingly with SR rule.

Then I test the TS B and the required capital is 1500€ I start the TS B with 1500€
The profit of the TS B will be reinvested accordingly with SR rule.

I treat the two TS as totally separated, I do not make any other consideration: one TS, one Capital required, one SR rule calculation for each of them.

Easy and simple. Ciao

MatPed,c'mon:-)
Change this to :
What do you use as base capital for TS B in your new account? And why/what are the calcs?

"SR rule" is quite a rough one. You will understand this once you try to re-create the specific calculations behind it.

The paper referenced by jcl states that the risk of a system ( a continuing sequence of bets) increases with time (regardless if smbdy actually trades it or not).

IMHO, Z systems should be implementing a corresponding "dampening" factor on trade size according to the continuously accumulating statistics - under the hood.

This would practically mean that if you start trading with 10K one year ago and today - the system would use different base trade sizes.

Hi Zheka, English is not my mother language and sometime I can not get the subtle meanings of some post. Trust me or not, but it is as it is.
I agree with you: "SR rule" is quite a rough one. This is why I do not invest too much time in evaluating several subtle situations. My idea is that I should stop a trade system way before a margin call thanks to tools like CBI or Equity trading. I use the SR rule only to be sure I am not reinvesting too much. If I stop a system and restart it after 2 months I consider it as a brand new one. Right or wrong is how I use the SR rule. But you can cut the reinvest profit by 10 (just an example) if you think that the standard rule is too much or do not reinvest at all and accumulate your profits...

In this case you do not really use it.

Without why and how such bare POV does not help us answer the question.

Well, I am using it, but you already answered to your point: "a continuing sequence of bets" if you stops for 1-2 months is not "continuing", so I treat it as a brand new start.
I have 1-2 more months of data. I have used that data for back-test and any "large dd" have been already taken into consideration and reflected in the initial capital.