~Russian Bear’Z Blog~

Method Fixed Ratio developed by Ryan Jones, means that the ratio of number traded contracts, to an increment of the capital, should be to constants. It is the basic concept of a method! Thus, at use of a method, risks increase only due to the received profit, allowing effectively reinvestment the earned profit.

Such approach, first of all, is interesting to aggressive speculators who use buy-power and perform inreaday trading on sevral stocks.
This method has been modified and generalized up to a portfolio which is presented in Fixed Ratio Calculator.

How to use the calculator? First it is necessary to initialize initial data on which the method leans:

1. init asset – a seed capital. This value remains to constants during all time work of a method and never change.
2. leverage – a leverage of your broker
3. DD – maximal drawdown in percentage which you are ready to suffer on a portfolio.
4. ticker – the stock’s name.
5. price – the current price of stock, may be change a few.
6. dd– drawdown used strategy for a year, or critical stop-loss, may be change a few, in points.
7. shares – number of shares in conreact specification.
8. part – a portion of stock of money eauation in a portfolio, in percentage.

Continuation:

After that press the button “initialize”. On the screen appear:

1. base – the base capital, the minimal sum necessary for operations with this portfolio.
2. current leverage – actual a leverage which uses a method.

The filled values are kept in a browser at you on a computer. Then only field Asset and after that press “calculate” is filled – the calculator fills all values of a field:

1. lots – quantity of contracts with which it is possible to open a position.
2. limit – the all limit of the open positions.

Than you can use button “calculate” and change:

1. asset – current capital.

I shall be glad if the calculator will benefit someone.

Let’s write down in the equation the basic concept of a method:

nd = E_n – E_n-1, or
E_n= E₁ + n(n – 1)d/2

Solving it we shall find n:

n = 1/2 +√	2(En – E1)/d + 0.25

If to adhere to the formula it is necessary to begin trade always with one contract that can mismatch a real state of affairs. What to define n for a seed capital, we shall find such base capital B=E₁, at which for any n: mn/l ≤ E_n, where m and l is cost of actions and a leverage. Then we shall define a point of a contact n^*, in which the extremum of function E_n – mn/l. Through derivation find:

n^*= m/(dl),

Substituting above, we shall receive:

B+n^*2d/2 = (m/l)²/d,

from what:

B =	(m/l)2 2d

Thus we at once start to trade with m/(dl) contracts and thus the seed capital should be more (m/l)²/d