Money Management Principles for Mechanical Traders

Money Management Principles for Mechanical Traders

Shlok Datye Royal Institute of Technology

Stockholm, Sweden November 2012

Abstract

In his five books during 1990?2009, starting with Portfolio Management Formulas, Ralph Vince made accessible to mechanical traders with limited background in mathematics various important concepts in the field of money management. During this process, he coined and popularized the terms "optimal f " and "leverage space trading model."

This thesis provides a sound mathematical understanding of these concepts, and adds various extensions and insights of its own. It also provides practical examples of how mechanical traders can use these concepts to their advantage. Although beneficial to all mechanical traders, the examples involve trading futures contracts, and practical details such as the back-adjustment of futures prices are provided along the way.

Website

The author intends to maintain a companion website for this thesis at , through which he can be contacted, and where additional material such as errata and further research can be found. However, he makes no guarantees to this effect.

Acknowledgments

I thank Filip Lindskog for the outstanding supervision that he provided me with during the creation of this thesis.

I dedicate this thesis to my parents and brother

Shlok Datye

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