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# how much leverage- who knows confidence intervals?

Discussion in 'Risk Management' started by dumb_mother, Jan 12, 2010.

1. ### dumb_mother

i was analyzing my track record in trading and trying to figure out what amount of leverage i should be using, so i started to do some statistics on my track record, but i was never so hot with confidence intervals.

what i'm wondering is if you could help me figure out X- what % of my account i should risk each day if i'd like a 95% chance of not losing 50% of my account over the next 2 years.

over the past 4 years i would have a track record of an average of +1.61X / month with a sd of 2.63 over the 48 months. each of the 4 years had the following numbers individually 1(.98X/2.10) 2(1.74X/1.99) 3(2.79X/2.24) 4(-.06X/2.77).

what is the equation for risk of ruin over N periods? all i could find were forever

Then think about it the other way: what X % should you risk so the probability of losing 50% of C in the next N years is <0.05?

The answer is known and it is 0%.

3. ### OTCkrak

what instrument? what type of trading?

4. ### dumb_mother

neither of those petrtain to my question- but i trade yield curve

interesting....how do you manage basis risk?

6. ### dumb_mother

i trade value at risk - risk management and if you refer to the first post you'll see the question i'm asking.

7. ### Alexis

Hi,

Why don't you use your historical drawdown?

8. ### dumb_mother

well my largest historical drawdown is -7x but i'm not just using that as my bankroll, gotta be a bit safer than that

9. ### Logic

Read up on Optimal F and Secure F. That might give you some leads on how to structure your position sizing.