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Money management with optimal stopping of losses for maximizing the returns of futures trading

Author

Listed:
  • Lundström, Christian

    (Department of Economics, Umeå School of Business and Economics)

Abstract

By using money management, an investor may determine the optimal leverage factor to apply on each trade, for maximizing the profitability of investing. Research suggests that the stopping of losses may increase the profitability of a trading strategy when returns follow momentum. This paper contributes to the literature by proposing the first money management criterion that incorporates optimal stopping of losses. In an empirical trading study, we are able to substantially improve the profitability when using this criterion, relative to the existing criteria. We conclude that money management should incorporate stopping of losses when returns follow momentum.

Suggested Citation

  • Lundström, Christian, 2014. "Money management with optimal stopping of losses for maximizing the returns of futures trading," Umeå Economic Studies 884, Umeå University, Department of Economics.
    • Handle: RePEc:hhs:umnees:0884
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    More about this item

    Keywords

    Kelly criterion; Vince optimal f; Leverage; Position size; Commodity trading advisor; Managed futures hedge funds;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G19 - Financial Economics - - General Financial Markets - - - Other

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