RATE OF DECREASE

It has been the standard view that at whatever rate capital allocationis increased, capital allocation will be decreased at the same rate. Ifthe account increases the risk at every $10,000 level of the account,those same levels will be used to decrease the allocation. If contractsare increased from 10 to 11 at $100,000 in capital, they will also bedecreased from 11 to 10 below the $100,000 level.Ways to decrease that risk were the first things I started to lookat after concluding that fixed fractional trading is too risky. As a result,I developed a strategy which is simply called Rate of Decrease.Basically, the Rate of Decrease is made independent of the rate of increase.Therefore, the levels at which risk is increased will not necessarilybe the levels at which the same decreases in risk will occur.There are two basic functions of the Rate-of-Decrease strategy:profit protection and geometric growth enhancement. Maybe a betterterm for it would be asymmetrical leverage abandonment. In anycase, this chapter thoroughly explains both functions. You will seethat as a general rule you cannot have your cake and eat it too withthis strategy. The decision on what type of risk decrease to use isbased either on the goal of protecting profits or increasing the efficiencyof geometric growth.