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<SPAN
class=510514119-05022003>Al,
<SPAN
class=510514119-05022003>
My
answer in blue in your text ...
<SPAN
class=510514119-05022003>
Best
regards.
<FONT face=Arial
color=#0000ff size=2>Regarding your comment about explosion of
volatility at the moment of entry, this could have 2 consequences: (1) the
price goes in your favor, or (2) it goes against you. If it goes in your
favor, I think you would agree you'd love it. If it's against you, you'll have
a max stoploss in place anyway, so even if it shoots beyond your stoploss, in
all likelihood you will get out with still a minor loss (albeit larger than
you had planned).<FONT face=Arial
color=#0000ff size=2>[Jérôme
ULRICH] -------------------------------------------------------------------------------------
The
issue is not with the direction of prices after your entry, but with the level
of your risk. With the same stop level, your loose twice as much if your
position size is twice as large. The mathematical expectency of your position
is the same whatever the position size, but the risk is not. On the long run,
your average exposition will be OK, but you must be aware that you handle more
risk in certain positions than with others. And with volatility explosion, you
will handle your biggest positions when the risk of your stop being gaped down
is also the highest. The best counsel I would give you is to actually trade it
with real money. You'll make your own experiences ... as I did my painfull
ones ;-).
<FONT face=Arial color=#0000ff
size=2>--------------------------------------------------------------------------------------------------------------
I don't believe this is a big
enough problem to worry that much about. Maybe I'm wrong. I am a believer in
volatility-based position-sizing, and many people do it successfully. There
are risks in everything we do in this business. This is one risk I guess I'm
willing to take until experience tells me otherwise. Thanks for the
warning.<FONT face=Arial color=#0000ff
size=2>[Jérôme
ULRICH] ------------------------------------------------------------------------------------
<FONT face=Arial color=#0000ff
size=2>Volatility based position-sizing is actually a good algorythm.
But I think it is much more adapted if you trade several
products trading at different volatility levels. I would certainly use
such an algorythm if I traded that way. The people that popularised this
approach typicaly trade a basket of different products (mainly
commodities for those I know). If you are a mono-product trader, as I am, the
concept is much less attractive. I prefer a fixed percentage model in
that case, with the percentage amount chosen from equity
simulations so that my objectives in term of return and drawdowns are
met.
<FONT face=Arial color=#0000ff
size=2>---------------------------------------------------------------------------------------------------------------
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