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Pal, thanks, interesting calculations. I assume you realize MFs trade
only at the close and "showing your hand" is not an issue. The only
real issue is trading too frequently and getting penalized and/or banned
from trading the fund in the future. I assume you know this.
Thanks again,
Ken
-----Original Message-----
From: palsanand [mailto:palsanand@xxxxxxxxx]
Sent: Monday, December 01, 2003 8:27 PM
To: amibroker@xxxxxxxxxxxxxxx
Subject: [amibroker] Re: Mutual Fund Money Management
Assuming your usable_margin is the same as the total equity when you
start your trading, ie., $50,000.00, the
AVAILABLE_EQUITY(AE) = 0.1 * USABLE_MARGIN (UM);
available_equity = 0.1 * 50000.00 = $5000.00;
If you determine your Max_System_%_DD or Max_Trade_%_DD using AB Back
testing or MCS as 20% = 0.2
POSITION_SIZE (PS) = AE / MAX_DRAWDOWN_% = 0.1 * UM / 0.2 = 0.5 * UM
Position_Size = 0.1 * $50,000.00/0.2 = $25,000.00
If you want to trade 3 MF's, then you would invest $8,333.00 per MF.
Enter at opening range and/or at support/resistance depending on
where the current price is at. This automatically takes care of the
volatility. Mental Stops on day of trade at 1 full point away from
entry. Never reveal your positions. Exit after 20 minutes only if
your mental stop is hit and you are still losing. Never show your
stop on day of entry as this is equivalent to showing your hand in a
poker game and the specialist's would view that with glee. Use a
3BSMA stop from next session onwards.
rgds, Pal
--- In amibroker@xxxxxxxxxxxxxxx, "Ken Close" <closeks@xxxx> wrote:
> Excuse me for asking a potentially dumb question, but what are some
> "accepted" rules of thumb for money management AFA mutual funds are
> concerned.
>
> I can see that you might risk say 2%, on a position, and know what
your
> stop loss would be, and then divide the price per share of the fund
by
> the loss level to approximate the number of shares to buy.
>
> But what about some of the other rules of thumb, like do not risk
more
> than 3% of total equity on a position. Or does this apply to the
stop
> loss? Seems like 3% might be a small (too small?) amount for a
mutual
> fund position. I do not know. It depends on the size of your
portfolio
> of course. What if you have a $20,000 portfolio? What if you have
a
> $2,000,000 portfolio. A $60,000 MF purchase out of a $2M portfolio
does
> not "seem" to be the right "proportion", or is it?
>
> Also, what about the inherent volatility reduction that occurs with
the
> multiple stocks in a fund?
>
> What about the number of funds to own at a single time? How would
you
> go about figuring this out, given high correlation among the funds?
> ....or given low correlation among the funds?
>
> Is it better to divide a given amount (say $100K) among two similar
> funds ($50K each) ,or is it better to plunk the entire amount into
the
> one fund? Would you increase the number of different funds given
> increasing size of total portfolio funds?
>
> Again, maybe a whole series of dumb questions but what do some of
you
> more experienced money management folks have to say for this?
>
> Thanks,
>
> Ken
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