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I might also add that if one uses the trader-defined criteria
mentioned in the thread Position_size: Critieria for money-
management and Ulcer Index,
MAX % of Closed Equity to risk/trade: 0.10 = 10%, then in the example
I discussed where I trade 3 MF's, violates this criteria. So, for
sufficient diversification, I would have to invest in atleast 5 MF's,
so that the MAX % to risk/trade is not above 10%. I have not
included transaction costs in the above calculation, but transaction
costs doesn't exist atleast for the FOREX market I trade and also
liquidity is not even a consideration given the size of the market...
rgds, Pal
--- In amibroker@xxxxxxxxxxxxxxx, "palsanand" <palsanand@xxxx> wrote:
> I agree. I used stops to mean risk and position_size to mean money
> management...
>
> rgds, Pal
> --- In amibroker@xxxxxxxxxxxxxxx, Kevin243@xxxx wrote:
> > You guys are confusing "Stops" with Money Management. They
aren't
> the same
> > thing. Stops are apart of a trading system. They could be tied
to
> volatility
> > or ATR or high and lows or trailing percentages or whatever.
Money
> Management
> > is bet size operating on that trading system. You should know
that
> stops may
> > not mean anything, especially when gaps occur. Don't bet more
than
> 2%, come
> > on, are you guys are also talking about 1% slippage. I use
stops,
> but I don't
> > consider that Money Management. Money Management is how
leveraged
> my account
> > is.
> >
> > Kevin Campbell
> >
> >
> > In a message dated 12/1/03 8:42:30 PM Central Standard Time,
> > palsanand@xxxx writes:
> > Yes, I knew that. I would still not use any standing stops on
day
> of
> > entry, and use only mental stops.
> >
> > rgds, Pal
> > --- In amibroker@xxxxxxxxxxxxxxx, "Ken Close" <closeks@xxxx>
wrote:
> > > 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@x...]
> > > 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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