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Thanks for the reply.
I guess you're right. I think of myself as 150% invested if I buy $150,000
of stock with only $100,000, and at risk for only the amount above my stops,
but that may be a problem for me, as I realize it's a lower limit on my
risk.
But I made a mistake in my example, so let me try to fix it.
1) If you took on 25 positions at once, you would be risking 25*2%=50% of
your portfolio. I meant this to show the risk is not small. I like to
buy/own stocks, so I risk more like .5% on each.
2) Say you have $100,000, so you want to risk 2% of that, or $2000 on each
position. To buy a stock at 100 with a sell stop at 90 (10% risk on the
stock) will let you buy $2000/($10/share) = 200 shares. You have to invest
200*$100 = $20,000 in this stock, which is 20% or your $100,000. To buy 25
such stocks means investing 25*$20,000 = $500,000 or 500% of what you have.
(I was wrong about 250%.) I meant this to say buying so many stocks would
probably require margin, after all. In fact, you can't be so margined on
stocks, can you? If your risk on each stock is higher, then you buy less,
and you don't have to go as much on margin.
For myself, risking .5% on each lets me buy 25 stocks with total initial
risk of around 12.5%, and lets me be between 100% and 200% "invested"/at
risk. (I'm not sure how to say it in terms of margin, is that 0% to 50%
margined?)
Mike
----- Original Message -----
From: "Lionel Issen" <lissen@xxxxxxxxx>
To: <metastock@xxxxxxxxxxxxx>
Sent: Friday, July 14, 2000 7:19 AM
Subject: Re: Gap risk = critical?
Mike:
Please clarify your terminology. In item 2) below, "you'd be 250%
invested". Don't you mean 250% at risk. You can be only 100% invested. By
leveraging and risk factors, you can be at risk for more than 100% of your
investment.
Lionel Issen
lissen@xxxxxxxxx
----- Original Message -----
From: Mike Lucero <mikelu@xxxxxxxxxxxxx>
To: <metastock@xxxxxxxxxxxxx>
Sent: Thursday, July 13, 2000 9:32 PM
Subject: Re: Gap risk = critical?
>
> 1) If you took on 25 positions at once, you would be risking 25*2%=50% of
> your portfolio.
> 2) Say your risk on an average stock was 10%, you'd be 250% invested.
>
> I do similar calculations to normalize the initial risk in each stock, and
> keep an eye on total initial risk, but after a stock takes off, I lose my
> risk control. I use a trailing 10-12 day low stop, but that can be a
pretty
> big drop at the end of a stock's run. I also try to follow M (William
> O'neill's Market) but do a poor job of getting out in a timely fashion.
>
> Mike
> ----- Original Message -----
> From: "Gitanshu Buch" <OnWingsOfEagles@xxxxxxxxxxxxx>
> To: <metastock@xxxxxxxxxxxxx>
> Sent: Thursday, July 13, 2000 2:21 PM
> Subject: RE: Gap risk = critical?
>
>
> >there is more of a "right" answer for
> >each individual according to his trading style and situation.
>
> we understand each other, then !
>
> > So FOR ME setting my risk as a
> >% of my total protfolio makes sense since I need to remain in the game
long
> >enough for statistics allow me to make money.
>
> clear
>
> >My plan is this. I use a momentum system to get me into the trade,
> >calculate the total dollars that I risk on the trade based at 2% of my
> TOTAL
> >portfolio, then set the stop based on a % of the entry price according to
> >the volitility of the stock I am trading and then use the math to
> >determine the # of shares to buy.
>
> So you could have 25 simultaneous positions with 50% cash without really
> risking much and on zero margin. Sounds good...
>
> I think all your earlier emails fall into place, given this data.
>
> Thanks for clarifying, you seem to know your stuff !
>
> Gitanshu
>
>
>
>
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