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Jean Jacques,
I can appreciate the use of stops, it's just that whenever we've used them,
they have cost us money. That's why we went over to visual stops. I have
found with stops and commodities, they are almost useless. Take those
multiple limit days when the market is running against you. Your stops
invariably take you out near the absolute top or absolute bottom. In that
instance, I don't consider those stops to be a safety net at all. In fact,
I consider it to be terrible trading. If you're not working with multiple
limit days in one direction or the other, you can always get out. Oh yes, I
forgot to mention, we never trade a thin market. Ever! Learned that lesson
years ago trading eggs, hides and bellies. Then you're just asking for
trouble.
Whenever faced with multiple limit days, we have waited for a pull back to
exit the trade. Thankfully, we haven't seen that in years, since we're only
trading S&P futures and have never seen the day when we couldn't exit the
market if we had wished to. Additionally, we try to trade with adequate
capital reserves, so as not to put ourselves in that sort of predicament of
having to exit a trade due to a margin call. Since this is a secondary
business for my brother and myself, and we don't use it to live on, we're
better able to weather these draw downs with a little less emotional
involvement. Again, it's a moot point in my opinion, but again that's what
makes trading so much fun and why we can be on opposite sides of a trade and
each make money.
In terms of our equity trading, our approach is to try to balance our
portfolio so as not to have all of our eggs in any one basket. On our last
long position (executed 6-23-00, I believe), we bought 28 different stocks
in various industries, trading a like dollar amount of each (unless the
stock was selling for more than $100 a share, then we bought just 100 shares
regardless of price). While a few went against us, eventually a bunch went
our way. I guess you could say we were trading a mini-fund and trying to
spread our risk over the entire trade. We did have about 20 options each
that went up and down but eventually finished in our direction as well.
Since we're trading basically in the direction of our S&P futures signal,
we've done fairly well since our signal has been right a lot. We're
currently on a losing trade, but again we don't look at intermediate
results, other than to commiserate with each other when it goes against us.
:)
Guy
Paranoia...you only have to be right once to make it all worthwhile!
-----Original Message-----
From: owner-metastock@xxxxxxxxxxxxx [mailto:owner-metastock@xxxxxxxxxxxxx]On
Behalf Of Macromnt@xxxxxxx
Sent: Wednesday, July 12, 2000 4:21 AM
To: metastock@xxxxxxxxxxxxx
Subject: Re: Risk of ruin, amount per trade formula?
Guy,
About the stops, it is my almost 30 years experience that you can put NO
STOPS at all. There may happen a completely unforeseen event that will
triger
a huge move and you need a sfety net. It does not mean that stops should be
used as a normal way to get out of a position. Your stops may ne very far
(and in such a case your position shouls be reduced accordingly) and never
get hit. But they are there just in case.
As for the initial margin, teh exchanges take into consideration the
volatility to ask for the initial margin. In fact taking into consideration
the initial margin as a mesure of the risk, you are indirectly taking into
consideration the volatility, which makes sens . But you can not really rely
on the exchange for that because they have their own policy which does not
take into account exclusively the volatilty into account. I have seen
initial
margin raise from 3 or 4 % of the contract's value to % of the contract
value. That's a big risk!
Jean Jacques
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