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I think the texts that recommend risking 2% per trade are recommending that
as a guideline for discretionary trading and for beginning discretionary
trading at that. After you've survived as a discretionary trader for a
while, you should have a better idea of how much you can comfortably risk.
Since Guy has a system which a couple of years of data, he can compute an
expected return (with a certain amount of error) and he has a good idea of
how successful any given trade will be. With this information, he can
compute his "risk of ruin" (with a certain amount of error) and size his
bets so that he maximizes gain with a "risk of ruin" that he is comfortable
with.
Kent
-----Original Message-----
From: Sonnysark@xxxxxxx <Sonnysark@xxxxxxx>
To: metastock@xxxxxxxxxxxxx <metastock@xxxxxxxxxxxxx>
Date: Tuesday, July 11, 2000 2:28 AM
Subject: Risk of Ruin
Guy,
1) If I understand you correctly you are risking 33% of your portfolio
balance in any signal position. Most of the reading I've done on money
management calls for using anywhere from 2% to 10% of ones account in any
signal position. I know you stated that you use to use 50% of your account
and discovered that your system did better when using 33% of your account on
any signal trade. I was wondering if you have tested any of the lower
figures such as 10% with your system? And if so how were your results in
comparison to 33%?
2) Would someone post the mathematical formula for figuring out the
profit/lost ratio for a system. I haven't used it for a while and haven't
been able to find it. Thanks to all.
Happy Trading,
-Sonny-
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