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Guy,
I kind of agree with Glen, although I've not much experience with futures
(Stocks). Futures can go below 0, so if your using mental stops it is
always possible that something unexpected can happen thus going way below
your average loss and this can make your risk of ruin incorrect.
B.T.W what books are you referring to is it Larry Williams, Thorpe ?
Although I don't know your Avg Win/Avg Loss and this can be bigger than you
expect because no stops, I believe having invested 30% of capital in futures
contracts with an system of 75% profitability is a conservative action. But
for a 75% prof system and having an Avg win/Avg loss of 2, you should have
63% of capital behind each trade.
And because you have such a great number of profitability, did you know that
every time you have a losing trade the odds of your next trade goes up.
70% prof - after 2 consec losing trades - probability next trade will be a
winner is 91%
70% prof - after 3 consec losing trades - probability next trade will be a
winner is 97%
70% prof - after 4 consec losing trades - probability next trade will be a
winner is 99%
This is just something to think about and can be taken to your advantage, in
order to recoup from your draw downs.
Is it to rude if I ask you what style your system is based on.
Greetings
Mickey
> -----Original Message-----
> From: owner-metastock@xxxxxxxxxxxxx
> [mailto:owner-metastock@xxxxxxxxxxxxx]On Behalf Of Guy Tann
> Sent: donderdag 13 april 2000 6:39
> To: metastock@xxxxxxxxxxxxx
> Subject: RE: Money Management Stops
>
>
> Hi Glen
>
> In actuality, we start to get nervous when the loss reaches
> 80+ points.
> It's fairly rare that this happens, but it does. In our
> research, we've
> found that once we lose 80 points, we rarely ever come back
> to a profitable
> position. We have tested this system back 18 years and it
> consistently runs
> an average of 75% correct. We have traded it off and on for
> 18 years as
> well. Without money management, we would routinely go broke
> annually, take
> a few months off to save a few dollars and start over. We would
> consistently go broke just about every year. :) Since we have begun
> managing our money, we have consistently moved ahead, even in
> the face of a
> major loss or two. The past 6 months being fairly unusual in
> that we had 2
> major losses, as it's usually one a year (just wish we knew
> which one).
>
> Anyway, that's why we feel fairly secure trading our system. Once we
> instituted the money management aspect, we started to move
> ahead even with a
> couple of big losses. All we can do is play probabilities and not get
> greedy. And yes, we might be overtrading at 1/3 of capital,
> but we feel
> much safer trading at 10% and a 18 year history of trading
> (mistakes and
> all). :)
>
> What do you think might happen to CFW???
>
> Guy
>
>
> -----Original Message-----
> From: owner-metastock@xxxxxxxxxxxxx
> [mailto:owner-metastock@xxxxxxxxxxxxx]On
> Behalf Of Glen Wallace
> Sent: Wednesday, April 12, 2000 7:12 PM
> To: MetaStock listserver
> Subject: Re: Money Management Stops
>
> Sorry to butt in here ... Guy, if you are not limiting your
> losses in some
> manner, then I would suggest your risk of ruin cannot be as
> reliably low as
> you've calculated. This is because your calculations are
> based on typical
> losses, and not the catastrophic losses you are exposed to.
> Although you
> may
> have included large past losses in your data, your position
> sizing might not
> take the potential catastrophic losses into account, and you
> could still be
> overtrading your capital.
>
> I'm not suggesting you hobble a good system with tight stops,
> just that in
> reality your risk of ruin is probably a lot higher than you
> have calculated.
>
> Hey, and watch the paranoia wisecracks. I just know people
> are talking
> about me already ;)
>
>
> ----- Original Message -----
> From: "Guy Tann" <grt@xxxxxxxxxxxx>
> To: <metastock@xxxxxxxxxxxxx>
> Sent: Wednesday, April 12, 2000 5:57 PM
> Subject: RE: Money Management Stops
>
> > Chuck
> >
> > I'm probably the paranoid one here (that's why Glen and I
> keep meeting in
> > our paranoid newsgroup), but I've been trading for a long time and
> probably
> > remember too much ancient history. When I referred to
> thumbing through
> the
> > deck, I was recalling trading in the 50s when margins were low, some
> markets
> > were very thin, and markets could be cornered (I remember specific
> instances
> > of Bellies, Eggs and Hides to name a few).
> >
> > I don't think this is a problem today simply due to the
> fact that the
> > markets are a lot bigger, very automated and information much more
> > available.
> >
> > One of our first rules is that we don't trade any thin
> markets. I learned
> > that lesson locked in Bellies for 8 limit days. :) In
> trading S&P futures,
> > it's my belief that you can trade a 500 to 1,000 contract
> block on the
> open
> > or the close without any problems (that's the full size S&P
> contract).
> >
> > The other point I really wanted to make was as follows:
> >
> > If you develop a successful trading system, and you have a
> historical
> track
> > record (not hysterical) of trading without stops, then
> using proper money
> > management techniques, I feel stops don't really add much
> of value, other
> > than removing any catastrophic risk factor. That said we
> have spent many
> > years trying to develop a method of using stops that will
> work with our
> > system. So far, we haven't been able to find one. I think that the
> primary
> > reason is because of the volatility of the S&P marketplace. We are
> > diligently working on developing a stop methodology. We
> just haven't
> found
> > it. That said, we do maintain mental stops. Several years
> ago, we were
> > using a 2.5% mental stop. This didn't mean we had stops sitting out
> there,
> > just that we would reevaluate the trade. So far, we have
> found, EVERY
> TIME
> > (but 3 in the last 2 years) we pulled the trigger and closed out our
> > positions based on these mental stops, it cost us money and
> sometimes a
> lot
> > of money. On 3 occasions they saved us money. The bottom
> line is, with
> our
> > system, we find that we're better off without them. Now
> we're contrarian
> > traders and our system has been quite good at calling
> market turns. We
> went
> > short last Friday, when most here on the list were quite
> bullish. In
> fact,
> > even our Intermediate Term System is bullish, so it was
> with a lot of
> > trepidation that we went short (and we were really, really short).
> >
> >
> > Guy
> >
> >
> > -----Original Message-----
> > From: owner-metastock@xxxxxxxxxxxxx
> [mailto:owner-metastock@xxxxxxxxxxxxx]On
> > Behalf Of CRLeBeau@xxxxxxx
> > Sent: Wednesday, April 12, 2000 12:21 AM
> > To: metastock@xxxxxxxxxxxxx
> > Subject: Re: Money Management Stops
> >
> > In a message dated 4/11/00 9:12:37 PM Pacific Daylight Time,
> > grt@xxxxxxxxxxxx
> > writes:
> >
> > << While not familiar with your quotation, I thank you for it. >>
> >
> > Guy,
> >
> > Its not my quote but a quote from someone who wiped out a
> $100 million
> > dollar
> > fund and then went more than $20 million unsecured. The
> whole industry
> knew
> > he was going to go bust sooner or later. He surprised everyone and
> managed
> > to trade without stops for quite a while.
> >
> > I think that worrying about floor brokers running stops is
> mostly just
> > trader
> > paranoia. In most cases they would have to spend too much
> money to do it.
> > Why would someone trade 500 contracts to pick off a five
> lot stop order?
> > Doesn't make sense. Now if they could trade five lots to
> pick off a 500
> > contract stop order that would make sense. In my opinion
> the fact that
> > stops
> > sometimes get raided is not a sufficient reason not to use
> them. I think
> > they are very necessary and if they are set properly they
> save money in
> the
> > long run and perhaps prevent a catastrophe like that suffered by
> > Neiderhoffer.
> >
> > Chuck
>
>
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