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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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