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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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