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Thanks Richard : one of the best summaries i ever
did see !
Theo Lockefeer
----- Original Message -----
From: "Richard Dale" <rad@xxxxxxxxxxxxxxx>
To: <metastock@xxxxxxxxxxxxx>
Sent: Monday, August 13, 2001 1:04 PM
Subject: RE: money management
> I'll summarise what I've gained out of Van Tharp's book.
>
> Trading float = Cash + Realisable value of current shares
> Risk per trade = a percentage of Trading Float (eg 1.5%)
> Stop Loss = 2 ATRs
> Position Size (in # of shares) = Risk / Stop Loss
> Don't let position size * share price exceed 20% of your trading float
> (capital conservation)
>
> eg. $40K float
> 1.5% risked = $600 risked in the trade (ie how much you will lose if the
> trade goes against you).
> Assume $30 stock called ABCD, with an ATR of $1.30
> Stop = 2 ATRs = $2.60 (ie you sell when the stock is $30 - $2.60 =
> $27.40)
> Position size = $600 / $2.60 = 230 shares
> Consideration = x $30 = $6900 (ie passes the rule of a consideration
> less than 20% of our float).
>
> ie buy 230 shares of ABCD, stop loss is set at $27.40
>
> Advantages:
> 1. You buy less of the stock when the volatility increases (as measured
> by the ATR)
> 2. You always know the exact amount you're risking on a per trade basis.
> You'll find it near impossible to lose all your money if you only risk
> 2% on any given trade due to the rule #4.
> 3. We allocate < 20% of our money on a per stock basis, to guard against
> bad things happening (like a stock losing 60% of its value in one day -
> happens occasionally!)
> 4. As our float increases, so do our position sizes. The opposite
> happens when our capital decreases.
>
> Other things to watch:
> 1. Slippage (you can't always get out at your stop loss level).
> 2. Trailing profit stop - set these at your preferred levels
> 3. ATRs aren't always the most suitable stop loss mechanism. Some may
> prefer to use a stop just below recent support levels instead.
> 4. On low capital levels, brokerage comes into play.
>
> Comments?
>
> RICHARD DALE
> IT PROJECTS MANAGER
> daytraderHQ Ltd
> Level 4, 66 Kings Park Rd
> West Perth
> Western Australia 6005
> Phone: +61 8 9226 0767 Fax (08) +61 8 9322 9998
> Email: rad@xxxxxxxxxxxxxxx
> Web site: www.daytraderHQ.com
> YOU'LL NEVER TRADE ALONE
>
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