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I commend you on your desire to help other traders. It's a nice
piece of coding and may have value depending on what a
trader/investor is trying to achieve. However, it also provides an
excellent example of why it's important for traders to understand how
an indicator works and what it's telling them before simply accepting
that it will make them more money.
Major market lows often occur with high volatility (the "selling
climax") as investors panic. Major highs are associated with
declining volatility as investors run out of money to push prices
higher. As a quick and easy reference, if you look at a chart of the
SP600 over the past 10 years and apply this position-sizing code, it
signals to buy relatively less when the index is making important
lows in the market (because of the higher volatility) and relatively
more at important highs (because of the lower volatility), precisely
the opposite of what would make the most money.
The value of this position-sizing method is that it can provide
better diversification than simple variety of holdings and smooth-out
equity swings under most conditions. But if my system was to buy on
extremely poor sentiment and sell when investors were over-confident
or to buy at low PE levels and sell at high ones, this position-
sizing method would dramatically reduce my performance.
Maybe we could perform a better service to our fellow traders by
explaining the concept behind our favorite methods instead of just
saying "use this and you'll make more money.":) Equis already does
that, LOL!
Luck,
Sebastian
--- In equismetastock@xxxxxxxxxxxxxxx, superfragalist <no_reply@xxxx>
wrote:
> I have been accused of promoting Roy's newsletter. That accusation
is
> alleged and the merit as yet undetermined. Without admitting or
> denying anything, if it sounds like I promote the newsletter, it's
> because it's such a good MS tool that I think every MS user should
use
> it.
>
> In fact, Equis should give everyone who purchases MS a free one year
> subscription. (I'm sorry, I lost my head for a minute. I know that's
> just being too rational.)
>
> However, unlike Equis I don't ignore the users and what they need to
> be successful. So as a gift to everyone who subscribes to Roy's
> newsletter this month, I'm going to give you a terrific position
> sizing indicator that calculates the number of shares of a
particular
> stock that you should buy based on your personal risk profile and
the
> volatility of the stock.
>
> This is a powerful tool for position sizing, so don't ignore it.
Test
> it out and see if it improves your returns. It's based on sound
theory
> of money management.
>
> CapitalAccount:=Input("Size of Capital
Account",5000,10000000,100000);
> RiskPercent:=Input("Account Risk Tolerance in
Decimals.",0.001,100,0.01);
> {This is the amount of your account balance you're willing to lose
per
> trade-- 0.01 equals 1%.}
> VT:=Input("ATR Periods for Calculating Volatility.",1,100,10);
> Bars:=Input("Number of Bars for Smoothing ATR.",2,100,10);
> WhimpFactor:=Input("Personal Risk Profile-1 Cowboy to 7
Whimp",1,7,3);
> {1 means you ride bulls and live hard, 7 means you're Mister
> Rogers--most people fall in between.}
> x:=Mov(ATR(VT),Bars,S);
> RiskPercent*CapitalAccount/(x*WhimpFactor)
>
> Plot this on the chart and read the shares to include in your
> portfolio at the current price.
>
> Yes, I know I'm giving it to you before you subscribe. I work off of
> the honor system, so I know that everyone who reads this will honor
> the deal and sign up. This one indicator alone is worth the price.
>
> www.metastocktips.co.nz
>
> I know who's being naughty and nice, I'm making a list and counting
it
> twice. So look out, Christmas is coming. It's not a good time to be
> breaking the honor code. Okay!
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