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You're suppose to use your indicators to tell you if you want to buy
or not. This formula has nothing to do with entries or exits.
What it does is tell you how much you should buy, if you have a buy
signal, in order to stay within the bounds of your risk profile.
That's money management. Entries and Exits are not money management.
If you follow this simple formula for position sizing, rather than
constant dollar or constant share amounts-- or guessing--over the long
run it generally improves the performance of any system.
If you want to figure out when to jump in the market with your entire
capital account, try Elliot waves or something ilke that.
If you want to know if your position size is likely to be within
parameters that are going to allow you to make money without exposing
your capital account to peril, this is the kind of code for doing that.
You need something else for your analysis of the S&P600.
Our fellow traders need to do themselves a service and learn the
difference between entries and exits and money management.
--- In equismetastock@xxxxxxxxxxxxxxx, sebastiandanconia
<no_reply@xxxx> wrote:
> 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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