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Sebastian, Ed -- thanks for taking the time.
Ed -- do you have a ballpark number for your annual profit degradation
arising from hedging with short stock index futures? I have tried
hedging with index puts and it gets expensive.
--- In equismetastock@xxxxxxxxxxxxxxx, "Ed Hoopes" <reefbreak_sd@xxxx>
wrote:
> My way of avoiding this is to diversify. I learned this from "Trade
> your way to Financial Freedom" by Van K. Tharp - Chapter 12.
>
> Example:
> $100,000 account equity.
> Invest in 20 - $5000 positions. This is position sizing.
> For Risk Management - use the following:
> 1% loss in the PORTFOLIO
> Or $1000 loss in a given position
> Or 20% loss per position
> is the maximum catastrophic loss sell point. 90+% of my sells are
> generated by my technical indicators.
>
> It can be shown that this system will avoid most of the problems that
> you are worried about.
>
> I only trade from a list of ~100 stocks that have strong fundamentals,
> then EXPLORE that list using my technical indicators, looking for
> buy/sell signals - and trade long only.
>
> During market drawdowns I only sell my longs when the indicators tell
> me to, plus I hedge with short stock index futures YM, ES, ER2 at the
> rate of 1 future per $50,000 of portfolio value.
>
> Cheers,
>
> Ed Hoopes
>
>
>
>
> --- In equismetastock@xxxxxxxxxxxxxxx, "metastkuser"
> <andysmith_999@xxxx> wrote:
> > I understand from time to time, a position will take a huge loss.
> >
> > Perhaps something happens after-hours and the stock opens 15% lower,
> > well below the stop. One way to avoid this is to not hold over
> > earnings. But a plunge can still happen for reasons unrelated to
> > earnings.
> >
> > I have found very little in the money management literature on this
> > subject, so can a few of the experienced traders please provide some
> > guidance:
> >
> > 1) How often has this kind of catastrophic loss happened to you?
> >
> > 2) Are there cost-effective and practical ways to protect against it?
> > (eg. buying put protection for long stock that is held for a few days
> > is not practical).
> >
> > 3) How have such losses affected the long term return of your
> portfolio?
> >
> > 4) When these catastrophic losses happen, is it isolated to one
> > position or does it affect all your open positions?
> >
> > 5) What were the psychological effects?
> >
> > Thanks!
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