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Andrew,
Thanks for the reply. You wrote: "The control is position sizing. I
size my positions such that 4*ATR = 1% of total equity."
Do you also limit the maximum $ amount for a single position? Perhaps
a max of 10% of your total equity per position? For example, following
your position sizing rule above, what if the stock is $5,000 a share?
Would your limiting factor be the 1% risk or the maximum $ amount per
position?
--- In equismetastock@xxxxxxxxxxxxxxx, "Andrew Tomlinson"
<andrew_tomlinson@xxxx> wrote:
>
> I have certainly found myself with 10% to 15% losses on positions
overnight.
> The control is position sizing. I size my positions such that 4*ATR
= 1% of
> total equity. Even if I take a larger size loss due to a gapping
move going
> past my stop, the limit to the overall size of the position keeps the
> portfolio out of trouble. These are occasional, annoying losses, but
they
> will happen. Price changes in securities markets are not normally
> distributed, and these are the moves that show it.
>
> Andrew
>
> -----Original Message-----
> From: equismetastock@xxxxxxxxxxxxxxx
[mailto:equismetastock@xxxxxxxxxxxxxxx]
> On Behalf Of sebastiandanconia
> Sent: Thursday, June 30, 2005 1:13 PM
> To: equismetastock@xxxxxxxxxxxxxxx
> Subject: [EquisMetaStock Group] Re: CATASTROPHIC LOSS
>
>
> My definition of "catastrophic loss" is different from yours. A loss
> of -15% on a single position in a diversified portfolio isn't
> serious, IMO. If it was a -15% loss across the board for my whole
> portfolio, that would be significant. (And, somewhat ironically,
> during the conditions under which this might occur, good money-
management
> wouldn't protect my portfolio from a major loss.)
>
> But to answer your questions:
>
> 1) I rarely have a large loss on a single position.
> 2) Good stock selection and understanding of market conditions
> (favorable or unfavorable) is better protection than puts, position-
> sizing, stop-losses, etc.
> 3) Large one-position losses don't have a major long-term impact.
> 4) When it happens it typically it happens to one position. I try
> to be out of the market during times when my entire portfolio can
> take a hit.
> 5) The psychological effects (I assume you mean "negative") are very
> intense in the short-term, but quickly fade.
>
>
> Luck,
>
> Sebastian
>
> --- 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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