|
PureBytes Links
Trading Reference Links
|
Perhaps this extract from the MACD Histogram Divergence kit's
documentation can help.
http://www.metastocktools.com/MACDH/MACDH.pdf
---------------------------------------------------------
Variable position sizing
------------------------
The variable position sizing indicator displays a suggested position
size value to normalize trade risk to a specified % limit.
It takes the risk based on the (ATR-based) SmartStop initial stop, and
calculates an appropriate trade position size.
Variable position sizing involves decreasing trade size on riskier
(higher volatility) trades, and increasing it on safer (lower
volatility) trades. The result is that trade risk should
theoretically (severe price slippage may alter risk) remain the same
for all trades.
Should variable position sizing theoretically result in a similar
total profit when compared to a fixed-position size strategy? After
all, what we lose on those big (now smaller) spectacular wins, we can
gain from smaller (spectacular) losses and (now bigger) wins on the
larger, safer trades.
In reality, the final result between these two strategies can be quite
different.
By normalizing the total risk with risk-based variable position
sizing, the result is a *smoother equity curve*.
This results in less overall capital risk, and thus increases the
trader's confidence and ability to place a larger proportion of his
working capital into his trading strategy.
And larger trades in turn equates to larger profits for the same (or
lower) amount of original risk.
Below is an example of how variable position sizing can be applied to
non-leveraged trades:
StdEq$ (standard trade size): total capital / maximum number
of open trades / 2;
AvgLoss%: Average Acceptable Loss %;
Risk%: (Entry Price - (Volatility based Stoploss
+ Slippage)) / Entry Price x 100;
Variable Position Size: StdEq$ x AvgLoss% / Risk%.
Example for a safer (less-volatile) trade:
StdEq$ = $100,000 / 10 trades; ($10,000)
AvgLoss% = 8; (8%)
EntryPrice = $10.00;
Stop = $9.50;
Expected exit price slippage = $0.05;
Risk% = ($10.00 - ($9.50 - $0.05)) / $10.00 x 100; (5.5%)
Variable Position Size = $10,000 x 8 / 5.5. ($14,545)
Example for a riskier (volatile) trade:
StdEq$ = $100,000 / 10 trades; ($10,000)
AvgLoss% = 8; (8%)
EntryPrice = $2.00;
Stop = $1.70;
Expected exit price slippage = $0.02;
Risk% = ($2.00 - ($1.70 - $0.02)) / $2.00 x 100; (16%)
Variable Position Size = $10,000 x 8 / 16. ($5,000)
By normalizing maximum trade risk (to 8% in both examples above),
a trader can manage overall capital risk in a more predictable manner.
---------------------------------------------------------
jose '-)
http://www.metastocktools.com
--- In equismetastock@xxxxxxxxxxxxxxx, chichungchoi <no_reply@xxx>
wrote:
>
> Thank everyone for suggestion.
> Could you please give me any example on using a measure of
> volatility such as the ATR in determining your position size?
> Thank you
> Eric
>
> --- In equismetastock@xxxxxxxxxxxxxxx, "david" <dwei9361@> wrote:
>
> 1. Case two
>
> risk% * total_capital / (entryprice - initialstop)
>
> = 0.02 * $100000 / $2 = 1000 shares, assuming your entry price was
> $10 and your intial stop was $8
>
> So actually 10% of your capital will be committed to the trade in
> this case.
>
> 2. You may want to look at using a measure of volatility such as
> the ATR in determining your position size.
>
> Also you may want to consider putting a firm limit on the maximum %
> of total capital you will allocate to any one trade.
>
>
> Regards
> Dave
>
>
> _____
>
> From: equismetastock@xxxxxxxxxxxxxxx
> [mailto:equismetastock@xxxxxxxxxxxxxxx]
> On Behalf Of chichungchoi
> Sent: Wednesday, 8 March 2006 10:58 AM
> To: equismetastock@xxxxxxxxxxxxxxx
> Subject: [EquisMetaStock Group] Risking 2% for investment, but what
> to do with the the rest of 98%?
>
>
>
> Account balance is $100,000, I would like to risk 2% [$100,000 x 2%
> = $2,000] for my investment and would like to purchase XYZ stock at
> $10, and project the target level at $14 with stop loss level at $8.
>
> How much shares should I purchase?
>
> In case 1, number of shares = $2,000 / $10 = 200 shares.
> I should invest $2,000 for this trade, and require only $2,000 for
> this investment. Do I put $98,000 into saving account?
>
> In case 2, number of shares = $2,000 / ($10-$8) = 1,000 shares
> I should risk $2,000 for this trade, and require 1,000 x $10
> =$10,000 for this investment. Do I put $90,000 into saving account?
>
> Does anyone have any suggestion on how much shares I should
> purchase for 2% risk? How to utilize more capital for investment and
> still maintain 2% risk?
> Thank you
> Eric
------------------------ Yahoo! Groups Sponsor --------------------~-->
Try Online Currency Trading with GFT. Free 50K Demo. Trade
24 Hours. Commission-Free.
http://us.click.yahoo.com/RvFikB/9M2KAA/U1CZAA/BefplB/TM
--------------------------------------------------------------------~->
Yahoo! Groups Links
<*> To visit your group on the web, go to:
http://groups.yahoo.com/group/equismetastock/
<*> To unsubscribe from this group, send an email to:
equismetastock-unsubscribe@xxxxxxxxxxxxxxx
<*> Your use of Yahoo! Groups is subject to:
http://docs.yahoo.com/info/terms/
|