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At 11:46 PM 3/15/98 -0500, Jim McConnon wrote:
>I consider this a 4 Star posting! This time of insight is invaluable. I
>think that many traders can benefit by paying close attention to this.
>
>Jim McConnon
>jmcconno@xxxxxxxxxxxxx
>
I complelety agree.
Robert
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>> From: Timothy Morge <tmorge@xxxxxxxxxxxxxxx>
>> To: omega-list@xxxxxxxxxx
>> Subject: Money management
>> Date: Sunday, March 15, 1998 10:31 PM
>>
>> Someone posted, asking about money management. Now, I don't know how
>> many people here trade in a variety of markets, and how many on this
>> list just trade one market or one stock. Personally, I trade many
>> commodities and so for me, one of the keys was learning to take
>> 'similar' risk in non-similar markets. I tend to use the same methods of
>> analysis when looking at any market I trade, but you can't trade one
>> contract of Oats and feel that it is the same amount of risk as one Yen
>> contract. I developed an equivalent risk matrix about 6 or 7 years
>> ago[nothing revolutionary there...] that uses average true ranges and
>> contract specs to make certain that when I trade Oats, I am risking the
>> same amount of money when I trade yen. Then I can look down the matrix
>> and see how much money I am risking when I set a stop at, let's say, two
>> average true ranges in each market.
>>
>> An even better use for a equivalent risk matrix is when you are deciding
>> how much to risk on any one trade. Again, for me, it's key that when I
>> take trades over long periods of time, I use similar leverage risk in
>> dissimilar markets. So it's important to know that 1 yen equals 8 US
>> bonds [I'm making these up...] or one orange juice equals three corn.
>> And I know that if I choose to always only risk two percent of my
>> capital on any one trade, my stop has to be within x points, and when I
>> look across all the risk in my trades, those stops are always within the
>> two percent.
>>
>> When I look at my market setups for tomorrow, I can look at each trade
>> and decide where I would stop myself out of a trade, that is, where my
>> technicals would say I was wrong. Then I look at the matrix and see if
>> that stop is within my two percent. If the stop isn't within two
>> percent, I don't take the trade. I don't believe in arbitrary dollar
>> amount stops in that sense.
>>
>> I hope that helps someone.
>>
>> Tim Morge
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