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was: Re: Another good post to keep in mind
"Owen Davies" <owen@xxxxxxxxxxxxx> writes:
>Why is it no one (at least that I've discovered) ever has anything
>worthwhile to say about money management? (Well, okay, beyond the
>usual "Don't risk more than n percent of your capital on any one
>trade," where n is a very small number.)
>
>Yes, I do know about asset allocation, BTW, but I don't see that it
>applies very well to futures trading.
>
>To start any possible discussion, I'll offer my own best hint. I've
>never found a better way to estimate potential risks and rewards
>than ordinary trendlines, support/resistance, and 50-percent (more
>or less) retracement levels.
>
>But my own understanding is that these factors have more to do with simple
>trade analysis than money management. Money management is what you
>do after that.
>
>Or am I over-complicating things?
Maybe. What I usually have to do "after that" is consult my wife. :)
I assume you're familiar with Ralph Vince's work. Though I haven't
read his books myself, he seems to have a solid reputation, and as I
understand it, he offers mathematical ways to decide how much of your
capital to risk, depending on your estimation of the probabilities of
your "system."
For futures trading, it seems to me the interesting part of money
management IS in the trade analysis, specifically the exit strategy.
And for this, I think the most useful work I've seen is Chuck LeBeau's.
I keep meaning to review my old notes of Chuck's TAG lecture some
years ago. The part that sticks in my mind is the idea of adjusting
your trailing stop based partly on the short-term market volatility.
Pretty simple idea, really, but very useful, I think. Chuck's also
got a website with some very interesting things on it. To my
infinite embarrassment, I can't find Chuck's URL right now...
The other interesting aspect of futures-trading MM I don't see
discussed very often is the old scale-in/scale-out question.
It seems some people who have the luxury of trading multiple contracts
like to put them all on initially, then peel some of them off quickly.
Others like to add contracts one at a time, depending on how the
trade is unfolding. Exiting could be all at once, or a scale-out.
Unfortunately, I've seen proponents of one approach ridicule members
of the other camp.
I myself prefer the second, scale-in, approach. Putting all your
contracts on exposes you to the maximum risk, which can be expensive
if you're a little guy. If you add contracts once the trade is
going your way, you're playing with the house's money.
I think your support/resistance level approach is right on target.
The question is what time frame do you look at to pick those levels;
the same as you used for your entry? longer? shorter?
Interesting subject, thanks for bringing it up.
Jim
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