|
PureBytes Links
Trading Reference Links
|
Gary Funck wrote:
>
> I've been spending a little time reading some of the trading "classics",
> and one of them is Welles Wilder's "New Concepts in Technical Trading
> Systems" (c) 1978. Wilder advocated the following money management
> rules:
>
> 0. Trade the 6 commodities that have the highest Commodity Selection
> Index (descrbed below).
>
> 1. Don't margin more than 15% of total capital on a any one commodity.
>
> 2. Don't margin more than 60% of total capital at a time.
>
> Although 1. sets the limit of 15% of total capital per commodity, Wilder
> recommends not committing more than 10% of capital per commodity.
>
> The commodity selection index (CSI) is calculated as follows:
>
> CSI = ADXR * AvgTrueRange(14) * K
>
> where:
>
> K = (V / SquareRoot(M)) * (1 / (150 + C)))
>
> which simplifies to:
> K = V / (SquareRoot(M) * (150 + C))
>
> ADXR => Average Directional Movement, which is given by:
>
> ADXR = 0.5 * (ADX + ADX[14])
>
> V = Value of $1 move in the commodity (Wilder says, or the "basic
> basic increment of ATR(14) in dollars")
> M = Value of Margin in dollars
> C = Commission in Dollars
>
>
snip
[As most of you know I'm far from an expert at this]
This seems like a way to get the most bang for the buck; the catch is
that it really doesn't take into account drawdowns, etc. Once you pick
the 6 "best" commodities, allocating 10% per commodity is arbitrary.
In fact I've seen people recommend portfolios which add up to only 33%
of margin as a generic rule (tho the real number would depend on dd's,
right?)
Reality Based Trading (the late Bruce Babcock's co.) sold a tool which
selected the fastest moving commodities. It ranked them on the basis of
trendiness. It had an option whether or not to include the margin in
the selection of which ones to trade. As I recall there was a manual
with entry/exit ideas and test results. I don't know if the computer
program was a system with entries/exits or not. I think not; I think it
was just a selection tool. It is not in this year's catalog but this
catalog doesn't have everything they sell in it. Babcock suggested it
was a good approach but that you had to have the courage to enter an
already fast moving trend.
Just thot i'd mention the rb program since it sounds a lot like this
idea.
[no rel. to RB Trading except as a customer]
Conrad Bowers
|