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I usually stay out of these sorts of discussions, but this is just too
flagrant and/or misleading to let it go by...
Just realize this: To increase your order size in periods of high
volatility, be it the vol of your equity or that of the market, is
tantamount to saying that your final results will be dominated by how you do
during these occasional volatile periods. Therefore, you better be of the
opinion that your RISK-ADJUSTED returns are highest during such periods if
you're going to adopt such a strategy. This is not usually the case. In
fact, the reason people ordinarily scale their positions up/down in periods
of lower/higher volatility is because they're making the (reasonable
base-case) assumption that their risk-adjusted returns are going to be
roughly independent of volatily -- hence they target a constant return by
targeting a constant risk, i.e. a position that's inversely proportional to
vol...
-Alex
-----Original Message-----
From: Mark Brown [mailto:markbrown@xxxxxxxxxxxxx]
Sent: Thursday, February 03, 2000 3:01 PM
To: Phil Lane
Cc: Omega-List
Subject: Re[5]: Rocket Science
Hello Phil,
PL> Hi Mark,
PL> Can I assume you would REDUCE the size when the equity curve gets
volatile,
PL> and not the other way around?
very sharp phil, but just the opposite. the old saying when the going
gets tough the tough get going applies. so rather than be scared of
volatility i embrace it.
PL> Also wondering if you would treat Upward volatility in the eq curve
PL> differently than Downward.
extensive test have shown that this is the most survivable way to
trade it. however i don not personally like to back off that way.
however because i am a fully mechanical system trader i obey and
comply with what the computer tells me is the best method. i want to
make money NOT be right.
PL> a thousand questions,
PL> phil
I'm in an answering mood..
--
Best regards,
Mark Brown mailto:markbrown@xxxxxxxxxxxxx
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