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Re: Risk



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Hi Dave:  Oh yes, I do agree that testing does bear you out -- my own
shows this as well.  My point was that, over the long run arbitrary
(or more succinctly) money stops are probably unworthy and result in
poorer performance- - but trading is a psychologically debillitating
endeavor. The average trader can endure small bites at his equity
much more easily than a whopping loss, even though, in the long run,
he is better off performance-wise with large losers.  To me, if you
have a positive expectation system, you must find a way to stay in
the game so that the odds and probabilities have a chance to work
out. Taking a series of large losses is a way, unless you are strong
in your confidence, to get knocked out prematurely.  To each his own.
My 2 cents.  Jack.

----- Original Message ----- 
From: "David Colin" <davidcolin@xxxxxxxxx>
To: "jack zaner" <jzaner@xxxxxxxxxxxx>; <Omega-list@xxxxxxxxxx>
Sent: Monday, September 27, 2004 10:07 AM
Subject: Re: Risk


> Well, Gallacher's point is that in the long run, you'll be taking
> _many more_ losses by placing stops this way (adding up to the same
> amount as if you had placed stops "correctly").  For instance, in
> your example, what if the market retraces $1500 from your entry 3
> times and then goes on to a huge gain?  You've lost just as much
> (more actually).  In the grand scheme of things, the initial trade
> was actually a winner that didn't have enough room to breathe.  As
> I mentioned this concept seems borne out in my own testing. 
>
> -David
>
>
>
> At 09:54 AM 9/27/2004, jack zaner wrote:
>
> >Hi Dave:  Let's say I am trading a simple SAR system and I buy a
> >long breakout with a $4000 risk.  If I wait until the short
> >reverse signal, I lose $4000.  If I put in a $1500 stop, haven't I
> >saved $2500- - all other things being equal.  I agree that
> >arbitrary stops have no relation to market action- - they are more
> >of a psychological crutch- - but they can, and do, prevent
> >catastrophes. Much more complicated than Gallacher makes it seem.
> >Regards, Jack.