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DC> In your scenario, you base your position size on the "natural risk" of the
DC> system...is there a way to accomplish both these objectives, ie equalizing
DC> the dollar volatility of all your positions AT THE SAME TIME AS basing your
DC> trade size on the natural risk of your system?
Well, you can set your maximum risk stop based on the logic of your
system, and the number of shares/contracts based on your volatility
measurement. However, the danger here is that if your max risk stop
allows you to trade only x contracts/shares at your risk level, then
the volatility-based method may allow x + y contracts/shares so that
you may be taking a higher risk than allowed. It should be allowed to
work one way only so that the max risk stop can override the
volatility measure, but not in the other way around.
Best regards,
Ivo Karindi
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