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At 05:37 PM 9/19/97 -0500, Eric wrote:
>How does anyone else here decide what quantity to trade???
>Subjectively?? I am in the camp that believes that consistency and
>guidelines are important aspects of money management.
>
>Eric
Even if you had precise distributions and joint distributions, you would
find it quite difficult to solve the best fraction optimization problem,
which requires some non-linear programming and probably could best be (or
perhaps somewhere has been) solved with a GA. But I don't think the answer
is that important. Many excellent traders and investors develop a highly
sophisticated intuition about how large a position they can safely take, and
probably not a one uses such a mathematically derived solution. It is
astonishing how optimal human behavior can become through experience, and
mathematics and computers can usually not hold a candle to that.
Considering the many other ways to improve your trading or investment
activity, there is only a small, and possibly negligible, marginal advantage
to be obtained by optimizing position size. A good guideline is, if you
question whether a position is too large for you, it probably is. And there
is no real harm in taking a position that is too small. It may take you a
bit longer to reach a given goal, but it will probably be a more comfortable
journey. And if you are in too much of a hurry to get there, you are
probably driving too fast.
Bob P.
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