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Walt Downs wrote:
>
> bobrabcd wrote:
> >
> > Walt, do you use any kind of a volatility cut off in your futures trading
> > systems? Seems like most of the work in the literature has been on entries
> > from breakouts of narrow range and low volatility periods and very little
> > about cessation of trading during highly volatility periods.
>
> Bob,
>
> Hadn't thought about it before, but you are right. I trade WITH
> increasing volatility.
>
> At times when the market is already in a highly volatile state, I
> only trade under one circumstance:
>
> Unwarranted Expansion: A market has expanded to the point where it's
> underlying fundamental, technical and seasonal aspects do not support
> current price levels.
>
> Niederhoffer obviously felt that the market
> had expanded too far. Haven't quite figured out for myself why he
> thought this. :) He only missed the bottom by one day, but I agree
> that it seemed to be a "gambler's" play, and not a very good one at
> that. I guess he was trying to make up for Thailand in one shot.
>
> Of course, I hardly consider myself in the same league as Vic,
> so I'll leave the final analysis to those traders much more skilled
> than I.
>
> I think Niederhoffer is one of the greatest traders that ever lived,
> and he still remains one of my idols.
>
> Uh....... but I'll still use stops, thanks..... :)
>
> Walt Downs
> CIS Trading
Walt,
I appreciate you remarks about stops but I am not sure that they are
that relevant in this case. If VN was looking to sell the volatility or
even a price area via selling premium, then I think it is difficult to
defend one's capital only depending on stops. A better way is to greatly
reduce one's EXPOSURE, i.e. reduce the size of the position so that one
can take substantial heat until the bulge in premiums has passed. You
may only make 1/3 as much, but your chances of being here tomorrow are
probably at least 3 times better. I look at this biz much like that of
one who is in the insurance underwriting biz in that we are always
"handicapping" risks. VN should have done a probably worse case study
for his position. One would think that one of his experience, upon
conjuring this question, would immediately harken back to the
cataclysmic days of October 1987 and adjust accordingly. I can only
guess that VN having been terribly injured in his Thai ventures was in a
desperate double or nothing frame of mind. Desparation is an invitation
for devastation in the trading game. Victor was obviously way
over-exposed and got "busted"
for indecent exposure to the market.
Expositiously,
Norman
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