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Scot Billington wrote:
>
> At 12:00 PM 2/27/98 -0800, Tom Stein wrote:
> >Ron wrote:
> >
> >"So Tom.. What do you recommend as one (or more) of your
> >favorite sources for the study of money management?"
> >
> >Most of my money management comes from my own experiences......IF I had to
> >give someone some quick quips it would be.........
> >
> >1)Never risk more than 5% of your account on any 1 trade
> >
>
> I would suggest a 1% parameter per trade. If you have a winning method,
> the only way you can lose is by running out of money. Why take the chance?
> 5% is way too much. Secondly, I would suggest trading long term to cut
> down on the costs of slippage and commission. Roughly 20% of an average
> account is spent on those costs per year. More aggressive techniques can
> be found in books by Ralph Vince. Van Tharp, iitm.com, has some material
> available.
>
> If you want to be more advanced, I would devise a sliding scale of initial
> risk that was quite small when the original starting capital is at risk and
> increases if one has profits over a self-chosen Mendosa line of acceptable
> returns. (ie At the beginning of the year or when down for the year while
> original capital is at risk, the risk would be .5%. Profits between 1-10%
> would be risked at a 1% rate. Between 10-20% 2% etc. The numbers used are
> for example only.)
>
> In a long term trading situation where the market often gets away from the
> stop creating unenviable situations, I suggest peeling off contracts, but
> never below 1, to smooth volitility. (ie $100,000 account. Buy 5 Silver
> at 5.00 on the entry signal. Original stop is 496, 1% risk. At the close
> several weeks later the price is 600, but the stop has only moved up to
> 580. The account is now worth $125,000, and the risk, close to stop, is
> $22,500 or 18.0%. My 'peel off level' is 3%, this is higher than initial
> risk because it is dealing with open profits. I can risk $3,750. The risk
> per contract is $1,000; therefore, I can only have 3 contracts. I cover
> two.) This will smooth volitility without adversely affecting returns in
> the long run. It will hurt returns in massively trending markets, which
> number one or two a year, but it will help returns on an 'average' move.
> It will cut the volitility by over 50%.
>
> By combining the sliding scale of initial risk and a sliding peel off %,
> both per trade and depending on the initial risk, one will see that money
> management has much more to do with returns than entry exit decisions.
> However, the best money management in the world will not work if one's
> methods do not have an edge over the market.
>
> sb
Speaking of Van Tharp, has anyone looked at his "special report on money
management"? Anything unusual or useful in there? Comments, thoughts?
Thanks for any feedback
Gwenn
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