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For TWA & Linda,
I have backtested the following Position Size strategy and it works nicely
for my type of stock trading. BTW: Sounds like "somebody" has read Van
Tharp's book??
First I like to keep things as simple as possible otherwise it too hard for
me to follow my own rules.
I analized the trades over many stocks and based on the MAE (Maximum
Adverse Excercion) I found that around a 8-10% stop would limit losses yet
keep most of the winners alive. I use the % figures because the stock
prices can vary between $10 to $150.
Backtesting several different stops got me to 10% being the "optimum".
Knowing my risk I base position size on a percent of my portfolio. Again I
backtested several percentages and finally came upon 1.65%. This wasn't
necessarily the "best" on backtesting but when I take into account that
with a smaller % of portfolio I can enter more trades over the long haul it
was best. Therefor the opportunity to trade figures in here. I use 1.65%
of portfolio to define the number of shares to purchase.
For instance: If I get a signal on a stock selling for $30. My stop is 10%
or $3. If my portfolio is $100,000 then my risk on any one trade is $1650
(1.65% of $100 K). The number of shares I'd purchase is $1650/$3 = 550
shares.
What I have also found is that in order to maximize my profits on this
system I have to let profits run more than I used to. (I used to get out
at a target price). So if you have some suggestions on improving exits
that would help me.
Hope this gives you some other ideas to consider
Greg
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