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<Only systems with high optimal f's
really get my attention (0.7 to 0.9 is the range I like). By the
way, computation via a spreadsheet is really quite simple, I can
explain it if you are interested.>
If you could explain the speadsheet computation I'd appreciate it.
<Let us assume that you will not use margin to finance your trading.
In the above example, you are committing $16,500 of your available
pre-margin capital to this trade. That is >16% of your capital, and you will
be able to place 6 such trades when your pre-margin cash maxes out.>
Yep thats correct. That is why I picked 1.65% instead of some higher ones
that only give me 5 trades at once.
<a/ How do you insulate this capital exposure from adverse gap moves?>
I trade stock long and haven't gotten any big gap moves that would destroy
me with my setups and entry signals. As soon as the order is filled I put
my 10% firm SLP (stop loss point) order in. I must admit that I did
backtest a shorting strategy that gave me one of those disasterous gaps
against the system. Total expecancy on that system was negative in part
due to the big gap against so I shelved the system and don't use it.
<b/ Do you have all 6 trades placed simultaneously?>
It is a function of my setups and entry but I don't get 6 signals all at
once. But it is very possible to be maxed out and not be able to enter
another position. I try to pick the best trades today. If I take an OK
trade today and get a better signal tomorrow my capital is used up so I try
to discipline myself and not over trade today. If this method doesn't suit
you system you can try a shorter time frame than mine or use a smaller risk
and therefor postion size.
<c/ If you do, how do you evaluate whether some other stock that triggers an
entry gets bought ?>
I think I answered that somewhat above.
<d/ Does the $3 risk tolerance take the stock's ATR (average true range,
refer Welles Wilder) into account? If so, how frequently do you get stopped
out?>
Nope doesn't take true range into account. But you could easily define
your position size based on that instead. I used Maximum Adverse Excersion
to define my stops.
<e/ If stops are triggered frequently, how does commission cost of frequent
entry-exit-re-entry figure into your $1650 MAE calculation?>
Broker I use charges $19.95 per trade and I don't over 1000 shares. I
figured the $40 round trip commision in when I backested this stuff. Part
of the cost of trading.
Hope that helps
Greg
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