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<DIV><FONT size=2>I don't think you missed a thing. 10 day AvgTrueRange in the
S&P is 25.45 and 3x would be a stop loss range of $19,087.50 + slippage. At
2% account risk, that would require account of $954,375 per full contract and
$190,875 per e-mini. I use a 2% account risk guideline in my own trading so
that I can absorb a string of losers without being put out of business or losing
my cool. Given the probable risk/reward of such an approach on a
million bucks, I think I'd rather collect interest. The solution is to be able
to work with tighter stops and/or trade commodities which don't require such a
large stop loss. Generally speaking, trading with tighter stops will require a
pattern/price/time approach rather than an indicator approach and/or day
trading.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>Earl</FONT></DIV>
<DIV> </DIV>
<DIV>----- Original Message ----- </DIV>
<BLOCKQUOTE
style="BORDER-LEFT: #000000 2px solid; MARGIN-LEFT: 5px; MARGIN-RIGHT: 0px; PADDING-LEFT: 5px; PADDING-RIGHT: 0px">
<DIV
style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black"><B>From:</B>
BL </DIV>
<DIV style="FONT: 10pt arial"><B>To:</B> <A
href="mailto:realtraders@xxxxxxxxxxxxxx";
title=realtraders@xxxxxxxxxxxxxx>RealTraders Discussion Group</A> </DIV>
<DIV style="FONT: 10pt arial"><B>Sent:</B> Tuesday, May 18, 1999 8:56 PM</DIV>
<DIV style="FONT: 10pt arial"><B>Subject:</B> Position Sizing Questions</DIV>
<DIV><BR></DIV>
<DIV><FONT color=#000000 size=2>Having read Van Tharp's recent TASC article
and book on position sizing, I am puzzled by some of his comments. Among
other things, he states that one needs a minimium of $50,000 to trade the
S&P 500 futures market from a proper position sizing perspective.
Also, he states that 1% -2% risking of total equity on any given trade is
decent as well. My question is as follows: If I want to put
$50,000 at risk and plan to risk 1.5% on any given trade, I am risking
($50,000)(1.5%) = $750 on each trade. Another of his examples recommends
placing a stop at 3 times the 10 day average volatility of the Index as
measured by True Range. Let's just assume that the 10 day average of
True Range = 25 Index Points. If I enter a trade, I will be placing a
stop (3)(25 points) = 75 points away from my entry price. If stopped
out, my loss would be (75 points)($250) = $18,750 disregarding commissions and
slippage. This is over 10 times my allowable $750 limit established
above. Based on these numbers, one should not even trade a single
S&P mini contract if they only have $50,000 to risk. Am I
misinterpreting something here. Comments? - Thanks, Brian
</FONT></DIV></BLOCKQUOTE></BODY></HTML>
</x-html>From ???@??? Wed May 19 08:24:43 1999
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Date: Wed, 19 May 1999 09:20:36 -0400
Reply-To: bfulks@xxxxxxxxxxxx
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From: Bob Fulks <bfulks@xxxxxxxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
Subject: Re: Forecastability of markets
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At 9:54 PM -0400 5/18/99, Jim White wrote:
>The conclusion is that markets exhibit dependencies in the short term which
>do render them to be forecastable over the short term. Ralph Ancampora has
>even indicated that some of the most prestigious business schools wiil soon
>be teaching market timing techniques to their students.
I believe the many "prestigious business schools" are already doing this. I
have seen the plans of a "Trading Lab" at some business school, (I think it
might have been MIT). And respected professors have written books related
to the subject.
I recently read an excellent book, "The Econometrics of Financial Markets",
1997, by three authors:
John Campbell,
Otto Eckstein Professor of Applied Economics at Harvard Un.,
Andrew Lo,
Harris & Harris Group Professor at the Sloan School of
Management at MIT, and
Craig MacKinlay, Professor of Finance at the Wharton School,
Un. of Pennsylvania.
Chapter 2 spends over 50 pages summarizing dozens of technical papers
published in prestigious economic journals that addressed predicability of
the markets and tests of the Random Walk Hypothesis. In the conclusion of
the chapter, Section 2.9, they state:
"Recent econometric advances and empirical evidence seem to
suggest that financial asset returns are predictable to some
degree. Thirty years ago this would have been tantamount to
an outright rejection of market efficiency. However, modern
financial economics teaches us that other, perfectly rational
factors may account for such predictability. The fine
structure of securities markets and frictions in the trading
process can generate predictability. Time-varying expected
returns due to changing business conditions can generate
predictability. A certain degree of predictability may be
necessary to reward investors for bearing certain dynamic
risks. Motivated by these considerations, we shall develop
many models and techniques to address these and other related
issues in the coming chapters."
Looks as if these teachers are finally getting the right idea!
Bob Fulks
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