|
PureBytes Links
Trading Reference Links
|
Nice one... I bet he was losing money in his real trading, and eventually
stopped trading, hence only tutoring in the end... This has all the marks
for. It doesn't mean what he said was stupid though, but indeed question
everything he said before making some of it yours if you find useful bits.
:-)
Gwenn
Dennis Holverstott wrote:
> Before I start - below, I use the word "system" because that's my
> orientation but I don't necessarily mean a mechanical system. What I
> really mean is a method that has some sort of rules you follow. It could
> just as easily be a discretionary method.
>
> IMHO, there are good points and bad points to trading multiple
> contracts. The good is that you MAY get diversification and a smoother
> equity curve trading 3's. What you are really doing is trading 3 systems
> on the same security. Instead of using the same system or method on
> multiple securities for diversity, you are diversifying your methods on
> a single security.
>
> Let's say, just as an example, you enter long with all 3 at the same
> time. The initial stop on all 3 is below a recent swing. You have a
> small profit target on the first - maybe just enough to cover slippage
> and commissions for the 3. When that is hit, you move your stop on the
> other 2 to breakeven and now you are playing with other people's money.
> The target on the second is larger and is some price you expect reach.
> Maybe a swing high or whatever. You trail a stop on the third hoping to
> hit a home run.
>
> Now imagine opening 3 accounts and trading a one lot of each of the
> systems (exit methods) in each account. This would give you identical
> results to trading 3 in a single account. One of your accounts would
> have frequent small winners and an occasional bigger loser. One would
> have occasional huge winners. One might be somewhere in between. So
> you've got diversification and that's good. Maybe one of the accounts is
> losing money at a given moment but another is making money. Some time
> later, a different account starts doing well. This is a comfortable way
> to trade because something is usually working. As well, you have
> frequent small winners to keep your spirits up.
>
> BUT, each of your 3 accounts must be able to stand on its own merits. If
> you trade your 3 accounts for a year, you might find that one of them
> has grown huge and another is almost broke. Back to the drawing board.
> Time to rethink the method in the account that lost money or didn't grow
> as much as the others. If all the accounts made about the same amount at
> the end of the year, fine, keep trading them all. If only one of the
> accounts grew, then you'd better move all your money into that account
> and just trade that method. Forget the other 2 that didn't pay as well.
>
> In summary, trading 3 is good if all three methods make money over time
> with reasonable drawdowns. Otherwise, you're better off just betting the
> farm on the method that works best and forgetting the other 2.
>
> Postscript - I took a daytrading course from a "guru" who has since
> retired. I learned a few things and I don't really regret the $300/month
> I spent for 2 months of training. He advocated trading 3 contracts. I
> asked him the simple question, "what portion of your profit comes from
> each of the different exits?" He could not or would not give me an
> answer and I found that strange. All he would say is you MUST trade 3.
> So, while I believe that the guru believed in what he said, and he could
> give sound psychological reasons why it was more comfortable to trade
> that way, he was not able to back it up with numbers. He could not prove
> that it was actually more profitable or reduced drawdowns.
>
> That's what planted the initial seeds of doubt (wisdom :-). The final
> straw was that I was never able to find any of his students who had seen
> any proof that he actually traded or even made his calls realtime. He
> sent his "lessons" after the market closed for the day so the trades
> could have been faked. I'm not saying they were but they could have
> been. He would never show an account statement. One student offered him
> a large sum of money to watch him trade realtime and he refused. One
> student offered to set up an IRC channel so he could post his trades
> realtime. He refused.
>
> So, when someone says you must do things a certain way, I say show me
> the numbers. Not "I made more than you" numbers. Rather, numbers that
> show how much each of the different methods (contracts) contributes to
> the bottom line.
>
> School-of-hard-knocks-ly,
> Dennis
|