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Gwenn:
If one is treating an account as a "job" or a source of steady
income, your comments are exactly correct.
But if one is trying to grow his or her account by an order of
magnitude or two to the base ten, one must be willing to risk a
large part of equity on the "right" trade.
Only those who have studied very thoroughly and for a long time,
have been successful with a smaller risk, and who know just where
and when to take "the" trade should ever do this, and your
comments should apply to any one who doesn't know and who isn't
willing to "go for it".
"Going for it" should only apply to a very few people, maybe one in
a thousand. but I have seen them, know that they really exist, and
know that they have become fabulously wealthy.
There is absolutely nothing wrong with making a good living from
one's equity base. That's what I do.
I only bring this up because I hear people talking all the time about
the conservative approach, and there is another way. Trading
commodities or even stocks nowadays is not the equivalent of
clipping coupons (no dividends...;-).
Tom
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Date sent: Wed, 01 Mar 2000 08:52:10 +0100
From: Gwenael Gautier <ggautier@xxxxxxxxxxx>
Organization: CDC Marches FKT
To: andrew@xxxxxxxxx, List RT <realtraders@xxxxxxxxxxxxxxx>
Subject: Re: [RT] Fixed Ratio or Fixed Fractional?? – Pros
and Cons of Each ...
> For one, I would never in the world risk 10% on a first or any other trade!
> imagine, the market gaps trhough your stop, now you are out 15%, believe me
> psychologically only VERY few will take such strain. Besides risk of ruin is
> close to certain there.
>
> As a rule, whatever you think you can stand, in reality it will be about
> half to a third of that which you will effectively feel comfortable with. As
> a reminder, most professionals don't risk much in excess of 2-2.5% per
> trade. I even do 0.5%, because that's the level I found over time I don't
> bother thinking about, hence get no "freezing", "pulling the trigger",
> "impulsivity", "overtrading" or "early exit" pbs, all of which plagued me at
> some stage because I was in it carrying too much risk..
>
> Gwenn
>
>
> Andrew Peskin wrote:
>
> > (I apologize as this is somewhat long ...)
> >
> > I would like to start a discussion on the merits and weaknesses of the
> > Fixed Ratio position sizing method popularized by Ryan Jones.
> > Specifically how does it stack up against the other predominant position
> > sizing method known as Fixed Fractional.
> >
> > The majority of the research I have conducted was based upon the fixed
> > fractional method, or sizing your position based upon the risk the
> > position represents and the percent of your total equity you wish to
> > risk.
> >
> > For Example:
> >
> > You have a $100,000 account balance and wish to risk 10% of your account
> > on each trade, or $10,000.
> >
> > You have an S&P Trading System which buys on a breakout of the highest
> > high of the last 5 bars and sells on a breakout of the lowest low of the
> > last 5 bars. You would reverse your position with each occurrence. (I
> > am not advocating this system, nor have I tested this, I am only using
> > it as an example).
> >
> > Your first trade has a risk of $2,000 so you would trade 5 contracts
> > (10,000 / 2,000 = 5).
> >
> > Your first trade is a $750 winner so your account balance is now
> > $103,750.
> >
> > Your second trade has a risk of $4,250 (the market has a greater 5 day
> > range) and you would trade 2 contracts (103,750 / 4,250 = 2.44 ==> 2).
> >
> > You would continue this as long as you traded.
> >
> > The above makes sense logically to me. With the Fixed Ratio Method, I
> > see some Problems:
> >
> > 1. How many contracts do you trade on your first trade? The method
> > explains how to change your size once you have begun trading, but I am
> > unclear on how to size your very first trade.
> >
> > 2. All trades are sized the same. Why would you want to risk varying
> > amounts of capital? In the above example if you were trading a fixed 4
> > contracts per trade, you would assume risk of $8,000 on the first trade
> > and a risk of $17,000 on the second. I do not understand why different
> > trades should represent differing amounts of risk for your account if
> > the outcome of each trade is unknown and as the same probability of
> > success or failure.
> >
> > I hope that this is a good start for an educational discussion amongst
> > ourselves regarding what many consider the most crucial aspect of
> > successful trading. I am looking forward to following the ensuing
> > dialogue.
> >
> > Best regards,
> >
> > Andrew Peskin
>
>
>
>
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