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Hi list,
Concerning Money Management ideas, almost every publication about (Futures)
Trading Systems, etc. mentions that it is important to risk only a small
percentage (max. 2%, better <=1%) on each trade.
I did a small test with Excel (coin toss, which is a 50/50 system), to
reveal how many Consecutive Losses are 'necessary' to suffer a 50% drawdown
(which is a close-down benchmark for most of the funds around).
The attached chart (RunsDrawdown.jpg) shows that when risking 0.25% it
takes 278 consecutive runs, when risking 2.0%, 36 runs, and with 5.0% only
15 runs to throw the towel. The minimized columns illustrate what big
difference it makes varying risk only by a small percentage .
A simulated coin toss expectation game (which ran almost a week) showed,
that one must expect up to 20 (probability: 1 : 1.048.576 or 0.000095%)
consecutive profits/losses in a 50/50 system!
Comments anyone?
Thanks,
Thomas Pfluegl
Attachment Converted: "f:\eudora\attach\RunsDrawdown.jpg"
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Thomas Pfluegl, Rudersdorf 8, A - 4212 Neumarkt
Austria Tel. ++ 43 - (0) 7941 - 8106
http://keplerweb.oeh.uni-linz.ac.at/trading/index.html
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Austria/Europe --> high mountains --> Mozart --> no kangaroos
----------------------------------------------------------------------------From ???@??? Thu Apr 13 10:34:29 2000
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From: "Earl Adamy" <eadamy@xxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
References: <200004120522.BAA17699@xxxxxxxxxxxxxxxxxxxx><001e01bfa4ee$b27d6fc0$9231bccc@xxxxxxx> <38F5C592.E95B0830@xxxxxxxxxxxxxxxx> <001801bfa550$66ac5540$3cbfbfd0@xxxxxxx>
Subject: [RT] Investing in commodities
Date: Thu, 13 Apr 2000 09:38:39 -0600
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Status:
I share the same view regarding investment in commodities versus
trading, however I'm finding that commodities are a much more
challenging investment than are stocks and bonds. I started the year
with a clear idea of how I would invest in commodities, however the rub
comes in the details ... specifically the limited life of each contract
and the contract premium which, like an option, decays over time. Buy
the near contract and you have little premium and many rolls. Buy the
far contract and you have fewer rolls and more premium. Currently, for
example, the Dec00 W contract carries a 38 cent premium over the about
the expire May contract and this represents a significant chunk of
potential profit ... $2000 per contract.
As a result, I've come to the view that one will do better trading
within the longer term trend than attempting a buy and hold requiring
the expenditure of large premiums or frequent rollovers. A buy and hold
approach led me to give back some large profits in corn earlier this
year, when it would have been far better to sell March corn and wait for
the retracement to buy May corn. This is why, for example, I elected to
sell my May sugar last Thursday & Friday near projected highs rather
than roll into the July contract ... I expect that I will be able to
purchase the July contract at lower prices when it retraces. If not,
I'll find some other place to enter or trade something else. One other
trading tool which seems to provide income to offset futures premium
costs is to sell near term OOM calls at projected highs in the
expectation that the calls will expire worthless during a retracement.
This of course requires trading agility ... In the case of the
aforementioned corn, I missed getting filled on my short call orders by
1 tick before the market retraced which of course meant I didn't collect
the planned premium.
Would certainly like to hear other practical approaches to the challenge
of holding longer term commodity positions.
Earl
----- Original Message -----
From: "Clyde Lee" <clydelee@xxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Thursday, April 13, 2000 7:58 AM
Subject: [RT] Re: cotton
> I have been working on LONGER term systems and indicators
> which seem to indicate that "investments" in commodities may
> in fact yield better profits than "trading" of commodities.
>
> The attached is a picture of some initial work on the system and
> indicator for cotton.
>
> Although the system is LONG at the present time I would
> suggest you compare the behavior in the two yellow circles
> before you jump in feet first -- might be better to wait for
> a breakout and a true reversal of this very, very, longterm
> downtrend.
>
> Clyde
>
>
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> Clyde Lee Chairman/CEO (Home of SwingMachine)
> SYTECH Corporation email: <clydelee@xxxxxxx>
> 7910 Westglen, Suite 105 Work: (713) 783-9540
> Houston, TX 77063 Fax: (713) 783-1092
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>
> ----- Original Message -----
> From: "Bob Hunt" <RHunt.066@xxxxxxxxxxxxxxxx>
> To: <realtraders@xxxxxxxxxxxxxxx>
> Sent: Thursday, April 13, 2000 08:03
> Subject: [RT] Re: cotton
>
>
> > I also have a number of Pattern Signals fired which suggest higher
> > prices for cotton (attached .gif)
> >
> > The Wide Range Upside Reversal signal is activated when three
> conditions
> > have been satisfied: 1) the low of the day is the lowest low of the
> last
> > five, 2) the trading range of the day is the widest range of the
last
> > five, and 3) the close is within the top 25% of the day's range.
This
> > signal typically marks significant intermediate term turning points.
> >
> > The 90-10 High Continuation signal is fired when the day's trading
> > closes within the top 10% of the day's range. It tells us that
> > yesterday's late day move higher is likely to continue on into
today.
> >
> > Bob Hunt
> > The Pattern Trapper
> > E-Mail: RHunt@xxxxxxxxxxxxxxxxxx
> > Web Site: http://www.PatternTrapper.com
> > Phone: 612-892-5550
>
>
> ----------------------------------------------------------------------
--
> --------
>
>
>
>
>
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