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What you say you may believe BUT, for a number of years
I worked with a very successful CTA. He was an absolute believer
in scaling out 1/2 of your positions at some profitable point.
I did not believe this until I started using Sharpe ratios and then
found that the equity curve would be one hell of a lot smoother
if this approach was taken.
The other aspect is the psychological aspects. If you grab a
profit and then the trade turns against you the psychological
effect is quite different than having the whole thing turn!!!!
Clyde
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Clyde Lee Chairman/CEO (Home of SwingMachine)
SYTECH Corporation email:clydelee@xxxxxxxxxxxxxxxxxxx
7910 Westglen, Suite 105 Office: (713) 783-9540
Houston, TX 77063 Fax: (713) 783-1092
Details at: www.theswingmachine.com
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----- Original Message -----
From: "topos8" <topos8@xxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Monday, September 16, 2002 12:43 PM
Subject: [RT] Re: Multiple Contract entry doesnt seem to make sense??????
> As far as I know there is only one reason to scale into (or out of) a
> trade. If you are trading big enough size the market may not be
> liquid enough to accomodate a big order without significant effect on
> the execution price. Along the same lines, if your trade position is
> of interest to others it is easier to hide your activity by spreading
> out orders over time and over brokers.
>
> Aside from such considerations, there is no "mathematical" reason to
> scale in or out of trades. The simple fact is that your system
> should be designed to make the best trades - i.e. to buy or sell at
> the price which offers the greatest expected profit given the
> information available at the time.
>
> To take your example, either the trade at 890 is the best trade or
> the trade at 895 is the best trade. Why short 890's if the average
> profit achieved by waiting for 895 is greater? (Here I am including
> the cost of "lost profits" which arises if 895 is never hit when
> calculating average profit). Similarly, why short 895 if the average
> result of shorting 890 is better?
>
> One aspect of this is the phenomenon you mention, namely always being
> short 2 contracts when you are wrong and sometimes only 1 when you
> are right - not a good betting strategy!
>
> I would be very suspicious of any system which prescribes scale
> entries - it smacks of something which has not been tested very well.
>
> Carl
>
>
>
> --- In realtraders@xxxx, "Sean Cassidy" <scassidy@xxxx> wrote:
> > In trying to reason through this....I would like some comments.
> Lets say the market is at 880 on the S&P and i want to go short at
> 890 and 895. One at the low end and another at the high end. Doesnt
> that mean that all of my losers will be for 2 contracts and several
> of my winners will only be for 1 contract. Fowllowing that....it
> would then seem that if I had twice as many winners as losers I would
> only break even, assuming a 10 point stop and profit target.
> >
> > I am having a discussion with someone about this and would like
> some feedback....although it seems obvious that with this method a 67
> 5 win rate breaks even....before commissions.
> >
> > An example
> >
> > 12 trades
> >
> > 8 winners at 10 pts 80 pts
> >
> > 4 losers at 10 pts but on 2 contracts -80 pts
> >
> > Total 0 pts
> >
> > Sean
>
>
>
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>
>
>
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>
>
>
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