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Clyde:
There are two possiblities.
If taking partial profits smooths the equity curve WITHOUT changing
its rate of growth then it is clearly better to get out completely at
what was the partial profit taking point, for then the equity curve
would be smoother still and yet still show the same rate of growth.
If taking partial profits smooths the equity curve but only at the
cost of reducing its rate of growth, then one can achieve the same
smoothing effect by trading smaller size and not taking partial
profits. Of course, if you are a CTA your clients might not like this
because more of their money remains idle.
As to the psychological aspects of all this I concur that one must
trade in such a way as to preserve one's pyschological capital as
well as one's montetary capital. Taking partial profits has the
positive effect of reinforcing one's confidence. On the other hand
I have observed many people who feel almost as bad about leaving a
potential profit "on the table" as they do when they let a profit
turn into a loss or a sratch trade.
Carl
--- In realtraders@xxxx, "Sean Cassidy" <scassidy@xxxx> wrote:
> I agree and thank you for the advice Clyde....for now at least am
just trying to answer the entry question. I do believe in taking
partial profits....
>
> Sean
> ----- Original Message -----
> From: Clyde Lee
> To: realtraders@xxxx
> Sent: Monday, September 16, 2002 1:54 PM
> Subject: Re: [RT] Re: Multiple Contract entry doesnt seem to make
sense??????
>
>
> 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
> - - - - - - - - - - - - - - - - - - - - - - - - - - - -
> Clyde Lee Chairman/CEO (Home of SwingMachine)
> SYTECH Corporation email:clydelee@xxxx
> 7910 Westglen, Suite 105 Office: (713) 783-9540
> Houston, TX 77063 Fax: (713) 783-1092
> Details at: www.theswingmachine.com
> - - - - - - - - - - - - - - - - - - - - - - - - - - - -
>
> ----- Original Message -----
> From: "topos8" <topos8@xxxx>
> To: <realtraders@xxxx>
> 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
> >
> >
> >
> > To unsubscribe from this group, send an email to:
> > realtraders-unsubscribe@xxxx
> >
> >
> >
> > Your use of Yahoo! Groups is subject to
http://docs.yahoo.com/info/terms/
> >
> >
> >
>
>
>
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