Do you need Diversification? or Stoploss is enough?

Q

qll

Diversification is an investment term, mainly used to reduce risks. I am using it all the time in my portfolios. However, after I studied Larry Williams trade log and Fairy's diary, I found day traders don't use it at all. This makes sense:

1 they need to focus on one subject or at most two
2 with stop loss, who needs diversification to reduce risks?

the reason i ask this is that i found a way to increase drawdowns per position by using diversification, so i can accept 10% lose per day, although one position lost 30% and the other gained 20%. As I shorted Cu and Longed Al, or longed corn and shorted soymeal. So I can use 100% of all of my margins without fearing a SUDDEN BIG market move to the direction againt me.

And I don't use stops in those trades, because in fact I welcome big moves in either direction.
 
Besides monitoring your "portfolio" on an overall basis, you should want to do the same on a trade-by-trade basis. That way, you can weed out that 30% loser at a smaller level.
 
Intraday trading is nothing different than swing or position trading. When a person daytrades and looks at a chart he/she is looking for the same setups, support/resist, etc. A MAJOR (and i mean BIG) advantage a daytrader has over a position trader is trading off the open. When a position trade is already open and one is playing off the daily charts to manage said position the opening is basically going to do one of 2 things, it will go higher or lower and if a STOP or profit objective is not hit the opening is them mox-nix. Just another day of watching the position.

Ok, say you are long in a position and the mkt is opening down and all clues say this is going to be a ONE_WAY DOWN day. Again, if your STOP is well away and you see the mkt in a downstroke day.............YOU are going to miss a sweet opportunity to make some bacon. At best you will convince yourself this is just a minor correction in a bull mkt and all will be fine in a couple days. WELL, you just passed on some cash, you just convinced yourself to make ZIP as you will now be in a position that has lost ground. You now must make up that setback before you make another dime.

General Patton in the movie: "FALL BACK... HELL!!!! I do not like to pay for the same real estate twice"

THE NMAJOR advantage of daytrading and being flat at night is you can get a lot of beauty sleep and care less if the world blows itself up at night. At 1600 EST everyday.......trading is done, the evening is mine, free and clear of any mkt positions, no worry at all, no burn out.


Daytrading is not for wussies, daytrading is nothing less than position trading condensed down and requires a lot of FAST DECISIONS and quick thinking. Daytrading is extremely, VERY extremely important for newbies to get in there and fire away with all their powder (i recommend 1 ES contract at a time). What better way to learn how to TRADE? newbies need experience to hone the skills, get in the thick of the action, make mistakes daily, make a lot of mistakes.............. YOU WILL only learn from making mistakes (so keep em small).

Trade ONE instrument, pretend that instrument is like a women. We all know even the best of man can NOT handle more than ONE good women at a time.

Get the experience of the battles from daytrading, make a lot of decisions, then you will gain the experience necessary to play run with the BIG DOGS. "Do not stay on the porch all your life and watch the others have all the fun."

Have fun, but do not be slow, you are not getting any younger. Hone the skills, as the MUSIC MAN said: "You have to know the territory" ... :) :cool:

PS..... Another BEAUTIFUL thing about daytrading.... Who cares if the economy is going up or down? To worry and try to outsmart that fact is a waste of time. Having a bias if the mkt is going up or down will only hurt trading, opinions destroy the mind as you try to TRICK the mkt with intelligent thinking. Just forget all that silliness once the SP500 pit closes and call it a day. Let the moonbeams at CNBC rattle and babble all that yak, yak, you are a trader not an analyst. Know what you are and do it well.
 
man u are capital B for Booooooring.
Quote from bighog:

Intraday trading is nothing different than swing or position trading. When a person daytrades and looks at a chart he/she is looking for the same setups, support/resist, etc. A MAJOR (and i mean BIG) advantage a daytrader has over a position trader is trading off the open. When a position trade is already open and one is playing off the daily charts to manage said position the opening is basically going to do one of 2 things, it will go higher or lower and if a STOP or profit objective is not hit the opening is them mox-nix. Just another day of watching the position.

Ok, say you are long in a position and the mkt is opening down and all clues say this is going to be a ONE_WAY DOWN day. Again, if your STOP is well away and you see the mkt in a downstroke day.............YOU are going to miss a sweet opportunity to make some bacon. At best you will convince yourself this is just a minor correction in a bull mkt and all will be fine in a couple days. WELL, you just passed on some cash, you just convinced yourself to make ZIP as you will now be in a position that has lost ground. You now must make up that setback before you make another dime.

General Patton in the movie: "FALL BACK... HELL!!!! I do not like to pay for the same real estate twice"

THE NMAJOR advantage of daytrading and being flat at night is you can get a lot of beauty sleep and care less if the world blows itself up at night. At 1600 EST everyday.......trading is done, the evening is mine, free and clear of any mkt positions, no worry at all, no burn out.


Daytrading is not for wussies, daytrading is nothing less than position trading condensed down and requires a lot of FAST DECISIONS and quick thinking. Daytrading is extremely, VERY extremely important for newbies to get in there and fire away with all their powder (i recommend 1 ES contract at a time). What better way to learn how to TRADE? newbies need experience to hone the skills, get in the thick of the action, make mistakes daily, make a lot of mistakes.............. YOU WILL only learn from making mistakes (so keep em small).

Trade ONE instrument, pretend that instrument is like a women. We all know even the best of man can NOT handle more than ONE good women at a time.

Get the experience of the battles from daytrading, make a lot of decisions, then you will gain the experience necessary to play run with the BIG DOGS. "Do not stay on the porch all your life and watch the others have all the fun."

Have fun, but do not be slow, you are not getting any younger. Hone the skills, as the MUSIC MAN said: "You have to know the territory" ... :) :cool:

PS..... Another BEAUTIFUL thing about daytrading.... Who cares if the economy is going up or down? To worry and try to outsmart that fact is a waste of time. Having a bias if the mkt is going up or down will only hurt trading, opinions destroy the mind as you try to TRICK the mkt with intelligent thinking. Just forget all that silliness once the SP500 pit closes and call it a day. Let the moonbeams at CNBC rattle and babble all that yak, yak, you are a trader not an analyst. Know what you are and do it well.
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Quote from qll:
1 they need to focus on one subject or at most two
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I disagree. In general, new traders focus on 1 or 2 markets, professional traders trade multiple markets. You should also consider opportunity risk, there may be other markets setting up for a great trade opportunity while your primary market may not be offering many opportunities or could enter a prolonged dry spell. In this case, many traders tend to enter marginal trades out of boredom or because of the feeling that they need to trade. Just my 2c.
 
bitstream

Well, lets put just this one post with regards to your trading.

Pay attention and maybe even you might make some bacon. ..........Sorry to see you have a hard time believing others that try to help new traders.

You also someday might enjoy weeks where making over 15k is indeed satisfying. no more posts in answering your heartaches towards others. ....

:D watching a old Ron Howard movie of the good ole days. go to sleep ....:p
 
I've tried to daytrade (I.E. in in the morning, out a little bit later), and for stocks, it just does not seem to work for me. I can only buy 100 - 500 of shares at a time, and I do believe diversafication is key to the market. Therefore, I manage about 26 posistions across different sectors. The stocks do move, but it usually takes a few days or weeks in order for me to meet my goal of a 10 - 12 percent goal on the stock.

This is why I am considering testing out futures. It seems, if I can get ahold of the futures market, I would be able to better use my time in this market than stocks. Options, for the most part, have been successful for me over the past few months. However, only 4% of my portfolio is in options. 52% is stocks, 30% in cash, and 14% in funds and bonds.
 
Quote from qll:

Diversification is an investment term, mainly used to reduce risks.
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Sort of. Diversification is associated with the portfolio effect. The portfolio effect means that as the number of securities in a portfolio increases the portfolio volatility decreases. Portfolio effect means that a trader can use the same risk level and experience less volatility or increase risk, experience the same volatility but greater return.

Here is an example from my notes. I changed the names of the securities because I trade them.

----------------------% Growth-----% Greatest
----------------------Rate----------Drawdown

Hollow Tube----------27.97----------9.64

Hollow Tube +
Power Line-----------70.69----------3.40

Hollow Tube +
Power Line +
Frozen Food----------81.11----------3.99

Hollow Tube+
Power Line+
Frozen Food+
Big Oil---------------133.62----------2.51

See how the greatest drawdown value decreases as the number of securities increases? It does not take many securities to obtain most of the benefit of diversification. Perhaps three securities is sufficient.

the reason i ask this is that i found a way to increase drawdowns per position by using diversification, so i can accept 10% lose per day, although one position lost 30% and the other gained 20%. As I shorted Cu and Longed Al, or longed corn and shorted soymeal. So I can use 100% of all of my margins without fearing a SUDDEN BIG market move to the direction against me.
More...

I suspect performance might be better with unrelated commodities such as copper and sugar. Maybe I can back test the idea.

And I don't use stops in those trades, because in fact I welcome big moves in either direction.
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You might want to think about managing risk. Would you drive a car without brakes?
 
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