ES Journal Archive (2006 - 2008)
- Thread starter Buy1Sell2
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The number is only calculated at the beginning of a trade not during the trade. The stop is always outside the noise and most of the time, less than 2 percent. --Trading account on 1 mil would be 200K and thus the loss of the trading account would be 10 percent but only 2 percent of TLNW. A trader never blows when adhering to this rule. In addition, one would never put on 50 different positions at once and thus risking 100 percent of TLNW. I use a general rule of 6 or 7 positions maximum at one time. Generally it is less than that, sometimes just one or two and yes, sometimes none.
So the trading account must always be at least 20% of the tlnw. 10% still sounds high on a stop loss. Do you recommend this management for someone who is just starting out and who has very little net worth ? It would seem only suited for one who has establish quite a bit of net worth and is trying to protect capital instead of growing it.
Observations:
Isn't it pretty much saying: It doesn't matter if I am in the market or not? And if so, then why be in the market at all?
Also, since you have 6+ different positions at the same time, you can not guarantee that they are all uncorrelated, (hell, min. 50% should be correlated, since there are only 2 directions) so the 2% rule should be multiplied by 3 at least as a whole, meaning that your real risk can be 6% or higher...Unless you meant the 2% as the sum of all 6 positions...
Quote from Buy1Sell2:
...so it really doesn't matter whether I am right or I am wrong.
Isn't it pretty much saying: It doesn't matter if I am in the market or not? And if so, then why be in the market at all?
Also, since you have 6+ different positions at the same time, you can not guarantee that they are all uncorrelated, (hell, min. 50% should be correlated, since there are only 2 directions) so the 2% rule should be multiplied by 3 at least as a whole, meaning that your real risk can be 6% or higher...Unless you meant the 2% as the sum of all 6 positions...
The trader who doesn't have the capital to trade should not be trading. I am not saying someone needs to be rich, but they need to be well enough capitalized to trade. A trader with 1k of TLNW would have a trading account of 200 and would be able to risk 20 dollars per trade. This would put them in the position of trading say mini corn and risking a total of 2 cents on one contract (assuming no commission--it's actually less than 2 cents when figuring in commissions). You could say then, that that trader is well enough capitalized to trade 1 mini corn if 2 cents was outside the noise, but only well enough funded to trade ES for a tick loss or NQ for a 1 point loss. This is the proper way to view money management.
I am in the market, because when right , I stay in for a larger gain than I would lose if wrong. Second point==markets change their correlation with each other all the time and so I treat each market on it's own merits/charts. For example, you will notice that during this downturn, treasury futures have dropped along with equities, but other times, treasuries advance with equity downturns. Same with the Yen etc. I don't really believe that market correlation needs to be looked at because the total number of positions relatively low. Besides, I cannot recall a time when I have had all positions going against me at once. ( I have had all positions going in my favor at once though). Even if they were and I lost 14 percent of TLNW, then the new 2 percent is a smaller dollar amount of the total. I would eventually hit a large winner or two (or seven) and then TLNW grows.
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