Grinding it out, day after day

I hedge based on ATR and i never hedge 100%. Over the last couple months i would have been far better off not taking a hedge. I know this is just luck but when I'm hit with more short shares and the market goes down and somehow i lose money that day....I'm pissed.

Currently I'm trying to track at what percentage out of fair value I'm hit should i not hedge. Currently don't hedge anything over 1% but i think i should do it on a graduating scale. Any comments?
 
Lescor, did you trade Sybase (SY) today? I basically broke even, was just curious how much it was actually possible to take from such a spike.
 
Quote from lescor:

When I hedge with an ETF, it's done as part of a pre-defined plan. One of my strategies involves putting on positions that meet certain criteria. I will take these trades even if it gives me a lot more longs or shorts. But I don't want the strategy to be dependent on market direction, so I have built in a formula to start adding spy or something similar at certain levels.

If I'm building into and adding to positions playing for a mean reversion, like in the case of a strong market move, I don't hedge those. As positions build up and go against me, the heat increases. I size accordingly so I can take the heat, but if it gets out of hand, I start taking losses rather than hedge.
More...

Kind of odd that even without specifics you wrote more about good trading here than most blogs on the internet.
 
hey lescor,

great work on the journal, definitely a good read and headed for the ET Hall of Fame.

I have a question about your mean-reversion and your position sizing.

When you build up your position, do you use equal clip sizes at static price points? for example for every 3 cents you add 300 shares all the way until either the trade reverts to the mean or you hit your max risk?

Is it better to take on more risk incrementally to achieve a lower break-even price point? For example for every cent add last clip size plus 100. the trade looks like this.

15.50 - 100 shares
15.49 - 200 shares
15.48 - 300 shares
15.47 - 400 shares

I find that using this way of adding to position lowers your break even point by a few cents, so you don't even need a 50% retracement to hit break-even or better. Is the ability to achieve this lower break even point worth the added risk?

thoughts?
 
Lescor,

Would it be a fair statement to say that most RTM type traders that you're familar with tend to fade the retracements, as opposed to fade the trend in a classic sense?

thanks,

Walt
 
Quote from TokyoGhetto:

hey lescor,

great work on the journal, definitely a good read and headed for the ET Hall of Fame.

I have a question about your mean-reversion and your position sizing.

When you build up your position, do you use equal clip sizes at static price points? for example for every 3 cents you add 300 shares all the way until either the trade reverts to the mean or you hit your max risk?

Is it better to take on more risk incrementally to achieve a lower break-even price point? For example for every cent add last clip size plus 100. the trade looks like this.

15.50 - 100 shares
15.49 - 200 shares
15.48 - 300 shares
15.47 - 400 shares

I find that using this way of adding to position lowers your break even point by a few cents, so you don't even need a 50% retracement to hit break-even or better. Is the ability to achieve this lower break even point worth the added risk?

thoughts?
More...


1, 1, 1, 3

is the RTM betting that I usually see. Bottom line is the spacing and knowing when to cut is most important.
 
Quote from trackstar:

1, 1, 1, 3

is the RTM betting that I usually see. Bottom line is the spacing and knowing when to cut is most important.
More...

so you mean the trade would look like this -

15.50 - 100 shares
15.49 - 100 shares
15.48 - 100 shares
15.47 - 300 shares

Your example has a 2 cent break-even point with 600 shares inventory and a $12 draw down.

My example has a 2 cent break-even point with 1000 shares inventory and a $20 draw down.

The goal would be to take on as much inventory as possible while managing risk and achieving the lowest break even point possible.

What if your quoting a market 20 cents deep? does the inventory accumulation still go 1,1,1,3,1,1,1,3 etc etc??

spacing is dependent on volatility.
Risk would be modeled so that the trade would only cut in the worst case scenario (Thurs, May 6) for example.

Thanks for your input and I am definitely looking forward to lescor's opinion on this.
 
Quote from boba15:

Lescor, did you trade Sybase (SY) today? I basically broke even, was just curious how much it was actually possible to take from such a spike.
More...

I was out of the office and came back just after SY started making it's psycho move. I missed the first minute but as soon as I saw the chart I thought "buyout". So I was very very cautious and dabbled with just a few hundred shares. Even at that I was down 3 grand in a blink. I touched green briefly and it looked like it might workout out ok. Ended up happily getting out with a 600 dollar loss.

Regarding sizing and fading moves, I generally will add incrementally more size as the stock moves further against me, but it's pretty subjective based on how good the set up looks to me. If it looks iffy, I will wait longer and maybe actually add smaller. SY is a good example. I initially went in with 300 shares and added once but only 100 shares, it just looked too dangerous to pile in any more. I actually was starting to take some losses at the time it reversed.
 
Quote from TokyoGhetto:

so you mean the trade would look like this -

15.50 - 100 shares
15.49 - 100 shares
15.48 - 100 shares
15.47 - 300 shares

Your example has a 2 cent break-even point with 600 shares inventory and a $12 draw down.

My example has a 2 cent break-even point with 1000 shares inventory and a $20 draw down.

The goal would be to take on as much inventory as possible while managing risk and achieving the lowest break even point possible.

What if your quoting a market 20 cents deep? does the inventory accumulation still go 1,1,1,3,1,1,1,3 etc etc??

spacing is dependent on volatility.
Risk would be modeled so that the trade would only cut in the worst case scenario (Thurs, May 6) for example.

Thanks for your input and I am definitely looking forward to lescor's opinion on this.
More...

I can already tell you his answer.

"It depends"
 
You must log in or register to reply here.
Back
Top