Money Mgmt beats Stops Everytime - Example
- Thread starter ProfitTakgFool
- Start date
Indeed, sooner or later a major trend will go AGAINST you...
Again, my point was that this post is about trading technique, and has NOTHING to do with money management. There is nothing wrong with counter-trend trading or not using stops-- but this is more about method. Saying its about money management because you only trade a few cars on a large account is a phallacy.
PFT,
I think you have to divulge a little in how you use statistics w/ this "money mgt" method. I'm sure you have your own profitable strategy, but with the way you presented it, seems like you are just getting lucky.
BTW, that was a fantastic posting you had about starting your own HF!
Trading is all about "risking a little for a chance to make significantly more... over and over again". -------->>> Now this part I agree with, and;
"If you can't accept that, why don't you just send me half of your trading capital and spend the other half on hookers and cheese... we'll both be better off..."----->>> This part is tempting me but I'm gonna have to spend it all on hookers and cheese.
"If you can't accept that, why don't you just send me half of your trading capital and spend the other half on hookers and cheese... we'll both be better off..."----->>> This part is tempting me but I'm gonna have to spend it all on hookers and cheese.
Alright, I'll give you a little more. The S&P is based on 500 stocks while the Russell is based on 2000. Since the Russell has very low volume, cheap stocks in the index, and trades more thinly than the ES the volatility is higher, but that pushes the market to extremes faster. Generally speaking, the Russell will not go much past +/-3.2 sigma if there is no news. If there is news then it could easily go +/-4 sigma. So, armed with that information I'm am fading prices around +/-3 sigma.
Now comes the risk. I have a set amount that I'm allowed to go in the hole by and a set amount of contracts I can't go over on any one trade. That limits my blow up risk to just being wreckless, which I'm not. I'm actually quite risk averse but that's kind of an oxymoron coming from a futures trader. Anyway, the risk of loss is that the market will go +/-3 sigma and then return to normal ranges by virtue of the market average catching up. When that happens and we go to new lows I must stop out, or if the market goes sideways long enough w/o showing me a profit I must stop out. The highest degree of risk with this strategy is having the market show me a profit and I don't take it, thinking I will get more profit but I don't. That's where the judgment comes in. I've been in a situation where the market will offer me money, I don't take it, and it turns into a big fat loss. I learned that lesson so I ALWAYS take a partial. I know on the surface it looks like I'm taking huge risks but quite the contrary is true. I've avoiding death by 1000 cuts and managing risk whenever the market allows me to, or when the market forces me to.
Now comes the risk. I have a set amount that I'm allowed to go in the hole by and a set amount of contracts I can't go over on any one trade. That limits my blow up risk to just being wreckless, which I'm not. I'm actually quite risk averse but that's kind of an oxymoron coming from a futures trader. Anyway, the risk of loss is that the market will go +/-3 sigma and then return to normal ranges by virtue of the market average catching up. When that happens and we go to new lows I must stop out, or if the market goes sideways long enough w/o showing me a profit I must stop out. The highest degree of risk with this strategy is having the market show me a profit and I don't take it, thinking I will get more profit but I don't. That's where the judgment comes in. I've been in a situation where the market will offer me money, I don't take it, and it turns into a big fat loss. I learned that lesson so I ALWAYS take a partial. I know on the surface it looks like I'm taking huge risks but quite the contrary is true. I've avoiding death by 1000 cuts and managing risk whenever the market allows me to, or when the market forces me to.