dvar = daily value at risk, it's calculated by: p&l / stop loss
with this trading style positions are all stopped out when the daily p&l loss limit is reached, whether by 1 terrible trade or 10 small losing positions that added up to the limit. if the positions were never good, we get flat before the close of the electronic market. no positions are ever held overnight.
forgive me for not answering the 2nd question but i'm switching because i feel more comfortable not posting $'s in the journal since $ returns really aren't important % returns are significantly more important.
he'll be trading with a dvar of about 5% each day, so if he can hit the target of 1.5-2 dvar / month that is 7.5-10% returns monthly. ideally we won't see any drawdowns in excess of 10 puke points (s/l), and even hitting the low end of 1.5 pp / month would return 240% / year while a 10 pukepoint drawdown would be about a 45% loss or almost 5:1 ratio. (in my career of 7+ years my largest 2 drawdowns were 8.8 pp may to june this year and 5.7 pp sep 08 to mar 09 with a career average return of 1.65 pp / month with a var of 8.07)
during drawdowns resize -30% to risk at -6 dvar and a further -30% after an additional -6 dvar, on upswings resize every time a new high by a dvar from the most recent resize is hit. that way we are able to leverage our upside to the maximum while only slowly deleveraging during drawdowns so that we have an opportunity to dig our way out with as big of a shovel as we dug our hole until that hole is kneck deep if you will, then we switch shovels til it starts moving in our direction (has only happened to me once and that was in may-june of this year)
i encourage everyone to think of their p&l in terms of dvar (or %) much more than raw numbers because it is scalable and can help people keep a cooler head when they begin to deal with larger numbers. i always thought of my p&l that way and applied sit&go poker bankroll theory to decide i was willing to risk 5% per pukepoint (which i understand is about double what conservative traders would recommend you put at risk, but then again i'm trading spreads rather than outrights so i feel i can bet a little more and i'm fine with going bust because i'm still young and can regrow an account).
ok i think i'm beginning to ramble
