Position sizing

[mschey]

Interesting handle you have, Holy Grail. Are you still stuck in the search for the fabled cup that offers everlasting life? Or are you looking for the perfect system that offers unlimited upside with little or no drawdowns? Let me help you out here, it doesn't exist. The closest thing you'll ever get to a perfect system, is to find a system that trades well in a particular market, create systems to cover the array of markets that one observes, then spend your time identifying what type of market we are in and apply the system that performs best in that market.

So a statement such as you pay a heavy price for being too conservative is an arrogant statement? It is a mathematical fact. There is an opportunity cost, and traders should consider that when deciding there money management strategy. I have known many traders, edges come and go...I have never met a trader who thought I should have traded smaller. Nearly everyone wished they would have trade bigger "back when trading was good!"

Leverage, when used appropriately, with proper risk management is not some thing to be feared. It's to be embraced. As I've said before, the best opportunities in the market place tend to cluster, those who have access to the most capital will outperform those who don't.

If you don't have an edge...DON'T TRADE! Before I trade any strategy, I spend months at a minimum, and my latest strategy, I have been working on for over a year. Doing simulated trades every day after the market closes. Then, when I go live, I trade it in the smallest increment possible to verify that my actual results are close to the simulated results, then and only then, do I start to trade the strategy and put some money behind it.

Trading is my great passion in life. I wanted to trade since i was in 6 th grade and my first investment was in Dome petroleum. I .50 penny stock that went to $2. I have been trading full time for five years. It is my sole source of income, and I am successful, I do what others dream of and that's trade for a living. I am not the best out there, I am very good, good enough to offer quality advice to others wanting to follow in my foot steps, or the foot steps of other great traders. If you don't like the messenger fine....but it's in your best interest to read and study my message.

Reading your posts adds further proof to my belief that most on ET are hacks and wanna be's. Arguing with you is like putting a screen door on a submarine....it just doesn't make sense. My advice is that you spend less time posting, more time studying the game...and come back when you know something about trading. Ok Pumpkin? Be gone you hack!

It's time for me to stop out of this bad trade!

 

[ElectricSavant]

Here... let me give you an example.

Lets say you trade arbitrage...lets say that for every pip you become out of balance you increase the probability say with a hypothetical 10%...you can understand that the arbitrage can be complicated and a basket of instruments are used to decrease risk and reliability.

So the farther you get out of balance the more probable you will return to the mean...thus higher bet size. (You do not even need to return that much if you corner the trade the way I do THROUGH SCALED POSITION SIZE CALCUALTED WITH A BLACK SHOLES EXPECTANCY). I do not mean to brag, I just need to drive this point home. I can even reduce polarity of the arb, but please do not ask and no PM's.

Quote from psytrade:

ive never come across an edge where you could vary position size based on the probability of a signal, though im sure you could vary it if the position wasnt correlated to the other one.

so what sort of anomaly could you trade off making money on two positions in one market, with the same risk? something mean reverting i guess. say a collapse of volatility or an increase of volatility. but unless you have a guaranteed signal, there is no way in my mind to limit market risk the way you suggest. at least in the long-term. if you are trading discretely, one trade long, followed by and exit followed by a short in a pattern, i suppose that risk could be seen as not the same as an outright long or short position. it would behave like an option, with the minimal cost being slippage and commission, and borrowing charge. the downside risk would be controlled.

definitely a real dream of an algorithm if such one is out there.

 

[HolyGrail]

Quote from ElectricSavant:

Well if you measure yield against risk no...its according to how you think?

See... I am proving on how much I agree with you.

But this ego measurement stuff needs to go.

LOL.

Ok, let's say the oil industry is inversely related to the airline industry(which it probably is). If the market tanks they are both going to go down. My risk is still more isn't it?

 

[ElectricSavant]

I am a currency trader, I really do not know. Sure Argentina went BK..the marketamaker could go BK ...But I do not trade the "sky is falling"...

Quote from HolyGrail:

LOL.

Ok, let's say the oil industry is inversely related to the airline industry(which it probably is). If the market tanks they are both going to go down. My risk is still more isn't it?

 

[HolyGrail]

Quote from mschey:

Interesting handle you have, Holy Grail. Are you still stuck in the search for the fabled cup that offers everlasting life? Or are you looking for the perfect system that offers unlimited upside with little or no drawdowns? Let me help you out here, it doesn't exist. The closest thing you'll ever get to a perfect system, is to find a system that trades well in a particular market, create systems to cover the array of markets that one observes, then spend your time identifying what type of market we are in and apply the system that performs best in that market.

So a statement such as you pay a heavy price for being too conservative is an arrogant statement? It is a mathematical fact. There is an opportunity cost, and traders should consider that when deciding there money management strategy. I have known many traders, edges come and go...I have never met a trader who thought I should have traded smaller. Nearly everyone wished they would have trade bigger "back when trading was good!"

Leverage, when used appropriately, with proper risk management is not some thing to be feared. It's to be embraced. As I've said before, the best opportunities in the market place tend to cluster, those who have access to the most capital will outperform those who don't.

If you don't have an edge...DON'T TRADE! Before I trade any strategy, I spend months at a minimum, and my latest strategy, I have been working on for over a year. Doing simulated trades every day after the market closes. Then, when I go live, I trade it in the smallest increment possible to verify that my actual results are close to the simulated results, then and only then, do I start to trade the strategy and put some money behind it.

Trading is my great passion in life. I wanted to trade since i was in 6 th grade and my first investment was in Dome petroleum. I .50 penny stock that went to $2. I have been trading full time for five years. It is my sole source of income, and I am successful, I do what others dream of and that's trade for a living. I am not the best out there, I am very good, good enough to offer quality advice to others wanting to follow in my foot steps, or the foot steps of other great traders. If you don't like the messenger fine....but it's in your best interest to read and study my message.

Reading your posts adds further proof to my belief that most on ET are hacks and wanna be's. Arguing with you is like putting a screen door on a submarine....it just doesn't make sense. My advice is that you spend less time posting, more time studying the game...and come back when you know something about trading. Ok Pumpkin? Be gone you hack!

It's time for me to stop out of this bad trade!

Again, more psycho-analysis on your part. You really should stick to what you think you know. I picked the name holygrail because the only true holygrail is position sizing and risk management. Everything else is just temporary success or failure. The markets change and what worked last year may not work this year. Money and risk management are the only things we can control, and that is why it is the holygrail.

I may be a hack, but I bet my penis is larger than yours

 

[HolyGrail]

Quote from ElectricSavant:

I am a currency trader, I really do not know. Sure Argentina went BK..the marketamaker could go BK ...But I do not trade the "sky is falling"...

I know you shouldn't trade the sky is falling but you still have to cover your butt good enough so if it does fall you don't lose everything you have worked hard to gain.

 

[ElectricSavant]

Well if you are as big as you say you are then this is incorrect too..

Money and risk management are the only things we can control

 

[ElectricSavant]

I was hoping you would challenge me on how to remove risk from leverage...but there you go again..cheap ass won't even buy me a root beer...

Quote from HolyGrail:

I know you shouldn't trade the sky is falling but you still have to cover your butt good enough so if it does fall you don't lose everything you have worked hard to gain.

 

[Buy1Sell2]

Quote from HolyGrail:

Well I can see if you trade two instruments that are inversely correllated you will reduce your risk, but at the same time wouldn't that reduce your profits as well?

yes until they correlate and everyone gets a big surprise

 

[HolyGrail]

Quote from ElectricSavant:

I was hoping you would challenge me on how to remove risk from leverage...but there you go again..cheap ass won't even buy me a root beer...

LOL, well I study human nature and I know it's killing you not to tell me.