tech/a said:.
Lets see if you have caught on?
1) I have 25000 and wish to buy a stock trading at $1.65. I wish to risk only 2% and my stop is 6 cents.How many can I buy?
2) How would you be doing if you won 4 out of 10 trades with that average ratio of R/R?
Ill check back tommorow and see how you and or anyone else went.
BSD said:3/ What sort of hole gets blown in your 'portfolio' when:
a. The Dow drops 2% overnight, the SPI is down 200 points on the open and the first bidder in your hot stock is 8% lower than your planned stop.
b. Your hot stock goes into a trading halt due to a placement and re-opens at a 10% discount with profitable placement stock getting slammed into the market.
c. Your company is being towelled and there is insufficient volume on the bid to knock out $30,000 worth let alone a decent line - you have a decent sized line and cannot unload without slamming the price to silly levels.
In these situations, do you slam the bid with your stop or 'hang in there'?
Fortunately the "Perfect" world tends to dawn over 98% of the time. While the events do occure and worse (delisting) they arent a norm.I would rather have them in place that not at all.I am not saying money management isnt important, it is very important - my point is that this sort of precision is a bit too 'perfect world'.
This type of position sizing (and anything to do with using historical vol in position sizing) opens punters up to the risk of excessive confidence and ugly gaps.
This is particulary the case in stocks that are not liquid, trade OS with big gaps and/or involve leverage (derivative or funded).
Imagine the feeling of 9 months of regular small gains getting whipped in a day
BSD said:3/ What sort of hole gets blown in your 'portfolio' when:
a. The Dow drops 2% overnight, the SPI is down 200 points on the open and the first bidder in your hot stock is 8% lower than your planned stop.
b. Your hot stock goes into a trading halt due to a placement and re-opens at a 10% discount with profitable placement stock getting slammed into the market.
c. Your company is being towelled and there is insufficient volume on the bid to knock out $30,000 worth let alone a decent line - you have a decent sized line and cannot unload without slamming the price to silly levels.
In these situations, do you slam the bid with your stop or 'hang in there'?
I am not saying money management isnt important, it is very important - my point is that this sort of precision is a bit too 'perfect world'.
This type of position sizing (and anything to do with using historical vol in position sizing) opens punters up to the risk of excessive confidence and ugly gaps.
This is particulary the case in stocks that are not liquid, trade OS with big gaps and/or involve leverage (derivative or funded).
Imagine the feeling of 9 months of regular small gains getting whipped in a day
Funnily enough, I had this exact situation very recently with one of my long term positions which had punched through its stop loss (it's in the ASX300). Clearly everyone was in this for the very substantial dividend, and come EX dividend time, it was "last one out shut the door and turn out the lights".BSD said:c. Your company is being towelled and there is insufficient volume on the bid to knock out $30,000 worth let alone a decent line - you have a decent sized line and cannot unload without slamming the price to silly levels.
tech/a said:(2) Learn to trade LONGTERM before you even attempt SHORT TERM you are on the road to ruin---short term is NOT for you.
Im being VERY serious.
Oh, dear. Just promise Tech/A and I ONE thing; DO NOT TRADE WITH MONEY YOU CANNOT AFFORD TO LOSE.nizar said:remind me, why am i all of a sudden on the road to ruin??
i think im gonna paper trade for a while. My stats will let me know in what sort of "ruin" i will be on the road to.
MichaelD said:Oh, dear. Just promise Tech/A and I ONE thing; DO NOT TRADE WITH MONEY YOU CANNOT AFFORD TO LOSE.
You're about to learn market psychology the hard way. Good luck (sincerely).
Sorry if i hit the wrong buttons somewhere peoples, a minute ago u were very helpful but now all of a sudden not...
nizar said:Sorry if i hit the wrong buttons somewhere peoples, a minute ago u were very helpful but now all of a sudden not...
Doubt me at your peril, good luck on your endeavours and we just mite meet again someday.
tech/a said:A,B Im out.
C Im stupid.
Fortunately the "Perfect" world tends to dawn over 98% of the time. While the events do occure and worse (delisting) they arent a norm.I would rather have them in place that not at all.
Where did or are you getting that I/we are using historical volume? Volume one can purchase is being calculated from risk Ive not mentioned the volume of the stock being traded.
Its not required for the calculation.
trading anything with less than $500K traded in a day in smalls is crazy.
the style introduced here is based around hopping on momentum.
I doubt that any of those in the examples could e classified as illiquid.
Man that would be ugly I would have to lose in one day my entire initial capital base all stocks would have to drop at least 50%.
I wouldnt be the only one having a bad day if that were the case.
Id have plenty of drinking buddies.
Gotcha'BSD said:Wayne, I don't think my examples create moot points, they should identify to people the possibilities of massive losses if you get too aggressive in staking size. My belief is that these methods have people getting too big in their trades and getting terrible prices on exit from having no discretion.
Someone willing to lose $2,000 of their $100,000 bank on a trade using a 4% stop they could feasibily put 50% of their capital into the one trade.
They may gear up and have $300,000 to play with across 6 similar situations - but only $100,000 is actually theirs.
I was interested to see that the discipline requires the seller to hit the bid and trundle the stock lower to 'protect' capital.
In my ungeared example above, an 10% break down loses the punter 5% of his entire stake and a 15% slip loses 7.5%.
Leverage could make it a lot worse. Losing 5% of the bank's stake means losing 10% of yours.
If these events happen only 2% on the time (50-1), assuming 250 trading days, one of these events happen five times a year.
The situations I highlight are real and not doomsday stuff.
My point is that they are rare occurances, but the magnitude of the potential losses are significant enough to be very wary and maybe even, to apply some discretion from time-to-time in exiting under these scenarios.
I mentioned historical vol because some use this in calculating their stake size based on the potential for the daily vol to lose them their accepted loss.
Much comment on this thread surrounds highly volatile stocks or at least stocks going through an extreme event on the upside. I am commenting on the potential effects of being excessively aggressive in position sizing with extreme downwards breaks in mind.
From page one - AUZ, ITE, CSM, MBP...
Finally, liquidity can be very fleeting. $1bn stocks can often dry up and on days like those 2% days, trying sell a decent line of stock can take a very long time. $500m traded can turn quickly to $50K traded on a bad day.
I remember having an order to work in MBP that took 2 weeks to unload. If we were pulling the trigger on that one 'at market' on a bad day - there wouldnt have been sufficient bids to fill half the line at any price.
I havent mentioned losing your entire bank in any of these scenarios - just wiping out your 15% profit from the last 6 months on one bad day because a trader:
a. Is too aggressive - basing their staking on the 98% scenario and not the 2%
b. Exercising no discretion
c. Is using an assumption of liquidity
d. May be using a strategy not suited to their actual parcel size
e. Investing in stocks that are sub-quality and full of day traders with the same idea
f. Are not diversified anywhere near enough
Not being critical; hopefully adding another perspective and helping people protect their capital
Any trader who puts 50% of their capital into one trade is assured of blowing up eventually courtesy of the rare but inevitable outlier black swan event. For this reason, an essential part of robust position sizing is setting a limit for any one given position, so that even if your basic money management calculation says put 50% of your capital on one trade, you downsize this to less. Personally, I won't put more than 15% of my capital into any one trade. Some would go as high as 25%.BSD said:Someone willing to lose $2,000 of their $100,000 bank on a trade using a 4% stop they could feasibily put 50% of their capital into the one trade.
MichaelD said:Any trader who puts 50% of their capital into one trade is assured of blowing up eventually courtesy of the rare but inevitable outlier black swan event. For this reason, an essential part of robust position sizing is setting a limit for any one given position, so that even if your basic money management calculation says put 50% of your capital on one trade, you downsize this to less. Personally, I won't put more than 15% of my capital into any one trade. Some would go as high as 25%.
A corollary of this is that using wide stops pretty much mandates small risk % position sizes.
"Everyone gets what they want from the markets" - Ed Seykota.nizar said:Good luck to you as well, though i can see you wont need it, your a champion and will destroy the markets Michael, tech u already have, and i sincerely mean that.
MichaelD said:Any trader who puts 50% of their capital into one trade is assured of blowing up eventually courtesy of the rare but inevitable outlier black swan event. For this reason, an essential part of robust position sizing is setting a limit for any one given position, so that even if your basic money management calculation says put 50% of your capital on one trade, you downsize this to less. Personally, I won't put more than 15% of my capital into any one trade. Some would go as high as 25%.
A corollary of this is that using wide stops pretty much mandates small risk % position sizes.
Please tell us more. I have not thoroughly researched the use of CFDs with a GSLO yet, and my question would be;Porper said:However now with guaranteed stops with CFD'S, you can have a big play with a volatile stock.Some of the stocks IG offer have pitiful volume at times and have wild swings.
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?