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EWZuber
1,373 posts
msg #30298
Ignore EWZuber
12/15/2003 3:20:41 AM

Turns out KRY did test and bounce down off of the 25 DMA on 12/8 rising the next morning on a slight gap up then dropping and causing a break of the supporting trendline and a -xover of stochastics.






alf44
2,025 posts
msg #30304
Ignore alf44
12/15/2003 3:57:09 PM

mika...RE: Money Management

This is MY approach :

1) Decide on your desired Overall Account Risk (ie. HEAT). This will be the SUM of the risks in all OPEN Positions. For me...4% HEAT !!! That means that the SUM of risk (to my overall acct) in ALL my OPEN positions will never exceed 4% !

2) Decide on the diversification (ie. # of positions (or sub. accts) you would like to have...given a particular Account Size & desired Overall Account Risk (from above) !

Example:

$5000 Acct. = 2 positions (so 2%/each overall acct risk = 4%)
$10,000 Acct. = 3 positions (so 1.33%/each overall acct risk = 4%)
$20,000 Acct. = 4 positions (so 1%/each overall acct risk = 4%)
$40,000 Acct. = 5 positions (so .80%/each overall acct risk = 4%)
$80,000 Acct. = 6 positions (so .667%/each overall acct risk = 4%)

Here as you can see...the largest risk (ie. 2% per pos.) is taken on with a smaller account (ie. $5000) but, the risk to the Overall Account remains just 4% ! With this level of risk (2%/pos.)...even with a small $5000 Account...I would have to have 50 losers in a row to BLOW OUT the Account ! Not likely !!!

Further, by keeping the Overall Risk (4%) constant as the Account grows...the position/sub. acct risk gets smaller and smaller. With an $80,000 Account (pos. risk is .667% of overall acct.) you would have to have 150 losers in a row to BLOW OUT ! Again, not likely !!!

3) Next, comes Initial Stop Loss ! For me it is 4% from my entry ! That's it...if it drops below 4% of my entry...I'm out !!!

4) And last (but probably the most important part) Position Size ! My Position Size HAS to take into consideration all of the above. I use a formula for that !

It is:

s = (E*R) / P-x

where:

s = shares traded (position size)
E = Equity (overall in acct.)
R = Risk (per position to overall acct)
P = Price (entry price of stock )
x = amount of STOP below entry (ie. P)


So...

If I were looking to BUY...XYZ @ $5/share !
And...my Overall Account Equity was $10,000 !
Diversification for an account that size is 3 positions (or sub-accts) !
Overall Acct. Risk (SUM of ALL RISK is 4% so...4%/3 positions = .04/3 = .0133 !
My Initial Stop Loss is 4% below my entry of $5...or $4.80...20 cents (or .20)!

Now, plug that into the formula to determine your Position Size !

s = ($10K * .0133) / $5 - .20

s = 133 / .20

s = 665 shares of XYZ (round up/down for round lot)

------------------------------------------------

Additionally, after the trade is on and moves in my favor I move my STOP to Breakeven after a 4% GAIN ! I then SELL half of the position upon an 8% GAIN (that's 2 times my initial risk) ! And I trail the remaining half with STOPs to let profits run !

Another thing. Obviously OPEN positions have risk that is determined by the STOP you are applying to them. If you have an OPEN profitable position and are applying a trailing STOP to that position (as you should be) you have OPEN risk down to that STOP level on that OPEN position. This OPEN risk needs to be accounted for when trying to determine Position Size on NEW positions. For that, I apply what is somtimes called "Core Equity" to the formula above. Core Equity is simply what is left after you subtract the total of ALL OPEN RISK from your TOTAL EQUITY !

That's the way I do it !

Sorry you asked ? LOL

Not for everyone...but it works !



Good Luck !

alf44










EWZuber
1,373 posts
msg #30305
Ignore EWZuber
12/15/2003 4:37:28 PM

One exception, your risk is not limited by your stop loss. I wish it was. If your stock gaps down at the open your stop loss will become a market sell order and will automatically be executed at the bid.
This is not always desirable, particularly if the stock rises considerably from the open.
When LOOK gapped down 61% from $3.02 to $1.17 it gapped down to a long term supporting trendline. This support held. I held shares and sold them when the new short term supporting trendline that was formed the day of the gap on hourly charts was broken at around $1.55.
That resulted in a 48.7% drop or a 12.3% recoup from the open. This helped mitigate the loss a bit.


alf44
2,025 posts
msg #30309
Ignore alf44
12/15/2003 5:33:28 PM

First, I DON'T put hard STOPS in the market.

I DO plan each trade on a worksheet that I have created that keeps me in touch with the daily action. This worksheet forces me to calculate my "mental stops" and write them down ! I do all this BEFORE I ever enter a trade. Plan the trade...Trade the plan ! I evaluate this worksheet continuously for as long as I'm in the trade. While it's not perfect...nothing is...it works well for me !

As for the LOOK trade that you mentioned...I'm pretty sure I would NOT have been in that trade at the time of that Gap Down ! In hindsight...that is ! LOLOL


Regards,

alf44






alf44
2,025 posts
msg #30310
Ignore alf44
12/15/2003 5:51:21 PM

Oooops !

Just saw this !

In my Money Management post I wrote:

s = (E*R) / P-x

where:

s = shares traded (position size)
E = Equity (overall in acct.)
R = Risk (per position to overall acct)
P = Price (entry price of stock )
x = amount of STOP below entry (ie. P)

------------------------------

It SHOULD have read:

x = STOP PRICE below entry (ie. P)

-------------------------------

Then, after plugging those numbers into the formula it SHOULD have read:

So...

If I were looking to BUY...XYZ @ $5/share !
And...my Overall Account Equity was $10,000 !
Diversification for an account that size is 3 positions (or sub-accts) !
Overall Acct. Risk (SUM of ALL RISK is 4% so...4%/3 positions = .04/3 = .0133 !
My Initial Stop Loss is 4% below my entry of $5...or $4.80...20 cents (or .20)!

Now, plug that into the formula to determine your Position Size !

s = ($10K * .0133) / $5 - $4.80

s = 133 / .20

s = 665 shares of XYZ (round up/down for round lot)

-------------------------

Sorry !

Hope that is clearer !




alf44










TheRumpledOne
6,358 posts
msg #30311
Ignore TheRumpledOne
12/15/2003 9:06:24 PM

So, Mika, how are you doing?



mika
131 posts
msg #30312
Ignore mika
12/15/2003 10:30:15 PM

heheh,..
That's exactly how I was playing it. I started with 2 positions and $8,000 and progressed to 6 positions..

alf44,
Thanks very much for your detailed explanations. This is exactly what I was looking for. Perfect!






EWZuber
1,373 posts
msg #30313
Ignore EWZuber
12/15/2003 11:22:36 PM

alf44
Thats what everyone said. I can't figure out how everyone else but me knew that the one year trendline, that LOOK successfully tested 5 times previously, was going to be broken that evening after the close. Funny how that works.
If I knew how it was done I could place bets just before earnings calls, contract announcements, or place short positions just before SEC investigations are announced and a host of other event related moves.


alf44
2,025 posts
msg #30315
Ignore alf44
12/15/2003 11:40:00 PM

EW...

...I just responded to mika's Money Management question and tried to share my basic approach.

If you want to perform a post-mortem on your LOOK trade maybe we should do it on another thread. JMO

I'm up for it...but let's do it somewhere else.



Regards,

alf44





alf44
2,025 posts
msg #30316
Ignore alf44
12/16/2003 12:37:43 AM

mika...

...the beauty of that (my) approach is that YOU can tweek it in terms of the overall "HEAT" you are willing to accept. Just realize that more than 2% - 5% RISK on your overall account, on any ONE trade, is considered excessive by most of the "pros". Read the Market Wizards books, Trading for a Living etc... etc...for further explanations of this.

The number of positions that I recommended for increasing Account Sizes is...for the most part...arbitrary. I chose to start with 2 pos. for a $5K acct. and add 1 pos. each time the Account doubled in size...up to 6 positions (for $80K acct). I would probably max out at 6 positions simply because it becomes too much to keep up with. I'm always reminded of a line from William O'Neil..."Diversity is just an excuse for ignorance !" Always liked that quote...but a little diversity is prolly a good thing.

Also, play with that formula !!! It's pretty powerful. IMO

It insures that you are always playing LARGER and LARGER positions as your account is growing LARGER and LARGER ! That's Good !!!

But maybe more importantly...it forces you to play SMALLER and SMALLER positions IF your account is suffering a drawdown and getting SMALLER and SMALLER ! That's also good !!!

It will help you STAY in the game...in fact, it all but insures that you stay in the game !

It addresses proper Position Size...and THAT is the "Hol;y Grail" of trading !!! IMO


Good luck,

alf44





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