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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank -- Ignore unavailable to you. Want to Upgrade?

To: TimbaBear who wrote (52569)	7/24/1999 8:19:00 PM
From: WaveSeeker	Respond to of 120523

TimbaBear, Van Tharp's book is excellent despite the dorky-sounding title. The "position sizing" chapter alone is worth the price where he compares various money management techniques such as equal value, percent risk, and volatility risk strategies. The comparison of each of these methods is eye-opening because the equity curve for the volatility risk model outperforms the other strategies by a wide margin. In our fund's proprietary trading, all of my profit targets and stops are based on multiples of an average of the daily true range (DTR), for example, I might look for 1.5 x DTR on the upside and 1.0 x DTR on the downside. So take the following theoretical example - I have $100,000 and I want to take a position in Yahoo (let's assume that Yahoo has an average DTR of 10 points per day). The maximum volatility I allow is 2% to avoid "risk of ruin". So multiply 100,000 by 0.02 = 2,000 and divide by 10: your Yahoo position would be 200 shares. This is also a very effective technique to determine whether or not you are taking too much risk in your own trading. I know of too many day traders with less than $100,000 that regularly buy and sell 1000 shares of EBAY or YHOO. Selecting your volatility percentage is entirely dependent on the efficacy of your trading technique. The higher the efficacy, the greater you can set your percentage. But of course there is a practical ceiling where you are exposed to "risk of ruin" regardless of technique. WS