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Strategies & Market Trends : DAYTRADING Fundamentals -- Ignore unavailable to you. Want to Upgrade?

To: TraderAlan who wrote (11836)	2/14/2001 11:46:10 AM
From: KymarFye	Read Replies (1) \| Respond to of 18137

I think the question comes down to considering the range of bad to worst case scenarios ahead of time, and knowing how you're going to handle them - when and if and how you're going to suspend "normal" trading rules and invoke trading rule 3A/sub-1/clause f... etc. The ATHM example is a good case in point: If you'd let yourself get stopped out in a panic, you'd get a horrible fill, probably at the high of the day, while if you waited an hour or so (maybe even a few minutes?) you'd have recovered a bit, waited a day or two you'd have recovered a substantial amount, waited a month or so have recovered completely, waited a couple months be ahead on the trade, waited a year or so be doing just fine... Not saying that, real-world, I'd have been able to perform the latter responses (in THAT market, in THAT sector, when every analyst and their dog was saying ATHM was a lead pipe cinch - I'm not THAT pretentious), but the performance does conform to statistics on huge moves - they're usually re-traced, typically at least to wherever they close, often a lot further. To pick a more recent example, I'm sure there must have been more than a few people caught short on the day of the surprise Fed ease - again a "management response" would have been far superior to panic, within three sessions the move had almost entirely been re-traced. The price shocks I've experienced directly have likewise proved somewhat susceptible to management - a mechanical (or panic) reaction would have been the worst thing. Another good reason to keep your bets small enough - so that you can afford to keep your head while everyone else is losing theirs, or however the poem goes. I think it was one of the Turtles or maybe Perry Kaufman or maybe both who performed a study a few years ago that concluded most traders and investors severely underestimate the frequency, severity, and impact of price shocks. The money management math says that if you're betting too much (often less than you'd think), you're virtually certain to bust out. I'm always ready to be enlightened by any ideas or approaches from the perspective of your much greater experience and expertise.