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

To: Tai Jin who wrote (22)	6/6/1999 12:31:00 AM
From: Bilow	Respond to of 18137

Hi Tai Jin; Great comment on risk management! A good proportion of the traders I have seen crash and burn had the incredibly bad habit of increasing their share size after a loss. Since traders tend to trade in streaks, it is better to decrease share size after losses, and increase share size after gains... There is a great book written solely with the purpose of helping traders decide how big of a position to put on. I have it, and it opened my eyes in several ways: The Mathematics of Money Management: Risk Analysis Techniques for Traders by Ralph Vince shop.barnesandnoble.com It is $48.96 at www.bn.com, from the above link. The figure of merit is how much of your equity is at risk for each consecutive trade. The book suggests that 1% is a reasonable figure. This applies to the amount at risk, not the gross amount of the trade. For instance, if you could reasonably expect to scalp a reasonably liquid stock without ever having a loss worse than $3/4 per share, then in order to trade 1000 shares, you would need to have $0.75 * 1000/0.01 = $75,000 in your account. Of course, someone who holds positions overnight has no way of holding their losses to under a buck. Every now and then, the market turns out to have much more risk than is apparent. As far as risk goes, the worst thing that can happen to a trader is a trading halt. I remember last fall when CIEN and ???? cancelled their merger agreement. They halted both stocks midday, and then opened them up a couple dozen sticks up or down from their previous prices. (Yikes!) One thing that always will completely destroy a trader is to catch the gambling bug. I have been fortunately able to avoid it except for a few very brief (i.e. hour long) periods, but those periods were enough to teach me that I was not immune... (I played AMZN at a time when I was nowhere near capable of trading 100 shares of that nasty thing. It has calmed down significantly, of late.) -- Carl

To: Tai Jin who wrote (22)	6/6/1999 3:30:00 PM
From: Dave O.	Read Replies (1) \| Respond to of 18137

< One thing I've learned is to not over trade. It's very tempting to do this especially when you are losing. > Two excellent points. One need not trade 10, 20 or 50 times a day to make a living. Beint PATIENT and DISCIPLINED and waiting for a high probability trade is so very important. But, that's a lot tougher for someone staring at a Level II screen 6 1/2 hours a day. There is that urge to pull the trigger so that you are part of the game, an active participant throughout the day. I no longer feel "guilty" when I sit for perhaps hours and don't enter/exit a trade. As long as I know I can pay my bills at the end of the month I don't care how many trades I made that month. Your second point is just like the gamblers in Vegas. As you lose, you want to make it back quickly so you increase the bet size, enter low probability trades and make things often go from bad to worse. This again is so very dependent of ones discipline and emotional makeup. And sadly, many traders blow themselves out of the game completely with such high risk trading. Dave

To: Tai Jin who wrote (22)	3/11/2000 2:49:00 PM
From: jebj	Respond to of 18137

>Many traders will tell you to stop out of losses, but I don't necessarily agree with that. As long as I am trading with the trend and the trend isn't broken, I will ride out the move against me - Tai Jin This is a post - #22 - from the first day or so of this thread as I have just started at #1. But, boy, I must agree with this statement. Since I increased my capital in my daytrading account to where I can carry a stock that gets away I have made a serious dent in the losses I had from last year when I was following the "experts" advice to stop out. I took some serious losses playing "runners" and not being able to get out. In taking a hard look at just what was going on I found two things - 1) I needed to get out IMMEDIATELY if the stock did not do what I expected it to do. 2) I found that in 100% of the times I had stopped out the stock had come back to my buy position and above, usually the same day but not more that 3 weeks on the longest. So far this year, I have had 6 stocks get away from me and I have held them. I am very happy to say that in 100% of those stocks I ended up making a profit before it was over. Many may not agree with me but it works for me. jb