RE: Position sizing thoughts ...

[Bob Fulks <bfulks@xxxxxxxxxxxx>]

At 2:31 PM -0500 7/17/00, M. Simms wrote:

>Bob - again, regarding....
>
>"You will find that with many systems the TradeRisk varies significantly
>from trade to trade"
>
>1) How do you determine this (TradeRisk) ? A "Scoring system" (1->10) ???
>
>2) What is used to develop the scores ?
>- stochastics ?
>- % above/below moving average
>- ?????
>
>3) How do you profile a trade position before getting into it ?
>
>Are you saying that TradeRisk varies but we cannot measure it APRIORI ?


You can make a reasonable approximation. For example, consider the
well known Keltner Channel system:


============================================

Input: Length(89);

Vars: Ave(Close),
      Upper(Close + 3 * AveTrueRange(Length)),
      Lower(Close - 3 * AveTrueRange(Length));

Ave   = Average(Close, Length);
Upper = Ave + 3 * AveTrueRange(Length);
Lower = Ave - 3 * AveTrueRange(Length);

if MP < 1 and Close > Upper then Buy        at market ;
if MP = 1 and Close < Ave   then ExitLong   at market ;
if MP >-1 and Close < Lower then Sell       at market ;
if MP =-1 and Close > Ave   then ExitShort  at market ;

============================================

On the bar of entry the exit is sitting at "Ave" so you can calculate
an approximate TradeRisk as follows for the long entry:

if MP < 1 and Close > Upper then begin
    TradeRisk = (Close - Ave) * BigPointValue;
    AccountRisk = AccountSize * RiskPercent;
    if TradeRisk > 0 then Num = Floor(AccountRisk / TradeRisk);
    Buy Num contracts next bar at market;
end;

Now "Ave" will move as time progresses but a bad trade usually
becomes apparent pretty quickly so "Ave" will probably not have moved
too far by then.

Bob Fulks