Day Trading & Forex Forum

twiggytwo

Hi Helenqu thank you for your support amongst these 'heathens' perhaps you would be kind enough to let me know the other one or two books in your 'must have' list, as I would like to read them if I have not already. I am always willing to learn a bit more.

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twiglet

Helenqu

Hi Twiglet,

Well ........couldn't reduce it more

JJ Murphy - Technical Analysis of the Financial Markets
Steve Nison - Candlestick charting explained.
Alan Farley - Master Swing Trader
Mark Douglas - Trading the Zone

I think those cover all the most important areas for me.

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Helen

twiggytwo

Thank you Helen, I an reading Nison at the moment, the only one missing is Alan Farley, i will put that on my list.

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twiglet

Helenqu

Hi Twiglet,

I just warn you Farley is in my list because its full of ideas, not because it's well written The florid style is hard work at times.

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Helen

DaveJB

Ooooh Heathens is it!
Oh, okay, just looked it up... <g>
I'm not against Van Tharp, what I'm saying is not that I'm after a 'sell at X%' (wysinawyg post) but rather than discussing the psychology of trading, which many do, I'd like to see a mathematical treatment of risk management that a simple chap like me can follow - wysin (etc) yes, your trade will affect it - I buy/short shares and you are either trading a leveraged product or very confident for example <g> The ideal book would say 'here's the stats, here are a bunch of ideas to mix and match, with an indication of situation they are suited to'.
No offence to the psych lot, of which there seem to be plenty, but I often seem to end up translating this 'know yourself' stuff into 'why did you feel compelled to exceed your stoploss - was it because you didn't have a pedal car as a child?' I don't want analysis (err, well, maybe I need it, but that's different) but I really WOULD like a rigorous scientific approach to this that cut through all the waffle.
Dave

twiggytwo

Sorry not to have replied before, Dave, but I have been burning the midnight oil putting together my winning system since reading said book, he, he, he! Seriously though I think you have missed my point, have you actually read this book? Forget mind stuff, it is the position sizing he goes into, he has tested it and it makes sense that it works, and he gives basic ideas to put together a system, and I am going to research it further. It showed me what I did wrong, after doing quite well in my first 4 months spreadbetting I was up 11% on my capital, then gave it back in 1 bet after trying to be too clever and changing my way of trading because of greed and impatience. Working out exit points carefully before rushing in and only risking a certain % of capital each time must help the odds in your direction. If I come up with the goods after hard work I will let you know in the distant future! Happy trading all.

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twiglet

TBS

Hehehe, remember we let them build a wall to stop the sassenachs treading on the heather

The only 'personal' thing about position sizing is knowing how much cash you are prepared to blow if things get really bad (emergency stop).

Say you had £10,000 (obviously petty cash to you, Dave)

You decide that you are prepared to place a maximum of £2500 per position and were prepared to loses a maximum of £250 against your '****, get me outta here' position - as opposed to a more gentlemanly scramble for the door if things just don't look right. So, you are prepared to hold 25% of total capital in any one position and prepared to risk 2.5% at any one time.

For arguments sake consider the following targeted trade:

Trading at 105 having just broken a double bottom at 100 from 70, giving you a target of 130. You note the major support at 85 and a reaction low at 80.

Your initial plan for the trade is to buy at 105 with a controlled exit if the price closes below 85 and an emergency exit at 79. Target 130.


The maths:

The total travel you are prepared to put up with is 105-79=29 points. The maximum cash you are prepared to lose is £250, less dealing costs (for arguments sake £15). So the maximum amount of shares you can buy against your maximum pain is (250-15)/0.29 = 810 shares.

Buying 810 shares at the current price would cost £850.5 - well within your maximum of £2500 per position.

Your targeted exit is 130 so your profit should it be hit is 25 per share - £202.5 - less the pleasure - £187.50.

As this stands some may take the deal, others not as the risk/reward ratio is less than 1:1 - you are risking £250 to make £187.50 - again we are back to personal choice.

As the trade progresses - assuming it goes up! The stops can be moved accordingly - say the price gets to 115, some may decide to lift the initial stop to 100 and the emergency stop to 90. If you are wanting to live with purely % stops, then just alter the figures accordingly.

That just saved you the cost of a book

Of course Mr Van Tharp is famous for his position sizing, which is why he gave all his pension money to one guy - who then defrauded him of the lot. (allegedly/apparently etc...)

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TBS

DaveJB

Hi Sandy,
£10k, crikey, I'd be able to put a brand new door on the hovel for that, AND have enough left over for the hovel...
I haven't actually called Mr Tharp daft or anything here, I was just wondering if anyone had seen a rigorous investigation anywhere - Van Tharp might well improve on sliced bread. Position size etc I was okay with - but it was a nice example and very clear, so thanks and I suspect others will apreciate it.
I'm more looking at the variety of exit tactics used, and wondering if anybody ever tested whether a trailing stop really is better than exiting on hitting resistance or a retracement, and so on. I've been looking into a variety myself, hoping to examine rather more soon, and wondered if I was following in better known footsteps.
Dave