I am going to explain the basic of risk concept in an easy format.
Lets say we have two stocks stock A , Stock B ,,
Stock A is in the NEWS( lets say the company finds tons of Gold in Peckham )
Stock B has a technical reason to move..
Lets say stock A moves $2 and stock B only moves $1 ? which one you should have been trading ? Which one would give you more profit?
ANSWER= IT DEPENDS ON YOUR POS SIZE ( .. If i buy 1000 shares of Stock B would give me exactly the same of profit as 500 shares of stock A) .. simple easy peasy
hence the statment more momentun is more profit = nonesence
Now lets me go further.
SO if they both return the same amount why should not we be trading the momentum then ?
Answers= First of all youare all Technical traders and as a technical trader you should be trading technical MOVES and NOT momentum moves but this factor is not all that important.
Now I take you to the concept of risk,,
if i tell you lets rub a bank and we make £1 million profit or alternatively we could use our intelligence and do BUSINESS with bank and over 12 month we would make exactly the same amount.. which one would you go for ?
Of course, you might decide to rub the bank as it is much faster and shorter period to gain the £1 million profit but what about the risk ?
IN WALL STREET , fund managers talk about RISK ,, RISK RISK RISK and as a result THEY PLAN A RISK ADJUSTED RETURN STRATEGY ..
We as a daytrader should do exactly the same . A RISK ADJUSTED PLAN ..
RISK in TA is defined by Volatility ... Volatility is the root of all evils.. VOLATILITY must be tamed for trading , if you cannot tame it then you must meausre it and hence design a trading plan to include the UNIT OF RISK PER UNIT OF RETURN PRIOR TO TAKING THE POSTIONS,
You have two choices,,
you can use HISTORICAL evidence of volatility ( ATR ) to meaure RISK ( you cannot correctly do that on momentum trading because NEWS HAS JUST HIT THE STOCK TO DAY AND A STOCK WHICH WAS ONLY MOVING FEW CENTS YESTERDAY IT IS MOVING $$$ TO DAY )
Or you can use a PROJECTERED Volatilty model such as CSV model ( compounded stochastic volatility ) to measure the inherent risk of the current moves with in specific time frame.
Either way YOU MUST meaure it objectively.. ,, It is dead simple and yuou need not to involve yourselvess with complicated stuffs. WEEEEEEEEE. ( Read about ATR on web .. simple enough stuff for any trader with even minimal of math education )
Once you measure it then you can adjust your position size accoringly to fit the volatility of the stocks u are trading .
Now that you have read this text and understood the basics of postion sizing then you know why MR CHART taking 800 Postion for two different stocks with two different volatilty could not be correct and he refused to reply to my question .
Readers of this POST must think twice on momentum trading.. Momentum trading is just like EARNING REPORT,S TRADING,, FLAMMEABLE and on top of that they ACT MUCH MUCH LESS TECHNICALLY than a stock which is not in the news and moves based on the technical MERITS.
You are all techncial trader ,, Stay as one
Grey1
