Probably the best reference is Van Tharp:- http://www.amazon.co.uk/Trade-Your-Way-Financial-Freedom/dp/0070647623/sr=8-1/qid=1160174548/ref=pd_ka_1/026-6162503-0138812?ie=UTF8&s=booksrajibde said:Hi LII,
Thanks a lot for your feedback from the session with Grey1. G1 emphasises position sizing- although I have a basic idea of what he is saying in terms of keeping the position size as a function of the atr but it would be really helpful if you (or someone) can explain this with an example (entry position size; if the atr changes then what and at what point etc.)
(Any suggestions on how to code this in the ELA will be a real bonus
Regards
Raj
The coding is easy once you apply your mind to the concept.
LII
Hi rajibde,rajibde said:Hi LII,
Thanks a lot for your feedback from the session with Grey1. G1 emphasises position sizing- although I have a basic idea of what he is saying in terms of keeping the position size as a function of the atr but it would be really helpful if you (or someone) can explain this with an example (entry position size; if the atr changes then what and at what point etc.)
(Any suggestions on how to code this in the ELA will be a real bonus
Regards
Raj
I am posting Gray1's Position Sizing comments he made in one of his threads:
QUTOE (Start)
Position sizing will come from your capital ( see example below ) how ever we need to have MPD band to tell us how to move from one stock to another . Therefore we use MPD bands as a means of measuring the risk element in STOCK SELECTION than position sizing .
Example
stock 1 reward 20c exposure needed 3000
stock 2 reward 80 c exposure needed 750
stock 2 seems to be a better candidate but , are we going to take 750 as our next trade ? Then read the next part..
POSITION SIZING
lets say your capital is $100 000
lets say we use 1% rule ( I will discuss the study of ruin in detail in future )
so stop loss would be $100 000 * 1 /100 = $1000
so we have $1000 in our hand to go shopping . Every stock has a price tag defined by their volatility
Stock A ATR 30 C i can afford to buy 3333 of this stock ( $1000 divided by 30 c)
Stock B ATR 50 C i can afford to buy 2000 of this stock
stock C ATR 120 C I can afford to buy 833 of this stock
next we look at the possible reward from MPD
Stock A MPD possibe reward 10 C
Stock B MPD possible reward 30 C
Stock C MPD possible reward 80c
remember we were down $600. ( Previous two consecutive loing trades scenario.)
in above example stock C seems to be the correct stock ( 833 * 80= $644 which would recover my $600 loss plus $44 profit ) .. Hence we use MPD band as a confirmation for correct choice of stock
I think i have answered your question now.
Just one more explanation ... if you adjust your postion sizing according to ATR ( volatility ) then there is absoloutly no difference if a stock is HOT ( dangerous to play ) or cold . because you are taming the stock by reducing its postion size accoriding to its volatilty . There for for those who have read this thread and fully understood it it is safe to play any stock as long as you fully implement the simple and elementary position sizing technique i discussed
All above can be programmed into Trade station and you don't have to be bothered with any calculation intra day once you have coded it.. You must become as mechanical as possible.
Gray1's Quote (End).
Hope This Helps!
Nastrader said:
Thank you very much Nas & LvlI for your replies.
Thanks Nas for quoting G1's earlier post - I have read it before but it was a good revision. My earlier question was more inclined towards the practical aspect of using ATR to add to or substract the number of shares held(not very clear perhaps)-
Scenario 1- person A enters (long) the trade with lets say 500 shares on AAPL, based on the current 1 min ATR of 0.06. AAPL price goes up and the ATR goes dn-person A buys more.
What happens if the price goes up but the ATR goes up also- does he sell his shares proportionally based on the ATR?
Where does he place his stop (pl. read scenario 2 below )
Scenario 2- person A enters the same trade but the price goes down but the atr remains the same (or drops)
should he continue to hold the same number of shares till the price hits the stop? (am I missing something)?
Reading one of G1's earlier posts on the same subject- the need for the ultimate stop is not required (pl. correct me if I am wrong) as the person A would have sold out his shares based on the change of the ATR at different time compressions when the price goes against his entry point- can someone give an example on this please (just to elucidate this point) as it is not very clear to me as to how this is done in practice(not having seen G1 trading live has its disadvantages )
Here I am trying to imagine G1s RS screen- does it show the number of shares to be bought/held for each symbol and in practice; is it best to progressively add/subtract the number of shares (throughout the duration of the trade) till one exits the trade based on the exit signal(EE or price hitting VWAP or any other depending on the situation)? i.e. if the price of AAPL goes up and the atr becomes 0.05 does the person A buy more shares and if subsequently, if the ATR goes up he sells some and this cycle continues till maybe the EE gives a signal when he sells the lot???- is this the way it is achieved in practice???
Regards
Raj
I haven't seen Grey1 trade but based on his posts this is what I try to do - if it is of any help.
It is work in progress so comments from others are welcome esp. those who better understand Grey1's approach.
1)Radar screen calculates for me position size in 1,3,5 min timframes and the total position size based on ATRs in these tfs.
2)The nature of my entry signals are that I tend to get a signal in 1min then 3 then 5 so I build into the position as this occurs according to the 3 position sizes. The benefit of this is that as things go my way I am building my position but if things quickly turn against me after taking the initial position I only take a loss in the partial exposure.
3)I have ATR based stops for the position based in each timeframe but I have a technical chart based exit criteria in each tf if it goes against me. I do not take a position if the technical loss exit is greater than the ATR based stop.
4)If the entry is a good one then ATR will tend to rise as price goes in my favour I do not reduce my position if this occurs. But If I scale out perhaps the 1 min timeframe then if I come to add back in I do not exceed the ATR based total position at that point if that makes sense.
eg
At point of initial entry position sizing is
Fast 500
Med 300
Slow 200
So I end up with 1000
I scale out of the fast tf so now have 500
I come to add back in the sizing is indicated as
400
200
200
I already hold 500 so only buy 300 and allocate 400,200,200 to the 3 tfs from that point on
If I enter a position but then price stays same and ATR drops indicating an increase in position I do not add as the dropping ATR is for me not a good sign it is more a warning that the pattern is not developing as expected.
If price goes against me and ATR rises I am normally hitting technical or ATR stops pretty quick
I would say that adding to positions where I have scaled out is one of my weaknesses I am often impatient to get back up to full size and find myself adding in a deteriorating or uncertain technical position thus turning a moderately profitable trade into a breakeven or loss overall.
Hope this is of some use - all comments and advice welcome
Gareth
It is work in progress so comments from others are welcome esp. those who better understand Grey1's approach.
1)Radar screen calculates for me position size in 1,3,5 min timframes and the total position size based on ATRs in these tfs.
2)The nature of my entry signals are that I tend to get a signal in 1min then 3 then 5 so I build into the position as this occurs according to the 3 position sizes. The benefit of this is that as things go my way I am building my position but if things quickly turn against me after taking the initial position I only take a loss in the partial exposure.
3)I have ATR based stops for the position based in each timeframe but I have a technical chart based exit criteria in each tf if it goes against me. I do not take a position if the technical loss exit is greater than the ATR based stop.
4)If the entry is a good one then ATR will tend to rise as price goes in my favour I do not reduce my position if this occurs. But If I scale out perhaps the 1 min timeframe then if I come to add back in I do not exceed the ATR based total position at that point if that makes sense.
eg
At point of initial entry position sizing is
Fast 500
Med 300
Slow 200
So I end up with 1000
I scale out of the fast tf so now have 500
I come to add back in the sizing is indicated as
400
200
200
I already hold 500 so only buy 300 and allocate 400,200,200 to the 3 tfs from that point on
If I enter a position but then price stays same and ATR drops indicating an increase in position I do not add as the dropping ATR is for me not a good sign it is more a warning that the pattern is not developing as expected.
If price goes against me and ATR rises I am normally hitting technical or ATR stops pretty quick
I would say that adding to positions where I have scaled out is one of my weaknesses I am often impatient to get back up to full size and find myself adding in a deteriorating or uncertain technical position thus turning a moderately profitable trade into a breakeven or loss overall.
Hope this is of some use - all comments and advice welcome
Gareth
Thank you Levll for your postings following your time with Grey1.
Speaking personally, it is very worthwhile (invaluable) reading and absorbing postings from traders who have traded with Grey1. We all absorb at different speeds and read/understand in a different way - so to have this avenue is an additional plus for the Technical Trader community.
Speaking personally, it is very worthwhile (invaluable) reading and absorbing postings from traders who have traded with Grey1. We all absorb at different speeds and read/understand in a different way - so to have this avenue is an additional plus for the Technical Trader community.
Thanks LevII for your post, it’s enlightening to hear different points of view from traders like you, “trading live” with Gray1. I’m always interested in hearing/learning clarifications in concepts mentioned in this thread. Afterwards, I add these new enlightenments or reinforcements to my trading arsenal and look for improvements in my trading – Thanks Again.LevII said:
Nas
LevII said:
Hi LevII,
Yes, I agree with your statement. But it’s a bit more complicated when applying the appropriate strategy to trading. Perhaps the answer starts with “Top Down Approach” which needs to be understood at the “point of entry” as we actively scalp trade, intraday, and the experience in applying it to the proper strategy. Basically, this is what you meant anyway.
Thanks for your insight.
Nas
evostik said:
Hi evostik,
I also have the same problem and don’t necessarily have an answer, specifically to Strategy 3, but I’ll try to shed some light hopefully on it.
For clarification, Strategy 3 = Dow > + 100 MACCI (O/B in all 3 TF’s), Short the weakest Stock (Opp, for Longs), which have gaped down the most at Market Open.
The issue I have with Strategy 3 is when the INDU O/B condition makes it’s turn down how do we know if this push/turn for the weakest Stock will continue to fall lower. Don’t mis-understand me, Strategy 3 does work, but sometimes the O/B continues to be O/B and oscillates again in a few minutes or the Stock at the turn of the DOW O/B turns down is just when the Stock has been O/S for some time & turns for a long. Well this is the risk side of the trading. When this occurs, obviously the weakest stocks do have the possibility to trade in 3 directions, namely continues to trend lower (a good probability), weaken a bit more at some point for a small gain, and 3rdly turns up immediately on the O/S condition and turns into a loss. So these probabilities indicate that there is a 60% chance of making a profit (30% good profit, + 30% small profit) if all else is even. But we traders have an added tool using Charts and following this strategy, the probability is greater than 60%. The issue then becomes on how we control our emotions, and stick to the strategy and let it play out.
Now I could be wrong, but I don’t recall Gray1 mentioning that the Stock in this situation needs to be either O/B or O/S during the weak stock’s descent, only for the DOW. But in this situation, I would expect the Stock to be O/S and continue to be so for the Dow to provide the momentum to push it down some more. Gray1 did mention that this “strategy stands alone & not dependent upon prior market direction,” meaning to me to ignore the previous day’s direction of both the stock & market. Therefore in this case the Market & Stock Chart (1,3, 5 Min) length should be a 1 day chart, since a continuation from a 2 day (3 TF) Chart will bring in the bias/continuation from the previous day. Let me know if I’m wrong on this.
I’ve included 4 Charts from this week on the DOW, trying to shed some light on Strategy 3. The top down approach doesn’t require the use of Weekly Chart, but I did in this case to show the strength of this market so far (strong long term trend). The 3rd Dow Chart Shows Strategy 3 right after Open starting at 10 am (ET-NY), each chart is annotated. I’m sure there are many other examples. FWIW, I have the DOW Daily, DOW & stock of interest in 3 TF’s, and 5 Min of the strongest/weakest Sector on my monitors at all times, to aid in my trading.
Hope this helps and makes sense,
Nas
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Grey1
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Nastrader said:
Let me explain and clarify this .
Strategy 3 does not work 25% of the times and i have out lined the reason for this already *(market only trends 25% of times ) ..
Strategy 3 is the foundation of trading for all levels of traders ,, It does not matter if you are fundamentalist or technical position trader or even scalper.. You short the weakest stocks when MARKET IS OB ( stock does not have to be OB ) and the other way round.
Now , The exhaustion engine uses the 1,3 ,5 min which only suits my position sizing .. In another word if you are buying 100 shares you should not be expecting $2 run from market OB to get into OS .. you can change the time frame to suit your pos sizing and your total trading capital ....
Now lets go back to pos sizing
Pos sizing is the foundation of the risk management and you cannot get away in this business if you don't control your risk when trade goes againt you ,,
let say AMZN on 1 min ATR has a pos size of 4000 shares and 3000 on 3 min and 2000 on 5 min
then if your technical indicator gives you a sell signal on the 1 min you reduce your pos by ( 4000- 3000 = 1000 ) ... As simple as this .. nothing complicated ..
Any way , if you need help please arrange a day so you all can attend and I answer your questions on pal talk.
Grey1
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Gray1Grey1 said:
Thanks for clarifying Strategy 3, & pos sizing, sometimes it's hard to understand the depth of a strategy and it helps to discuss it further as you have. By the way, the Paltalk discussion would be a great idea, it was beneficial the last time we did it on 9/14/06.
Thanks again,
Nas
Grey1
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by the way , i have not posted my P/L for some time. This is simply because i thought it no longer serves any positive purpose to post the P/L but all my trading records are with the 5 people above who are trading with me on SKPY ...
This is friday's
grey1PS:_- I have reduce my pos sizing to concentrate on the SKPY sessions hence lesser P/L ( No complain what so ever though I LOVE ITTTTTTTTTTT)
This is friday's
grey1PS:_- I have reduce my pos sizing to concentrate on the SKPY sessions hence lesser P/L ( No complain what so ever though I LOVE ITTTTTTTTTTT)
Attachments
Sorry gents for the late acknowledgement-I was out for most of the day. Thank you very much Gareth and Nas for your descriptive replies which is very helpful.
Grey1 -thank you very much for clarifying the points- Is it possible to come on to Palatlk on Sunday at 1200hrs (UK time)-if acceptable to all-I (& I'm sure many of us) will benefit a lot on a discussion with you on position sizing and money management. Today being a Sunday-it will not disturb you during trading.
Kind regards to all.
Raj
Grey1 -thank you very much for clarifying the points- Is it possible to come on to Palatlk on Sunday at 1200hrs (UK time)-if acceptable to all-I (& I'm sure many of us) will benefit a lot on a discussion with you on position sizing and money management. Today being a Sunday-it will not disturb you during trading.
Kind regards to all.
Raj
