The mech systems work well on their own without second guessing
them.
One point I must make, you mention something about not putting
all your eggs in one basket?
Again this is a personal decision, but please use proper
moneymanagementwhen trading these
systems,
don't put your whole
trading account into one system. Yes theoretically the
gains will be much faster, but it can lead to obvious
problems.
If I had a 30K account for example, I might only put 10K into
one system at any one time and that's still pushing it!
One thing about the systems that I had problems with early on is
psychology. I was placing too much of my portfolio
(percentage wise) into the systems and as a result, it was messing
up my psychology. For example, I found myself second guessing
the systems, not taking trades, and exiting positions early (many
times to my detriment) - why, because when the systems would
whipsaw, I couldn't take the huge amount psychologically.
So that's something to consider,
don't throw your whole
account into these systems and don't margin out. The
gains will add up quickly enough without doing that.
The best rule of thumb regrading position size that I have ever
heard is this quote from Jesse Livermore -- a
friend told him they had a large position in a certain stock
and it was keeping them up at night and they didn't know what to do
and Jesse Livermore said -- "Sell till you can
sleep!" And that's really it in a
nutshell. Someone asked on the blog for people to
post hard-won trading advice. Well, that's mine. When
you get into a position that you think you can handle
psychologically and then it turns out you can't -- for whatever
reason -- then its a wrong position and you must close the position
at a loss, or as much of it as you need to, so that you can sleep
soundly at night. Otherwise it eats at you and ruins your
ability to trade other positions effectively.
And here's the tricky part for those of you who haven't learned
it yet - quite often you find yourself not able to sleep only when
your portfolio turns south. (Sleeping is quite nice when things are
going well, even if you're margined!) But generally, you'll find
yourself unable to sleep right about when things go wrong,
generally when your portfolio hits a low point in its up and down
cycles. The problem is that's usually the worst time to stop
trading systems, because they tend to recover afterwards, and
you'll likely miss out if you stop then.
So, do yourselves a favor and don't trade more than you'd be
reasonably comfortable with if you lost, say, 20%. (I've found
that portfolios of mechanical systems traders have regular
portfolio pullbacks (meaning the whole account) of 10% or more
from peaks, so just be ready for that. Higher pullbacks can happen
during more volatile times. And these pullbacks often last for
weeks!)
While we're on topic, I like to use at least 4 different
symbols, each weighted equally (mainly for the sake of simplicity).
Even though I sometimes trade multiple strategies per symbol, I
still keep them equally weighted. So, although SRS was a complete
annoyance for me as well, it was nothing more than that (since it
was only 1/4 of what I trade).
Yes. Too many eggs in SRS/DRV on Friday for me. Also shorted
AMZN and EEM and had TZA so the day wasn't a loss by any means, but
I hate to see big gains disappear because of the Government. IYR
should have closed down big on Friday.
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The mech systems work well
Commercial Real Estate - SRS
Posted by matt on 1st of Nov 2009 at 02:24 pm
The mech systems work well on their own without second guessing them.
One point I must make, you mention something about not putting all your eggs in one basket?
Again this is a personal decision, but please use proper money managementwhen trading these systems, don't put your whole trading account into one system. Yes theoretically the gains will be much faster, but it can lead to obvious problems.
If I had a 30K account for example, I might only put 10K into one system at any one time and that's still pushing it!
One thing about the systems that I had problems with early on is psychology. I was placing too much of my portfolio (percentage wise) into the systems and as a result, it was messing up my psychology. For example, I found myself second guessing the systems, not taking trades, and exiting positions early (many times to my detriment) - why, because when the systems would whipsaw, I couldn't take the huge amount psychologically.
So that's something to consider, don't throw your whole account into these systems and don't margin out. The gains will add up quickly enough without doing that.
how much to put into mech systems?
Posted by Michael on 1st of Nov 2009 at 08:07 pm
The best rule of thumb regrading position size that I have ever heard is this quote from Jesse Livermore -- a friend told him they had a large position in a certain stock and it was keeping them up at night and they didn't know what to do and Jesse Livermore said -- "Sell till you can sleep!" And that's really it in a nutshell. Someone asked on the blog for people to post hard-won trading advice. Well, that's mine. When you get into a position that you think you can handle psychologically and then it turns out you can't -- for whatever reason -- then its a wrong position and you must close the position at a loss, or as much of it as you need to, so that you can sleep soundly at night. Otherwise it eats at you and ruins your ability to trade other positions effectively.
And here's the tricky part
Posted by user32 on 1st of Nov 2009 at 09:26 pm
And here's the tricky part for those of you who haven't learned it yet - quite often you find yourself not able to sleep only when your portfolio turns south. (Sleeping is quite nice when things are going well, even if you're margined!) But generally, you'll find yourself unable to sleep right about when things go wrong, generally when your portfolio hits a low point in its up and down cycles. The problem is that's usually the worst time to stop trading systems, because they tend to recover afterwards, and you'll likely miss out if you stop then.
So, do yourselves a favor and don't trade more than you'd be reasonably comfortable with if you lost, say, 20%. (I've found that portfolios of mechanical systems traders have regular portfolio pullbacks (meaning the whole account) of 10% or more from peaks, so just be ready for that. Higher pullbacks can happen during more volatile times. And these pullbacks often last for weeks!)
While we're on topic, I
Posted by user32 on 1st of Nov 2009 at 09:18 pm
While we're on topic, I like to use at least 4 different symbols, each weighted equally (mainly for the sake of simplicity). Even though I sometimes trade multiple strategies per symbol, I still keep them equally weighted. So, although SRS was a complete annoyance for me as well, it was nothing more than that (since it was only 1/4 of what I trade).
Eggs
Posted by philr on 1st of Nov 2009 at 03:12 pm
Yes. Too many eggs in SRS/DRV on Friday for me. Also shorted AMZN and EEM and had TZA so the day wasn't a loss by any means, but I hate to see big gains disappear because of the Government. IYR should have closed down big on Friday.