Constant risk as % of account
Posted: Thu Dec 04, 2008 8:14 am
I was thinking about trend-following systems and how the number
of contracts are determined by the initial risk. Seems to me that
this is fine, but what if you enter a position when the ATR is at
an extreme? If the trend lasts a long time, this volatility at the
start of the trade affects the life of the entire trade.
Maybe a better way to trade is to actively manage a position.
Say you use a Donchian-type system and fixed fractional MM.
As the distance to the stop decreases, one could add more
contracts. Conversely, one could decrease the number of
contracts as the stop widens (if volatility increases quickly,
you're probably getting stopped out anyway).
Think of it this way, if you got in a long-term trend when
volatility was high, you could end up making less than
the guy that got in when volatility was low...even though
he's using the same system and it was at a LATER date.
I'll code this eventually. Got too much on my plate. I'm
sure this is being done though. I just don't recall a
discussion about it.
For smaller accounts, some type of quantum must be
used or else commissions and slippage would probably
get out of hand.
D
of contracts are determined by the initial risk. Seems to me that
this is fine, but what if you enter a position when the ATR is at
an extreme? If the trend lasts a long time, this volatility at the
start of the trade affects the life of the entire trade.
Maybe a better way to trade is to actively manage a position.
Say you use a Donchian-type system and fixed fractional MM.
As the distance to the stop decreases, one could add more
contracts. Conversely, one could decrease the number of
contracts as the stop widens (if volatility increases quickly,
you're probably getting stopped out anyway).
Think of it this way, if you got in a long-term trend when
volatility was high, you could end up making less than
the guy that got in when volatility was low...even though
he's using the same system and it was at a LATER date.
I'll code this eventually. Got too much on my plate. I'm
sure this is being done though. I just don't recall a
discussion about it.
For smaller accounts, some type of quantum must be
used or else commissions and slippage would probably
get out of hand.
D