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 A
(Usually at Least Weekly) Trading Blog August 2006 |
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If you find this Blog useful and informative then please make a donation so I know I should continue to publish it.
(I might even send you an eBook or Article ;-)
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Use the Contact Us section of this site if you want to receive this Blog as an email every time it is published, or if you simply enjoy reading
it and want to encourage me to continue to write it.
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blog, noun, an
online journal, diary, or collection of thoughts; shortened form of web log.
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Trading System Simulation
Paul King, August 25th 2006
Once you have a complete, positive-expectancy, robust, and tradable system,
one key decision is still yet to be made, and that is how to position-size each trade to meet your objectives. Given
your parameters for desired reward and tolerable risk, how do you choose a good position-sizing level that matches your requirements?
In the latest SmartTraderTM mini-eBook I cover aspects of how simulation
of the variability of results of a trading system can be used to position-size effectively, and also understand when your
system is operating within "normal" parameters.
Topics discussed include:
- When exepectancy isn't useful
- What to simulate
- What results are important
- How to match position-sizing to your objectives
- How to check for serial dependency between trades
- What are the other caveats of simulation
Using sample data from one of our actual trading systems, this mini-eBook takes you through all
the steps necessary to simulate the variability of results and then interpret the simulation results effectively. If
you are not using simulation in your trading toolkit you are missing out on an important edge and this mini-eBook is a step-by-step
guide to using simulation effectively.
Click here for more details about this latest SmartTrader eBook.
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Practical Position Sizing
Paul King, August 21st 2006
Whereas exits determine the overall performance characteristics of a trading
system, what kind of position-sizing strategies you choose to apply to any particular trading system determine how much cash
you actually make, and whether you stay within your tolerance for risk. Choosing the wrong position-sizing can actually
turn a winning system into a losing one. Position-sizing tells you "how big" to make a position for the entire life
of a trade from start to end.
In the latest SmartTraderTM mini-eBook I cover the main types of position-sizing
strategies in detail:
- Fixed Size
- Martingale
- Fixed Dollar
- Averaging Down
- Scaling In
- Other Factors
Using sample trading systems with identical entry and exit criteria, I demonstrate how each of
the types of position-sizing strategy completely changes the performance characteristics of the trading system.
Full TradeStation® EasyLanguage® system code (as text at the end of eBook and as a
zipped EasyLanguage® and WorskSpace archive) is included so you can see exactly
how I changed the position-sizing for each system.
Overall this eBook really demonstrates which position-sizing techniques work
and which don't.
Click here for more details about this latest SmartTrader eBook.
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What Comes First, the System or the Self?
Paul King, August 14th 2006
There is sometimes a debate about whether psychology and knowing oneself is
more or less important than your trading system or method. For me the answer is "both" but there is also third factor
which is critical as well.
There are actually 3 ingredients to a successful trading recipe:
- A good understanding of yourself as a person and a trader.
- A sound knowledge of what a complete trading method looks like.
- The ability to match 1 with 2 to create a complete trading system that meets
your objectives.
If we consider the main reasons for trading failure it can normally be attributable
to the absence of one or more of the above factors.
If 1,2, and 3 are missing you have neither an objective, a good idea of how
you can trade, nor a complete and consistent set of rules to guide your decision making. Failure is almost assured (over
the long-run - anyone can all be lucky over the short-run).
If you have 1, but not 2 or 3 then you may have a clear understanding of what
type of trading may suit you, but not have clear objectives for risk and reward, and have inconsistent or incomplete
rules to guide your decision making. Again, failure is probable.
If you have 1 and 2, but not 3 then there is a mismatch between who you are
as a trader, what you want to achieve, and how your trading system or method operates. This is the main reason purchasing
an "off the shelf black box" trading system rarely succeeds - there is no guarantee (and it is in fact unlikely) that the
system will be able to suit your personality and objectives even if it is complete. Unless the system is adaptable
to your specific circumstances you will not have the confidence to trade it through the inevitable losing periods.
Individually each of the 3 factors can sometimes be tricky to come across,
so finding them in mutual combination is relatively rare and that is why many traders fail. If you can find a good mentor
or educational program that can deal with 1 and 2, then you have a much better chance of achieving 3 before you run out of
time, cash, and motivation.
So in conclusion knowing yourself, what a complete trading method looks like, and matching it to
your objectives are all essential ingredients for successful trading.
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Product Review: HP iPAQ rx1955 Pocket PC
Paul King, August 10th 2006
So my trusty Compaq iPAQ 3870 finally stopped working (the power button fell
off some time ago and the non-replaceable battery holds charge for about 5 minutes now - but it is relatively ancient for
pocket PC technology). After checking around and consulting Consumer Reports I narrowed my search to the new version
of my iPAQ (now by Hewlett Packard) and Dell's offering.
Since the only category that was superior on Consumer Reports for the Dell
machine was 'Ease of Use' and I was familiar with iPAQ's already, I chose the iPAQ.
The (now replaceable) battery was fully charged out of the box so I didn't
have much time to ponder how neat and light the new iPAQ was compared to my old model. Wireless network connected immediately
and pocket Internet Explorer and Outlook were running with no problems.
Skype instant messenger worked well and I even made a VoIP call to their test
line which kind of worked but I wouldn't plan on replacing your cell phone with it.
The first problem I encountered was with the GotoMyPC viewer application -
not enough memory to run it. "No problem I'll adjust the program memory" I thought. Unfortunately this feature has been removed
in Microsoft Mobile 5.0. If you plan on running any applications that require more than about 8MB, consider getting
the upgraded iPAQ hx2495. Most other pocket PC apps should run fine.
The only other area I had was in the ever-challenging synchronization using
ActiveSync 4.2. Ignoring the fact that Microsoft have chosen to remove the wireless network synchronization function
(don't ask me why, doh) synching eventually worked via USB and infra-red after a couple of reboots (iPAQ and PC). By version
4.2 you would think some of the main bugs would be gone.
Everything else about the iPAQ was very pleasing - the wireless network detection and range is
good and battery usage is great compared to my old model (even when it was new). If you must run RAM-hungry apps, or
biometric security is a "must-have" then consider the hx2795, otherwise this entry-level iPAQ does everything it needs to
do for a very reasonable $250. A cheap and convenient "second backup" trading computer for when your main trading computer
(and your backup trading computer) suddenly and unexpectedly die and you need to close all positions.
Click here to visit Amazon for your HP iPAQ rx1955.
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FinanceSpotlightTM, a new series of personal finance articles
Paul King, August 4th 2006
Due to several requests from various people I've decided to write a series
of personal finance articles that deal with the aspects of personal finance I get asked about the most.
The first one is free (with registration) and can be downloaded from the finance page here. This introductory article deals with finance management basics including the following topics:
- Financial Freedom
- Passive Income
- Getting Paid Multiple Times (for the same piece of work)
- Scalable Income
- What you can do with a spare dollar
- Return On Investment
- Expectancy
The first paragraph is shown below:
"The first step
to successful financial management is having a tangible, well-defined objective for what you are trying to achieve. Although your more specific objectives and goals will be more personal to you, I have found that having
the objective stated below, and always working towards it, is one of the more useful steps anyone can take in getting control
of their financial life."
If you read the first article and have some ideas about topics that you would like to see covered, please send me an email
(or use the Contact page).
Wishing you success with your personal finances.
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If you find this Blog useful and informative then please make a donation so I know I should continue to publish it.
(I might even send you an eBook or Article ;-)
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Information and thoughts contained in this blog should not be construed
as financial advice or a recommendation to enter into any type of securities, futures, or foreign exchange transaction.
TradeStation® and
EasyLanguage®
Neither TradeStation Technologies nor any of its affiliates
has reviewed, certified, endorsed, approved, disapproved or recommended, and neither does or will review, certify, endorse,
approve, disapprove or recommend, any trading software tool that is designed to be compatible with the TradeStation Open Platform.
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