Always understand the risk/reward of the trade as it now stands, not as it existed when you put the position on. Some people say, “I was only playing with the market’s money.” That’s the most ridiculous thing I ever heard.
-Bill Lipschutz
Continue reading “Wisdom Found in the New Market Wizards Book”
I recently saw the following comment regarding money management:
“Every system in our report uses very simple money management: Trade one contract per trading signal in the markets specified by the vendor with no pyramiding.”
Trading Guru
This is NOT money management. If you ever see anyone declare the above as money management walk away fast as you are about to be conned. Money management is not some set amount of shares or contracts picked out of thin air. Money management answers the question of “how much?” At all times, given the risk you are taking, the money you have, and the volatility of the market — you must know the optimal number of shares or contracts to be long or short.
Enjoy this post? Check out Lou Holtz’s View on the Bullshit talked about the divide in America.
Ed Seykota was recently asked:
“I’ve got Excel on my computer…is it possible to make a good trading system on Excel or do I need to purchase…[a] sophisticated software program?”
“A trading system is an agreement you make between yourself and the markets. You can use a number of ways to test the agreement before you make it. Excel has the advantage that you can see everything the system does. Other software has an advantage of speed and ease of use. You might consider starting off with Excel until you get a feel for system trading, and then move on to more specific software for comprehensive testing. You might also consider auditing a few runs of your testing software with Excel, to make sure you have accurate coding.”
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Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.
Citigroup View of Trend Trading: Read (PDF).
An excerpt from recent SFO magazine article on trend following:
“The objective for any investor who wants to be active in the markets is quite simple. How does one make effective decisions in an uncertain and dynamic world? The problem is finding a generalized approach that will work effectively across a broad set of fast-paced asset markets. A realistic approach to decision-making should involve a methodology that reflects a functional world view or philosophy of how markets operate. This approach also should be replicable and tied closely to a system of management which can be structured in a variety of ways to fit a wide set of opportunities. Trend following is an efficient means of decision-making under conditions of uncertainty that reflects the peculiarities of asset markets that can be tailored to different time frames and risk profiles.”
A simple, yet classic piece of writing: Ed Seykota’s bet sizing.
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Michael J. Clarke is the president and founder of Clarke Capital Management, Inc. (“CCM”). He has offered the following public comments about his trend following firm:
“In 1989, I decided that I would investigate whether I could apply my computer software development knowledge and previous trading experience in generating computerized systems with which I could make a living trading futures. The development of my current trading philosophy has derived from the research into methods and strategies as well as my actual trading experiences since that investigation began.”
Continue reading “Investment Insights of Trend Follower Michael J. Clarke”