BarroMetrics Views: The HOS Seminar
I have been receiving mail on why I don’t run a Habits of Success (HOS) webinar.
I face two problems:
- Insufficient numbers. Last year I left it to my partner Kwok to market the webinar. We had to cancel because we had only 3 paid attendees and they were from Singapore. This year we ran a seminar at a slightly higher investement for the seminar attendees than for the rate we asked for the webinar. The result? We had a full house: 60 attendees.
- I have added a live trading session component to HOS. This is to ensure that the attendees can apply HOS’ lessons. It’s hard to arrange a time that would meet the time zones of attendees who come from Singapore, the US and Australia. Singapore/HK is 12 hrs ahead of EST, USA; Australia is 2 hrs ahead of Singapore/HK. (These three areas comprise the bulk of my readership), Trying to find a time that would accommodate all prospective attendees is an organizational nightmare.
So, until we solve the problems of marketing and time zones, it is unlikely I’ll be running a webinar any time soon - still anything can happen and we may solve the problems tomorrow! (G).
I’d now like to turn to an item that has caused much comment at the HOS seminar and newsletter: position sizing.
Position sizing depends on two factors:
- our trading results:
- win and loss rate
- average dollar win and average dollar loss
- market conditions
- market volatility
- dollar value of instrument’s price movement.
My approach to position sizing makes use of both data sets (personal and market); but most of the traders who attend my HOS do not have the personal stats. In that situation, the Turtle formula is as good as any:
((% of Capital at risk for the trade) x Trading Capital)/($value of 10-period ATR)).
So, if we want to risk 2% of a $100K account and are trading Gold (ATR = 20), for $100K we can trade:
(2% of 100K)/(20 x 100) = 2000/2000 = 1 contract
So for the current volatility with Gold, the maximum contract you can trade is 1. For me the Turtle formula provides the maximum position size. So even if the positioning of your stop would allow more than 1 contract, the Turtle formula would insist you take only 1 contract. For example,, let’s say you want to risk $2000 and your stop is S600. The stop formula would suggest you could take 3 contracts. But because the Turtle says only 1, you’d be limited to 1 contract.
Why did I create this limitation? Because if you willy-nilly place your stop, you are more than likely to be stopped out. A money stop is almost as dangerous to your wealth as no stop. Newbies not understanding this idea and seeking to overtrade, place their stops as close as they can so they can maximise their position sizing. In flow state (where everything you do makes money), this is fine; but in a ‘normal’ market, too close a stop will mean unnecessary losses.
Refer this blog post to a friend or colleague…
