Position Sizing Strategy

[swingtrader]

Thanks a lot Nautilus. This is very helpful.

--SwingTrader

 

[Saint]

Hi SwingTrader:

The probability studies I talk about are based on personal observations of price patterns over the many years in the market. It has mostly involved grunt work and data sifting (daily and intraday) involving perhaps more than 20,000 years of data of mainly liquid mature markets. The result has been that a series of patterns that occur on a reasonably regular frequency in markets. The probabilities are based on the eventual outcome and resolution of these pattern data samples.

Key Reversal

Just to give you a very simple example Key Reversal is considered very signficant pattern by many traders and market participants. But very few participants understand the significance and the power of this pattern in terms of probabilities. Let me explain:

Key Reversal is formed (top pattern) in a rising market when:

1) the market opens above the high of the previous day and in the process makes a significant new high. (there are other interpretations too!)
2) then the market starts moving lower during the entire trading session and breaks the low of the previous day.
3) the point at which the new bar breaks below the low of the previous day's low becomes a very significant point (statistically speaking/ or probability wise) - because if you now sell the market and put your stop-loss just above the high for the current trading day (the new high) - then the chances of that stop-loss being taken out during the current trading session is less than 5%!
4) the reason for this awesome probability is quite simple - in that the market having just made a new low would now have to climb all the way up and make a new high again to take out your stop-loss.

This is just an example involving a simple two bar structure and their realtionship with one another.

In your search I would suggest go via the "Japanese candle sticks" route as found in standard books - you would find the probability results enlightening and profitable - or for that matter any other book that you find interesting. Most books and authors leave this side of teaching out - which I guess is good for people like you and me who are prepared to invest some time and effort in this direction!

Regards

nautilus

Great write-up.............keep em coming whenever you find the time!!

All the best!!
Saint

 

[srisara]

friends,

This thread has been ignored for long and need a revival. I think, still there is lot to be discussed on this and also on the subject of Money Management.

I have just finished a small portfolio tracker in Excel using the above model (Position Sizing Strategy), but not that precise.

I am still fine tuning the Excel File and will post it in the forum pretty soon.

So, keep watching this space for more and please add any new ideas here.

Satya

 

[murthymsr]

hi satya,

it's really great news to hear about the position sizing excel worksheet getting ready to be gifted to the members of this forum.

referred by some seniors in this forum, i have been using the two position sizing software 'ToneyOZ' and 'MMCalculator'. but your one being made with the Indian investor in mind will be more relevant to us. and moreover additional features and support service can be incorporated as per user requests.

i look forward with excitement the relwease of the same for public use.

thanks for the generous gesture.

all the best.
murthymsr

 

[srisara]

hi satya,

it's really great news to hear about the position sizing excel worksheet getting ready to be gifted to the members of this forum.

referred by some seniors in this forum, i have been using the two position sizing software 'ToneyOZ' and 'MMCalculator'. but your one being made with the Indian investor in mind will be more relevant to us. and moreover additional features and support service can be incorporated as per user requests.

i look forward with excitement the relwease of the same for public use.

thanks for the generous gesture.

all the best.
murthymsr

Murthygaru,

I am developing a very basic one. Let's see where it goes.

Satya

 

[srisara]

Hi All,

I am just attaching the Excel File for your use and comments. It is in its basic shape and needs lots of improvements.

Regards
Satya

 

[swingtrader]

srisara,

Thanks for the spreadsheet, it is a very good start.

--SwingTrader

 

[joy_verma]

hi satya,
thanks a lot mate. this is really a selfless service and great
contribution to the trading community .
Regards,
vinay

 

[srisara]

Swing & Joy,

Thanks for the compliments. Please let me know your comments on the Excel File.

Regards
Satya

 

[srisara]

friends,

I have updated the Excel File. The updation include the below corrections

1. Stop Loss is now based on Column "Higher Close" rather than C.M.P (Current Market Price).

2. Calculates Stop Loss Accurately and Paints a Red Color when the C.M.P goes below the Stop Loss

Please let me know your comments and any difficulties you face.

As told, this is a basic Excel File based on 2% Risk per Trade based on Total Equity Investment.

Regards
Satya