Way of the turtle
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Way Of The Turtle
The
N Factor As was mentioned earlier, Rich and Bill used an innovative method for determining the position size for each market on the basis of the amount that market moved up and down each day in constant dollar terms. They determined the number of contracts for each market that would cause them all to move up and down approxi- Risk and Money Management • 117 mately the same amount in dollar terms. Since the number of con- tracts we traded for each market was adjusted for this volatility measure, N, the daily fluctuations for any particular trade tended to be similar. Some traders prefer to measure risk in terms of the distance between the price at which one will exit a trade and the price at which that trade was entered. That is only one way of considering risk. In October 1987, it did not matter where our stops had been. The market gapped through our stops overnight. If I had been using a method that relied only on the distance between entry and stops, I would have lost four times as much as the typical Turtle on that day because I used a stop that was one- quarter the size. I used a 1 ⁄ 2 -ATR stop, whereas most Turtles used a 2-ATR stop. Thus, if I had been using a method that sized purely on the distance to the stop, my calculations would have resulted in a position that was four times larger than that of the typical Turtle. Fortunately, Rich used volatility-based position sizing as a way to manage risk, and so I had the same position sizes relative to my account as did the other Turtles, and our exposure to the price shock was the same. I am certain that this method was not acci- dental. Surely Rich and Bill both recalled experiencing prior price shocks when they determined how to limit the Turtles’ maximum allowable risk levels. One of the smartest things Rich and Bill did when they gave us our trading rules was to impose overall risk limits on us. This had important implications for our drawdowns and particularly for our exposure to price shocks. As was mentioned earlier, we put our positions in chunks we called units. Each unit was sized by deter- mining the number of contracts where 1-ATR of price movement Download 6.09 Mb. Do'stlaringiz bilan baham: |
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