Fail-Safe Or Not Fail-Safe? - January 26, 2012

[pdp-brugge]

I appreciate very much to work and the time you guys take to keep on improving the robot technology.
Also a very warm “thank you” to you both for the answers that you both keep on deliver in these difficult times.
I speak for myself as a novice trader: it is very hard to keep a positive mind after a series of negative trades.
The statistics are in favor of these positive thoughts, so I will keep on going and give it my best.
The most difficult part for me is the position sizing.
I will follow the “subjective” advice from Billy and will start today with a quarter of my normal position size for a new limit short order, following the IWM robot.
What (subjective?) guidelines should I follow to increase this initial position size, if the trade goes well?

PdP

[Rembert]

The issue as I understand it is that the 20DMF missed a buy signal late last year because conditions didn't reach the oversold level by a very small margin. What would the robot advise in case the 20DMF was on a long signal ?

[Pascal]

The issue as I understand it is that the 20DMF missed a buy signal late last year because conditions didn't reach the oversold level by a very small margin. What would the robot advise in case the 20DMF was on a long signal ?

I think that the Robot would be long from the 20DMF Buy signal date and would now have a neutral or even mixed setting, which means either keep its long position or sell it as the ST negative edges would be rather strong. I believe that the Robot would have a positive LT edge and a negative ST edge pushing it to the sidelines.


Pascal

[Pascal]

The issue as I understand it is that the 20DMF missed a buy signal late last year because conditions didn't reach the oversold level by a very small margin. What would the robot advise in case the 20DMF was on a long signal ?

A short signal from the 20DMF would make it a confirmed trade.

They key is the Euro/US$ relation. I will post updates on the EV web site of the Futures, which have been good at detecting changes. We now have a Euro short squeeze. This might last until tomorrow. If this last longer, then it means that maybe something significant is changing toward the US$ stance (stealth devaluation policy) and/or the Euro policy (All problems temporarily solved in the Euro zone.)


Pascal

[Billy]

I appreciate very much to work and the time you guys take to keep on improving the robot technology.
Also a very warm “thank you” to you both for the answers that you both keep on deliver in these difficult times.
I speak for myself as a novice trader: it is very hard to keep a positive mind after a series of negative trades.
The statistics are in favor of these positive thoughts, so I will keep on going and give it my best.
The most difficult part for me is the position sizing.
I will follow the “subjective” advice from Billy and will start today with a quarter of my normal position size for a new limit short order, following the IWM robot.
What (subjective?) guidelines should I follow to increase this initial position size, if the trade goes well?

PdP

PdP,
Unfortunately, there is no universal rule of thumb for position-sizing. Searching for “position-sizing” on the internet will give you as many different guidelines as you can imagine by yourself.

For novice traders, it is best to always first learn the tricks of the game for many months with small positions only. Junior traders at the top trading desks have small size allocations for a good reason. It is only when small unleveraged positions show a consistent and repetitive success (in being disciplined and following exactly the strategy rules independently of the return) that juniors are progressively allowed to trade larger sizes. For novices traders robot followers, I would say that one year of disciplined trading is necessary before venturing into double leverage and probably one more year before trying triple leverage.

Position-sizing decisions for the robot signals are mostly discretionary. You can have a subjective Fed bias like today. Or you want to pocket the compounding effect from a series of good days on leverage before losing it all through time-decay in a consolidation or pullback, while unleveraged positions may be kept intact. I always try to keep a very tighter stop on my leveraged portions, because not doing so usually leads to disaster. But the techniques I use are numerous (I’ve shared some here) and sometimes changing during the day in RT.

Frankly, I think that once the RT 20 DMF will end its beta period and will be available to subscribers, it will be much easier to make such discretionary decisions like a day trader for leverage, but like a swing overnight trader for unleveraged robot trading.

Finally, for experienced traders, position-sizing is essentially a matter of inner confidence or doubt in the ongoing environment based upon reminiscences of past similar trades. The more time you spend “tape reading” in RT, the easier it becomes to notice confirmations or warning anomalies in price/volume behavior.
Billy