Van Tharp:
Have you played around with any other significant ideas in terms of position sizing besides market’s money? If so, what are they?
If you could give me ten rules to consider with respect to position sizing what would they be?
Ed Seykota:
“Playing around” with “when market money becomes your money” seems to be an exercise in math-turbation.
I don’t know what you mean by playing around with ideas. I feel you either think things through or you don’t.
Ten rules for position sizing:
1. Bet high enough to make meaningful profits when you win.
2. Bet low enough so you are ok financially and psychologically when you lose.
3. If (1) and (2) don’t overlap, don’t trade.
4. Don’t go adding a bunch of rules that don’t work, just so you have ten rules.
Archives of “market money” tag
rssIs Money The Rationale Or The Motivation For Trading?
| Here’s an interesting thought experiment: Suppose you find a trading system that made money consistently in all market conditions. It was backtested objectively during independent time periods and handily beat your own trading performance. It also took less risk to obtain these results, with minimal drawdowns. The system’s price is quite reasonable. The catch? The system trades four times a year.Would you obtain the system? Would you trade it? Would you buy it and then try to tweak it in various ways? Would you be able to follow its rules faithfully, or would you convince yourself in the middle of trades to take sure gains or limit losses?Such a system would not meet the needs of many traders: needs for action, needs to figure out the market on your own, needs to feel like *you* were beating the market. Money is the rationale for trading, but it is not the only motivation. Traders also trade to make themselves feel good, to validate themselves, to avoid a 9-5 job, and so much more. This is truly the source of most problems with “trading discipline”: what we need to do to make money conflicts with the other needs that we impose upon trading. If we bring a host of unmet emotional needs to the perfect trading method, we will inevitably sabotage that method. A rich and fulfilling life outside of trading might just be the best trading strategy of all. |