[DugDug]

Hi Robertm,
I agree - but I also witnessed the 1997 October stock market crash (I am old)- down one day, back up the next right before an option expiry. There were some horrible stories of margin calls for the day. People who sold OTM puts for 50cents buying them back for $4, and people who used stocks as security for other stocks - (I call that doubling up when they all crash)
The point is it pays to really understand your exposure no matter the instrument.
These days there are more an more of them - which is great - but i have always been conservative and boil everything down to it ultimately it is either a fully paid up instrument (eg; stock), OR a put or a call or a future which leads to a fully paid up instrument! no matter how the marketers cut and dice it.

[robertm]

Originally Posted by DugDug »

The point is it pays to really understand your exposure no matter the instrument.

Totally agree. Instrument choice is very important and there's simply no reason to expose yourself to uncapped risk (especially if leverage is involved). No such thing as a free or easy $, although the "guru's" would often have us believe otherwise.

[Andre]

Originally Posted by BlowFish »

Hi DD...just to clarify I meant spread betting not spread trading...not available in some countries. This is very like CFD's to be honest (though hold some tax benefits in the UK for example). The useful thing for someone pursuing a strategy that requires a diverse (and so potentially large) portfolio is that it allows smaller sizes to be traded (bet really, as similar to a CFD the broker/bookie is the counter party). So where you might need a 350k account to trade a system on actual markets you could implement the same strategy in say a 35k spread bet account.

Another (minor) advantage is that you have more flexibility in adjusting the size for the volatility of the instrument. you can bet anything from a quid on up per tick.

Blowfish, can you elucidate us a bit more about the costs of trading using CFDs? what is the average bid-offer, how much do they charge, do they charge for roll-over of cfds, margin costs, etc...
My costs now trading only futures are in the average of 0.01% for commissions, plus 0.05% for bid-offers. On top of that i earn interest (well, used to when the rate was decent).

[BlowFish]

Originally Posted by DugDug »

If you wanted to keep a "pure" original system then fine - it works - but wow - there are times it hurts.

Well to be honest I have never traded a good 'old fashioned' trend following system. I don't think I would have the stomach for it.That is not to say that there is not a lot to be learnt from them. The TT system has some simple features that I found kind neat.

2...% Risk - as we understood it the turtles risked a % of equity per trade/unit. Thats what we did. The volatility adjustment came about from where the stop is set based on an ATR move.

It's been a while since I looked but wasn't the number of contracts per unit set based on the underlying volatility of the market in question rather than simple dollar value? Maybe mis remembered that but I could have sworn there was a volatility adjustment somewhere in the recipe (over and above initial stop).

Blowfish, can you elucidate us a bit more about the costs of trading using CFDs? what is the average bid-offer, how much do they charge, do they charge for roll-over of cfds, margin costs, etc...

I have not 'traded' CFD's for a long long time. Your best bet would be a look at the websites of some of the companies that offer them. They will have all ther pertinent info. One that springs to mind is CMC (though that's not a recommendation!)

[DugDug]

Hi Blowfish - the volatility component was a major part of the position sizing.
If you were to chop it up .....
Basically - set the % you are willing to loose per trade (the consistent % part eg; 1% or total Equity), then base the stop price off the ATR (the volatility component, eg; stop iis 2 ATR below the entry) by dividing these and adjusted in the same units ie; $ then you will get a unit size.

I also dug this up in some notes I made of it....

Dollar Volatility Adjustment
The first step in determining the position size is to determine the dollar volatility
represented by the underlying market’s price volatility (defined by its N).
It is determined using the simple formula:
Dollar Volatility = N×Dollars per Point

Volatility Adjusted Position Units
The Turtles built positions in pieces which were called Units. Units were sized so that 1
N represented 1% of the account equity.
Thus, a unit for a given market or commodity can be calculated using the following
formula:
Unit = 1% of Account / Market Dollar Volatility

or
Unit= 1% of Account / N x N Dollars per Point

EXAMPLE
N = 0.0141: Risk 1% of equity per trade
Account Size = $1,000,000
Dollars per Point = 42,000 (42,000 gallon contracts with price quoted in dollars)
Unit Size = (0.01 * $1,000,000 /0.0141 * 42000)

Always round down.

[robertm]

Good post DD, newbies should take note.

It's also worth mentioning that the same theory should be applied to fixed/technical stops, just replace the ATR volatility number with the points(ticks) you want your fixed stop from entry. Each has it's place and use in a good trading plan.

[BlowFish]

Thanks DD for the volatility stuff.

RobertM, possibly one of the greatest lessons that newbies might learn with what I call "old fashioned trend following" is that there is no requirement to anticipate what the market is going to do. The assumption is that at some stage markets trend (obviously pick ones that are particularly prone to) all you need to do is make sure you are positioned when they do and rely on sound money management to produce a return. As DD mentioned you need iron cajhones, adequate funding, and a diverse portfolio to trade like this.