Nigel 1975For a chessplayer it's part of the job to consider that the opponent will try to test you with the most unpleasant possible line of play. But I suspect there's a problem here for countists in that the main thrust of the thinking is in what happens in a 'typical' case.

Nevertheless we have to consider what the plan is when the market does exactly what you fear the most. Is there a plan?

Perhaps the most pernicious scenario is the margin call that acts effectively as a stop loss. Let's call them margin stops. If considered during tests, margin stops would render a lot of the systems useless in the first place. Might as well be betting on the ponies.

Bruno Ombreux asks:

Isn't it easier to aim for 10% a year, which is achievable with far less risk, and far less work? I mean, at 10% a year for 20 years, one would probably rank high among the top 1% of market participants. And it is incredible what 10% a year can achieve compounded over 20 years if one keep living expenses reasonable in the meantime.

What matters is the end game, isn't it?





Speak your mind

3 Comments so far

  1. Anatoly Veltman on March 26, 2008 12:42 pm

    There was this crazy idea to go long commodities for a trade this Monday. This contrarian idea (everyone was saying that cross-margin liquidation will last through the end of Q1) was based on hypothesis that commodity crash last week simply and surely followed $ zig-zag. During last week’s run, EUR hasn’t quite reached its long-standing ultimate objective of 1.6180. So it would only be natural for it to back-off the smallest required 38.2% - before the final surge attempt.

    Amazingly: the very same moment EUR turned back up from 38.2% marker at 1.5342, every single commodity futures contract was bouncing off its own precise Fibonacci retracement markers on daily charts. For the CRB Index, it was 38%; for GC, CL, S, GIC exactly 50%; for NG, SI, PL, W, CO 62%; PA, SU 76%; KC 100%.

    So, this was one very rare opportunity to enter long trade with a very tight stop. You see: usually deep pull-backs of 50% or greater result in trend change. So, while you are buying relative value in commodities - you risk placing yourself counter-trend. But this was the case of a small currency zig-zag; so you were protected. Truly rare risk:reward opportunity worth millions, with a miniscule stop that made sense!

  2. George Parkanyi on March 26, 2008 3:49 pm

    Margin stops. Would that be like ground stops in skydiving? :)

  3. Mitchell Jones on March 27, 2008 10:02 pm

    R x g6


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