Link to Part 1.
Part 1 established the following:
A stock’s movement is its volatility.
Average True Range (ATR) is a measure of volatility.
ATR can be used to position-size to account for volatility.
And we examined the chart below and performed some calculations…
Using the ATR(10) indicator in the bottom pane of the chart, we divided the ATR(10) by the [...]
Customary position-sizing has the trader buy X number of shares and set a stop to so that he does not lose more than X dollars. One drawback of this method is that it does not account for the volatility of the security being traded. Volatility is a measurement of change in price over a given [...]
Parts One and Two established the framework and system to use for the study. Now it is time to get to the meat of the study: How can we combine elements of trend-trading to a system that often trades counter-trend?
First, what measure constitutes the trend? Deciding the best measure for the trend can be somewhat [...]
Now I will present the system to be used for the study that was described in Part One.
The System
The system uses an entry and exit signal generated from the CCI (Commodity Channel Index) indicator. For more information on the CCI, here is a helpful explanation: Commodity Channel Index.
BZBTrader and MarketSci have written about systems using [...]
Traders who have not added to their arsenal some form of mean-reversion trading methodology really missed a banner year (2008) for that style of trading. Traders considering making the transition from momentum and breakout strategies to mean-reversion methodologies may have a difficult time as the shift requires them to be contrarian. Taking a contrarian approach [...]
When the market is range-bound and whipsawing I find it more productive to read and do research about trading rather than practice trading in a difficult environment. While searching around the web, I recently discovered some research about position-sizing, as well as another blogger’s informative post on the subject.
The following research is a must-read. It [...]
I have attempted to establish that traders who take the same position sizes in leveraged vehicles as they would in common stock or non-leveraged ETFs are actually just doubling their risk, unless they manage that risk by adjusting their position size to fit with the leveraged product. Part 1 and Part 2 have established that it is [...]
