Registered: Dec 2001
10-08-12 12:32 PM
Quote from gmst:
Your post caught my attention because I trade futures and I trade less number of contracts in times of high volatility to get same risk per trade. However, your peak exposure in shares during 2008 was 5-10 times the peak exposure in 2012. VIX(2008) was 3-5 times VIX(2012). So, if you are sizing your positions by volatility, for every 300-500 shares a clip in 2012, you would trade 100 shares a clip in 2008. Correct?
So, to attain a peak share exposure of 5 to 10 times in 2008 Vs 2012, you would be trading (5 to 10) multiplied by (3 to 5) = (15 to 50) times number of trades in 2008 Vs 2012. That means a 3 to 5 times higher VIX in 2008 led to 15 to 50 times more number of open signals/trades in 2008 compared to what you get in 2012 at the peak exposure time during the day.
Do my numbers make sense? If not, please feel free to correct me. I started trading after 2008 and so have no experience of trading in those extreme conditions. I want to prepare myself though, in case such extreme market conditions return in future. So, I am very interested in learning from your experience. Appreciate your thoughts.
I don't size my positions by volatility. First and foremost, I only trade a system during a 'profitable environment' for each system. This is well correlated by volatility, and as a result many systems decay into poor performance during low volatility times (and thus are deactivated for live trading).
For systems that do trade, I will limit trade size based upon many factors, including the average daily volume of a stock (for low volume stocks, my max position size will be restrained to ensure that I maintain the ability to enter and exit positions without adversely moving the position against myself).
During 2008, volatility was wild and any system under the sun was incredibly profitable and average daily volumes were through the roof. As a result, the only limitation was due to buying power, and even buying power was growing rapidly over time due to accumulated profits. Sadly, this year, the volatility and volume both suck and so my trading volumes are sharply lower than my historical averages. (I've still be profitable in 14 of the last 15 months, but total profits are insignificant relative to the wild years of the financial panic)