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variationsfast, medium, and slow, by which I mean, a break-out range from 40- to 60-day highs and lows. |
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Neal: What have been the most important influences on your trading style? |
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C.V.: I mentioned the Seykota interview in Market Wizards. Another important influence was Ralph Vince, who has written three books on portfolio management and trade sizing. Vince's concept of sizing a trade, which he calls optimal F, is extremely aggressive. F is the proportion of equity you risk on each trade. Referring to the Test-48 studies, optimal F would be the peak of the curve for return, which coincides with extremely large drawdowns. However, it is important to understand fully the concept of trade size, the only factor in trading you have complete control of. I have learned a great deal from Vince's discussion of the relationship between risk and portfolio return. The risk-reward curve for any trader should be based on the trader's tolerance of drawdown. I find I have a smaller tolerance for drawdown in percentage terms now that I am trading a larger account. |
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C.V.: The software Bob Spear wrote, Trading Recipes, has played a crucial role in my becoming a professional trader. The ability to test an entire portfolio and see how my system worked on an historical basis gave me a great deal of confidence. Risk management is actually something you can program, as I've illustrated in the Test-48 paper. There is another important aspect to portfolio testing: It has some built-in protection against curve fitting. I use the same systems to trade all the futures in my portfolio. I know that my systems aren't the best systems for T-bonds or corn or deutsche marks, but because the systems have been tested against a 10-future portfolio, I believe they are more robust. For example, T-bonds have been in a long-term uptrend for the last five years. If they were to go into a long-term |
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