Forum Archive Index - March 2003

[Phaedrus <Phaedrus@techemail.com>]

Travis,
       I have a copy of "Trade Your Way To Financial Freedom" by Van Tharp, and 
value his opinions.

 You, me and the Turtles all agree that risk management and position sizing are 
crucial factors in the success of any system. 

<<<"Nasdaq stocks were notoriously illiquid throughout the tech boom and I 
doubt they've gotten any more liquid in the last two years">>>
Travis, there are about 3500 Nasdaq stocks. It is very easy to select only 
those with high liquidity. Hundreds of Nasdaq stocks have a daily turnover in 
excess of 1,000,000 shares. That's shares, not dollars.

<<<"Bid/ask spread is a major expense which could lop off more than 10% per 
trade for less actively traded Nasdaq stocks and at least a percentage point on 
each trade for the more actively traded ones.">>>   
 Nonsense. Typically, the stocks I trade have a bid/ask spread of 1 - 2 cents. 
That's less than 0.1% for a typical round trade. It is the very high liquidity 
of such stocks that makes it quite safe for me to make every trade "at Market", 
within a few seconds of the close.

<<<"When you were testing this system, what information did you have about 
stock liquidity for the stocks you were looking at?">>> Stock liquidity 
(Average $/day turnover) is one of my primary filters. Notice that I stated 
that I was running this system on SELECTED Nasdaq stocks.

<<<"Allowing for liquidity costs, is the system giving better or worse returns 
in real life than it did in the testing period?">>>  As I have already said, 
actual results have not been quite as good as the backtests, but are 
nevertheless comparable. The performance figures I quoted are from actual 
trades, not backtests or paper trades. As such, they include any slippage. All 
of my trades using this system are made at Market, at the close. That is why I 
use stock liquidity as a primary filter. I ran all backtests assuming Closing 
prices to be the entry and exit points. 

 I am well aware of the many money management systems that are commonly used. 
For the record, I use a very simple Fixed Fraction system.

                       Phaedrus.

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