LSJ Legend  Posts: 515 Joined: 8/17/2006 Location: Citrus Springs, FL  User Profile | Thanks Mark for your thoughts on this difficult dilemma. Several months ago my RTM trading was going along fine and I hit that left tail risk. I didn't realize that was what it was at the time so did some research on it. I'm no expert on this but the mathematical evidence is there. You either trade RTM or trend following with the inherent statistical risk of each. RTM has small and many gains with an occasional huge setback,or, you endure low hit rates with occasional big wins in trend trading. (One quote I enjoyed was that in trend trading "you kiss a lot of frogs".) I read of several different approaches of dealing with this. Mostly it entailed defining the market state to determine if RTM or trend trading was appropriate. Using a 200D moving average of the S&P500 and a 100D historical volatility of the S&P500 were a couple of the factors used to determine state for trend or RTM. I found it also stated that there is an art to assessing when to trend and when to revert. I'm with you on ATM being the tool that can help us find the right combination. I agree with Jim that the high allocation may be a risky solution. I have looked at Risk of Ruin calculations and find that high allocations don't suit me personally. A 50% allocation with a 70% hit rate has an 18% ROR. A little too much for an old guy like me who doesn't have that much runway left <:) The beauty of all of this though is that we should be able to suit our individual choices with ATM helping us find the right time and allocation for our strategies. | |
