Erik - sorry about the late reply - been real busy!

> Do you remember what Niederhoffer's
> autobiography was called off the top of your
> head?

Education of a Speculator - here's the Amazon link: http://www.amazon.com/exec/obidos/tg/stores/detail/-/books/0471249483/reader/1/ref=lib_dp_TFCV/104-0041697-2307172#reader-link

> What kind of ideas and rules have you made
> for yourself about % risked vs. reserve and
> how much to devote to any one trade? I'm
> very curious about learning how other
> traders are going about setting rules for
> themselves. If you're not in the market this
> instant, what percentages do you think you
> would feel comfortable with?

I used a 2% to 5% with trailing stops at various settings depending on the market at the time. Van Tharp has good info on creating systems to follow, as well as money management.

The key is to minimize the potential for wipeout by taking too large positions. And it's also dependent on the size of your initial capital stash that you can afford to put at risk.

> That's one thing I liked about the New
> Market Wizards (I didn't read the first
> edition yet!) is that I was presented with
> the stories of a few dozen of the world's
> best traders and they talked about their
> money management as well as strategies. Most
> of them talked about when testing a new
> system, not using more than 1% of your total
> capital on any one trade. I believe someone
> said to make the trades so small that they
> hardly seem worth it.

Sounds good to me. Then, once you've tested it and it works to your satisfaction (and risk tolerance) stick with it.

Tharp had a great exercise in his workshop where we devised systems for pulling random marbles of various colors from a bag, with a monetary payoff to the top two teams. It got interesting as there were twenty or so discreet "trades" (ie. marble draws) over time, and we could change systems if we desired between draws.

I was a team captain (by drawing straws:-)) and had some very experienced floor traders on my team. Another guy designed trading systems for a living! So, we came up with our system, and I had to fight them tooth and nail to stay with it. The floor traders got antsy and the designer wanted to tinker to "make it better".

I held them to one adjustment and we came in second behind a team who made no adjustments. We still won $50 each, but might have made $100 each had we stayed the course. An excellent lesson in designing, testing and then trusting your system. The idea was to make trading boring and automatic. If you're in it for the excitement, go to Las Vegas:-)

> That 1% rule seems like a good idea if
> you're managing a fund or a very large
> personal account, but for me, and most other
> investors, I think we may have to devote a
> bigger % of our capital to any one position.

Depends on your initial funding and the markets you're involved in and the situation at the time.

> Greg Donio has got me interested in calendar
> spreads, but I'm not quite comfortable
> enough with them to jump in. I still don't
> quite feel like I can understand and predict
> the spreads gap movements in relation to the
> underlying stock price. He's a small
> investor and his personal max risk is 10% on
> any one trade. But that's him. What about
> you, Bob? Anyone else?

I'd recommend paper trading various types of spreads, etc., to get the fundamentals down so you really understand why and when they work. Then start trading with small amounts - you'll find that when your cash is on the line, it's different from just pretending. But, if you treat paper trading like training camp and learn the fundamentals of your system, you'll be much better prepared for the real thing.

There are software programs out there that let you simulate. I think there are some online. Don Fishbeck has a good program that's testable - I think it's called ODDS. George Angell also has a lot of books and systems. Van Tharp is also good.

Anyway, do your homework, design a system that matches your personality and you truly believe in, test it on paper or with software/online, then start small and remember money management.

Another thought - your attitude toward gambling will reflect your attitude toward trading. So, what's your style playing blackjack or craps or poker? Impulsive? Conservative? Go for broke? Scared to lose? It's a good mirror for you, IMHO.

Hope this helps and apologize for rambling on too much:-)

Good luck,

Bob

> Success,

> Erik Lukas