Category Archives: Risk Management

End of Year Portfolio Reallocation Panic

Fund managers are selling precious metals, energy and commodities as we are approaching the end of this year in order to avoid underperforming the SP500 during the next rolling two-year period. Bonds are not yet affected but they may be soon. Share

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Market Days Like Yesterday Are True Gifts

When the market opens 1% down but then recovers most of the loss, this is a gift to most traders from nervous market participants who ignore the FED and pay attention to what is going on with some Portuguese bank. This … Continue reading

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Kelly Fraction and Leverage May Lead to Underperformance or Even Ruin

In this blog post it is shown that in the case of S&P 500 Index, use of the Kelly ratio has not provided protection to investors from large drawdowns and that use of Kelly leverage has led to total ruin. It turns out … Continue reading

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Market Risk: Principles and Practice

The longer a position is exposed to different market conditions, the higher the probability of an adverse event occurring but actual losses depend on entry level. In this article I provide a simple method for estimating the risk of a passive investor or trend-follower. Share

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Normal Volatility in S&P 500 Index, Still No Trend Reversal

The price action in S&P 500 Index is still within normal bounds and there is nothing yet to indicate that a trend reversal is in effect other than those articles in the blogosphere trying to convince investors of that. Usually such … Continue reading

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Practical Position Sizing Based on the Risk Ratio

In the blogosphere and elsewhere one can find many articles about optimal position sizing and on maximizing equity growth via the use of fancy math, like for example the Kelly ratio. Traders and investors should ignore such supposedly optimal methods of sizing … Continue reading

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When to Ignore Extreme Oversold Conditions

Gold has plunged to extreme oversold territory but unless one is very sophisticated with timing entries and exits and managing position risk, these technical reversal signals should be ignored. Extreme oversold, and also overbought, conditions can be quite misleading as market participants … Continue reading

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