Archive for the ‘Using PowerTools’ Category

The collection of thoughts in this post might seem a little fragmented as you start to read it, but there is a common thread: Sacred Cow Assumptions.

Case #1

I received an email from Peter, who asked, “Just wanted to know if it is possible to autotrade with the Powertools the e-mini ES (S&P future)? or is it only possible with Tradestation. Do you have backtested results [that show] how much $ could have been made using Powertools with a 10k$ account trading as much contracts as the current margin level allows?”

According to my broker, the current overnight margin requirement for ES is $3,544 while intraday is $2,835. At 1,475.75, one ES contract is valued at $73,787.50. Leverage with overnight margin is 73787:3544 = 20:1 while intraday margin is 73787:2835 = 26:1.

What does this mean? 1/20 = 5%. 1/26 = 3.8%. Therefore, unless the method used by the trader NEVER loses more than 3.8% - 5%, he is assured of bankruptcy. Big hedge fund boys routinely go bust with lower leverage, so should it not be surprising that excessive leverage undermines traders.

In this case, the Sacred Cow Assumption is that a “good” trading system can somehow override insane leverage. Well, it can’t.
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