The %R Solution Explained January 31, 2011
Posted by Marlowe Cassetti in GDXJ.trackback
The market ended up today with the S&P up 0.77% and the NAS up 0.48%. The RSI portfolio soared up 1.1%. Not too shabby for a portfolio sporting a 17% cash position. Now let’s get on with the headline topic .. %R.
First of all, capital R is the risk in dollars and lower case r is the risk in percent. For the purposes of this blog, cap R is $1,000.00 which is 1% (lower case r) of the hypothetical $100,000 portfolio. In other words the RSI system is predicated that each trade risks only $1,000 through the utilization of protective stops that bails out when a -1R loss occurs. When gains are realized an alert is set at +2R. The alert triggers a 0.3R trailing stop which means setting a stop $300 below the most recent high. The RSI module may issue a sell signal in the interim between the -1R to +2R interval depending on price movement.
This is a backdrop to looking at the progress of portfolio positions. Today the RSI portfolio has two positions that are close, very close to the +2R trigger point. Likewise there is only one losing position, but it is a mere -0.2R. Nothing to be concerned with, but it will be monitored and sold if need be at the -1R level, just like GDXJ that recently slid to that level. It is tempting to look at percentage gains, but I really pay attention to %R. That is the action number.
RSI had no picks today. Catch you later.
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