A trading idea...
- Thread starter xelite777
- Start date
What makes you assume that $5k loss is due to "normal" system dynamics and not due to the evaporation of your edge? The markets are constantly changing. Maybe it's evolved beyond your system, at least long enough to blow your theoretical drawdown right out of the water.Quote from xelite777:
Would you rather start trading when your system has already lost $5000 (on paper only) or would prefer to trade your system immediately and risk losing $5000 at some point in time, $5000 being the maximum drawdown in this example?
Think about it for a moment...
Sorry but markets do NOT change over the years, they go up, they go down and they go sideways, that's all they have been doing since day one, open any chart (even a 100 year old chart from the US stock market) and see for yourself.
You're wrong because markets are different than they were 100 years ago. Further, you know darn well we aren't talking about generic up, down or sideways. If we were, most traders wouldn't be losers.
Quite the contrary, I can show you trading systems that are still profitable 30 years after their creation, using the same exact simple trading rules on 30 different commodities.
Assuming we are NOT talking about automated or mechanical systems...profitable traders are always adapting and you don't need to change your trade signals to adapt. This is something newbie traders don't understand because they're too fixated on trade signals...reason why most can't survive drawdowns. Simply, profitable traders do adapt.
Regardless, if you had profitable systems as you imply, you wouldn't be asking your "trading idea" question because you would have already tested your theory and know your own answer...seriously.
Reminder - My opinion is based on the assumption we aren't talking about automated systems.
You're wrong because markets are different than they were 100 years ago. Further, you know darn well we aren't talking about generic up, down or sideways. If we were, most traders wouldn't be losers.
Quite the contrary, I can show you trading systems that are still profitable 30 years after their creation, using the same exact simple trading rules on 30 different commodities.
Assuming we are NOT talking about automated or mechanical systems...profitable traders are always adapting and you don't need to change your trade signals to adapt. This is something newbie traders don't understand because they're too fixated on trade signals...reason why most can't survive drawdowns. Simply, profitable traders do adapt.
Regardless, if you had profitable systems as you imply, you wouldn't be asking your "trading idea" question because you would have already tested your theory and know your own answer...seriously.
Reminder - My opinion is based on the assumption we aren't talking about automated systems.
Show us the proof!!
Show us that markets behave differently over the years.
Show us that, over the years, they cease to respond to trendlines and support and resistance levels, for example.
I am talking about purely mechanical trading system with clearly defined rules, not subjective discretionary systems (what I call B.S. systems).
Well I do not have ten (10) different profitable trading systems, only a couple. But so far the preliminary results have been quite good indeed.
Good luck with looking for answers to your questions that can be easily answered by your different profitable trading systems even though you intentionally implied you knew several profitable systems that haven't changed and have been applied profitably to 30 different commodities the past 30 years.
Sidenote: Look at the Dow the first year of its existence and compare it to this year Dow chart. Next, explain why its different (trick question). Do the same for any commodity or any thing else that's been around for a long time.
This has to do with expectancy imo. And expectancy is not fixed to any particular number sequence. 200 losers in a row maintains 80% expectancy when the next 800 trades are profitable. But 200 losers in a row might be enough to blow your theoreticals right out of the water. The question is as K2K2 asks... is it merely system dynamics or an atrophic edge?
Quote from xelite777:
Would you rather start trading when your system has already lost $5000 (on paper only) or would prefer to trade your system immediately and risk losing $5000 at some point in time, $5000 being the maximum drawdown in this example?
Think about it for a moment...
Therefore, the choice you think you have is false. You have only one option... trade your system (immediately is irrelevant) and risk losing $5000 (or more or less) at some point in time.
A system that is "losing" its edge is a losing system, period. It was never a winning system to begin with, simple as that. Google for "top ten trading systems of all time" for example and see how some purely mechanical trading systems STAY profitable over the years, regardless of market conditions.
Secondly, do not forget that in this topic we are dealing with trading systems with a positive mathematical expectancy.
In roulette, if Red comes up 10 times in a row, the probability of seeing another Red on the 11th spin is still the same. So if you lose $5000 at the roulette table, nothing could prevent you from losing another $5000 just as easily.
But here we are playing a different game, a game that consistently makes you money as you keep playing/trading.
So when you lose the maximum drawdown (on paper of course), the probability of losing even more money become extremely remote, from a mathematical point of view.
Why?
Because by definition a winning system ALWAYS recovers from its average and maximum drawdown and keeps making new equity highs regularly.
So the idea of waiting for that average (or maximum) drawdown BEFORE risking any real money truly makes sense.
You may want to move your discussion to this thread @ http://www.elitetrader.com/vb/forumdisplay.php?s=&forumid=34 called Strategy (System) Design considering you posted your "trading idea" in the technical analysis thread that so far has no TA discussions or move it to the Automated Trading thread @ http://www.elitetrader.com/vb/forumdisplay.php?s=&forumid=48