I am hoping you at least talking about downside variance
Do you rely on your trading to put food on the table?
- Thread starter Simples
- Start date
Very true! I'm trying to figure out how all the shit talkers on this forum can sit there and troll all day and claim to be traders. Wouldn't you be spending your time trading not not talking shit? Just a bunch of wannabes.
You have evolved the discussion into "the business" of trading. Lumpy income from trading is countered with proper capitalization, which is the same counter for most, if not all other types of businesses, lumpy or not.
Operating the business is where people go off the rails. Operating the business however is not the business itself. The guetapens of compounding as you say, are omnipresent in all businesses. The dry cleaner just lost the linen business from a local chain of Italian restaurants, a rent increase takes affect this month, cleaning solution prices increased last month, starting next month a 3 month construction project begins at the storefront intersection, Jimmy wants more hours because his wife is expecting, and the coffee machine is on the fritz!
I'm pretty sure, you do not consider this as an example of lumpy income, which is on purpose... proper capitalization is the counter, lumpy or not. Your view is that of Jimmy. My view is that of the business owner.
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You positions size, however, is unavoidably gong to ultimately be a function of your account size, hence your returns will be. The dry cleaner's business gross revenue is not so much affected by increase in cleaning solution price (i.e. not affected by the cleaning solution price squared). The business are dramatically different in this sense.
No. I'm talking about variance as affect by both upside and downside. Increase in the variance in returns is (closely, when non-binomial distribution, exactly when binomial) the same as decrease in returns, squared.
Hmm. Intuitively, it does not sound right for asymmetrical distributions (which is my point about downside variance as opposed to general variance). I.e. if you have a large positive skew, your compounding path is very different than if you have a large negative skew. Could you walk through the mathematical reasoning for your statement?
I hope you realize this is a ridiculous argument. Of course a trading BUSINESS and a dry cleaning business are different.
And using your selective example, the cost of cleaning solution for the dry cleaner is no different than the cost of exchange fees for a trading business. Using your bigger picture argument of position sizing, this also is not drastically different. In trading, larger size is directly related to the EXISTING account size. Moreover, there is no requirement whatsoever that says you must trade maximum size in order to be profitable. That is a business decision. This is where people go off the rails, and that seems to be where you are "stuck"... just because you can, doesn't mean you do. It's a business decision based on many factors, including risk assessment.
This is like the dry cleaner direct marketing to say, airport employees who wear uniforms, versus attempting to contract with the airport authority directly. The dry cleaner does not have the capacity nor the staff to support the large airport contract, but believes a small portion of the airport employees who wear uniforms will use his services. Does he risk taking on the contract and badly hurting his reputation because he can't properly handle the business, or does he build up his customer base using that as a basis for gradual capacity and staff increases? It's a business decision based on many factors, including risk assessment.
As I said, your view is that of Jimmy, the employee with an expectant wife requesting more hours, and my view is that of the business owner.
Good trading to you.
Trading difficulty levels like a video game:
Paper Trading - Very Easy/Baby Level
Trading very small size - Easy Level
Trading decent size with other income to pay the bills - Normal Level
Trading for sole income as a single person - Hard
Trading for sole income with large mortgage/bills and family to feed from profits- Insanely hard
Paper Trading - Very Easy/Baby Level
Trading very small size - Easy Level
Trading decent size with other income to pay the bills - Normal Level
Trading for sole income as a single person - Hard
Trading for sole income with large mortgage/bills and family to feed from profits- Insanely hard
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The irony is, talking about yourself here.