Do you use Martingale position sizing?
- Thread starter Sponger
- Start date
i said use some common sense here.
http://www.earnings.com/company.asp?client=cb&ticker=vert
you have to be kidding. give me a quality company and support your argument.
regardless of strategy, any trader has to take losses and exit. that is when fundamentals and basis of the original trade strategy no longer hold; risk management is part of that. scaling in and out only increases win percentage, accounting for mistaken timing.
this is key to my trading strategy; but note my initial entries are small and often seemingly insignificant unless my convictions are *much* higher than usual (and I still don't let myself get carried away).
I've learned through big losses this lesson - particularly (actually, ONLY) with commodities, too tight of stops, ineffective scaling strategies (too narrow entries with much too large position size limits), etc.
whitster: it sounds like you are either a great trader with as perfect system as one can expect, or a paper trader with a holier than thou attitude. I can't make out which one, so I'll give you the benefit of the doubt and now assume #1. you sound well educated: so what are your trading weaknesses and what is holding your trading account back, since I do recall you said you keep your trading account significantly small (which to me seems could be a handicap in raising leverage on a great system)?
what's your trading strategy?
Here is my logic.
Commodities, indexes and stocks in general tend to go up and down.
With that being said, chances of instruments behaving in a zig zag fashion are much higher than a continuous breakdown or breakout.
As some of you stated, even less chances of commodities of having a complete falldown.
Notice, under no circumstances Im trying to say continous breakouts and breakdowns are impossible, just less probable.
The biggest drawdown of the martingale system is that when the exception occurs, it wipes you out. Now, this exception does not occur very often if the averaging down or the double down is done infrequently.
For example. instead of doubling down when a contract goes 2 points against you, you actually wait for 5. Just an example, havent formulated any number of sequences here.
Now, statistically speaking the martingale system works well until you hit your last double down bet. It allows you to recover losses quite frequently until you can't recover anything at all because you lack buying power.
Again, the problem is than when it fails it wipes the previous gains and then some producing an overall failure overtime. So why can't we take advantage of it's strength ? The weakness will always be there just in less stellar fashion.
Here is finally my logic or speculation. Wouldn't it make sense to use a martingale style of system that has DEFINITE moves (say 3 or 4 based on probabilities) while allowing yourself to widen the distance to increase your winning chances ?
It would still be a big hit when it fails and fail eventually it will but it would also increase the winnings dramatically.
Perhaps in the long run you can eventually accumulate the following:
10k from numerous wins and 8k from few losses.
Again, all speculation as I have not sat down and lay it all down as a theorem.
On top of this, let us not forget that we are technical traders for the most part. Personally, I don't have a 50% hit and miss ratio when taking trades, it's actually a bit higher because I take educated positions based on technical indicators and past experience.
Maybe someone with more experience using VARIATIONS of the martingale system can jump in and say "Neet it does not work".
For the record, I have one simple double down rule. I only do it ONCE and that's if the buying signal continues to remain strong or stronger. Why ? Not because I'm stubborn or because Im unable to take a small loss but because instruments do behave in a zig zag fashion; especially in equities with specialists, stop hunters, scalpers, etc.
Just babbling on New Year's Eve as the family prepares the house for celebration
Speaking of. I sincerely hope your WORST day in 2007 is equal to your BEST in 2006 in all aspects, trading and non trading.
New Year Resolution more love less hate more wins less losses.
Let's do it!
Commodities, indexes and stocks in general tend to go up and down.
With that being said, chances of instruments behaving in a zig zag fashion are much higher than a continuous breakdown or breakout.
As some of you stated, even less chances of commodities of having a complete falldown.
Notice, under no circumstances Im trying to say continous breakouts and breakdowns are impossible, just less probable.
The biggest drawdown of the martingale system is that when the exception occurs, it wipes you out. Now, this exception does not occur very often if the averaging down or the double down is done infrequently.
For example. instead of doubling down when a contract goes 2 points against you, you actually wait for 5. Just an example, havent formulated any number of sequences here.
Now, statistically speaking the martingale system works well until you hit your last double down bet. It allows you to recover losses quite frequently until you can't recover anything at all because you lack buying power.
Again, the problem is than when it fails it wipes the previous gains and then some producing an overall failure overtime. So why can't we take advantage of it's strength ? The weakness will always be there just in less stellar fashion.
Here is finally my logic or speculation. Wouldn't it make sense to use a martingale style of system that has DEFINITE moves (say 3 or 4 based on probabilities) while allowing yourself to widen the distance to increase your winning chances ?
It would still be a big hit when it fails and fail eventually it will but it would also increase the winnings dramatically.
Perhaps in the long run you can eventually accumulate the following:
10k from numerous wins and 8k from few losses.
Again, all speculation as I have not sat down and lay it all down as a theorem.
On top of this, let us not forget that we are technical traders for the most part. Personally, I don't have a 50% hit and miss ratio when taking trades, it's actually a bit higher because I take educated positions based on technical indicators and past experience.
Maybe someone with more experience using VARIATIONS of the martingale system can jump in and say "Neet it does not work".
For the record, I have one simple double down rule. I only do it ONCE and that's if the buying signal continues to remain strong or stronger. Why ? Not because I'm stubborn or because Im unable to take a small loss but because instruments do behave in a zig zag fashion; especially in equities with specialists, stop hunters, scalpers, etc.
Just babbling on New Year's Eve as the family prepares the house for celebration
Speaking of. I sincerely hope your WORST day in 2007 is equal to your BEST in 2006 in all aspects, trading and non trading.
New Year Resolution more love less hate more wins less losses.
Let's do it!
buying on weakness can qualify as a part of a scaling position management strategy. And scaling can occur over months or years.
'it is not that simple' ???
What's good about your friend's idea is that it steps outside the box of linking the binary bet (BLACK/RED) with the doubling of the bet. Doubling the bet would be ok if we could prove that the probability of being correct would double too, next round. And if we try to prove that, we will soon discover that the prob's will always be the same, regardless of what happened before.
This "fallacy' is one of the basic issues at which human intuition fails and which makes the human instinct actually inadequate to trade. All natural tendencies our instincts give us are bad for trading. Another well known example is: 'cut losers, let winners ride'. Every human will have the natural tendency to do it exactly the opposite. Experienced traders all have found a way to overcome this instinct and is often the breakthrough in their learning curve.
More and more I get the feeling that, in trading, when something sounds intuitively right, it probably is the wrong thing to do. This is of course very hard to prove but imo this the very reason why beginning traders all make the same mistakes; it's human nature. What a learned trader has learned is to overcome his natural reactions.
Ursa..
Anti-Martingale
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The Anti-Martingale betting strategy is the opposite of the better known Martingale approach. In a classic Martingale betting style, gamblers will increase their bets after each loss in hopes that an eventual win will recover all previous losses. The Anti-Martingale approach instead increases bets after wins, while reducing them after a loss. In this manner, the gambler will benefit from a winning streak or a "hot hand", while reducing the losses while "cold" or otherwise having a losing streak.
One activity where money management based on an Anti-Martingale approach has a recognized value [1] is speculation and trading. Many markets have some cyclical component to them, and the approach of an individual speculator or trader may only be appropriate for one portion of that cycle. Using an anti-martingale risk management scheme will increase profits during time periods when a trading approach is working well, while automatically decreasing exposure during portions of the cycle where trading is unprofitable. This is believed to decrease the risk of ruin for trading.
From Wikipedia, the free encyclopedia
Jump to: navigation, search
The Anti-Martingale betting strategy is the opposite of the better known Martingale approach. In a classic Martingale betting style, gamblers will increase their bets after each loss in hopes that an eventual win will recover all previous losses. The Anti-Martingale approach instead increases bets after wins, while reducing them after a loss. In this manner, the gambler will benefit from a winning streak or a "hot hand", while reducing the losses while "cold" or otherwise having a losing streak.
One activity where money management based on an Anti-Martingale approach has a recognized value [1] is speculation and trading. Many markets have some cyclical component to them, and the approach of an individual speculator or trader may only be appropriate for one portion of that cycle. Using an anti-martingale risk management scheme will increase profits during time periods when a trading approach is working well, while automatically decreasing exposure during portions of the cycle where trading is unprofitable. This is believed to decrease the risk of ruin for trading.
ok, first of all. yes, it is NOT that simple. again, READ UP on scale trading - it is an effective commodities trading technique that has been used for DECADES and is hardly novel
i will repeat. scale type trading works on stocks - until it doesn't
and since scale trading is a process of CONTINUALLY and methodically buying on weakness, it can completely wipe you out if you do it on the wrong stock, or the right stock at the wrong time.
it also ENSURES that your winning trades are small (that is part of the methodology) and again - would be stupid to do with stocks.
and WHY? do it with commodtities when the PROPER environment comes about, and place the odds in your favor
you have to set an uncle point. with commodities, as i explained , there is more to it. you buy in a lower part of a range of the commodity, looking back over years and years of charts.
martingale, otoh, is not a sytem in any meaningful sense of the word.
it absolutely will, given sufficient "n" result in ruin.
period.
it is basic math
as for the part about stocks/markets oscillating vs. trending. what he said was largely true
for example, the dow futures, which is what i trade for a living AVERAGE 14-16 "rotation" days a month, where they are rotating around value, as opposed to trending, and mean reversion/countertrend/fading strategies work best , given intelligent application of same
however, on the relatively rare trend days (which are generally defined as those days where the price closes much higher (on a ATR basis) or lower than it opens, and pretty much moves in that direction all day with some relatively minor pullbacks, you will get your head ripped off using the above strategies, which is why using market internals, strict risk management, and overall market feel is VERY useful for index scalping.
martingale is like a perpetual motion machine idea. it sounds very convincing to the ignorant and the hopeful.
a solid grounding in statistics and game theory makes it clear how absurd it is as a strategy
i will repeat. scale type trading works on stocks - until it doesn't
and since scale trading is a process of CONTINUALLY and methodically buying on weakness, it can completely wipe you out if you do it on the wrong stock, or the right stock at the wrong time.
it also ENSURES that your winning trades are small (that is part of the methodology) and again - would be stupid to do with stocks.
and WHY? do it with commodtities when the PROPER environment comes about, and place the odds in your favor
you have to set an uncle point. with commodities, as i explained , there is more to it. you buy in a lower part of a range of the commodity, looking back over years and years of charts.
martingale, otoh, is not a sytem in any meaningful sense of the word.
it absolutely will, given sufficient "n" result in ruin.
period.
it is basic math
as for the part about stocks/markets oscillating vs. trending. what he said was largely true
for example, the dow futures, which is what i trade for a living AVERAGE 14-16 "rotation" days a month, where they are rotating around value, as opposed to trending, and mean reversion/countertrend/fading strategies work best , given intelligent application of same
however, on the relatively rare trend days (which are generally defined as those days where the price closes much higher (on a ATR basis) or lower than it opens, and pretty much moves in that direction all day with some relatively minor pullbacks, you will get your head ripped off using the above strategies, which is why using market internals, strict risk management, and overall market feel is VERY useful for index scalping.
martingale is like a perpetual motion machine idea. it sounds very convincing to the ignorant and the hopeful.
a solid grounding in statistics and game theory makes it clear how absurd it is as a strategy