ES Journal Archive (2006 - 2008)

[illiquid]

Quote from Buy1Sell2:

Entries and exits are explicit as well as stops. It can also be used without the explicit rules. Either way, you stop yourself at or less than 2 percent of total liquid net worth which is the key.

That's a pretty big assumption. So you believe money management and position sizing can directly provide an edge over the long run?

To others who have tried this method -- do you really, actually, without exception, stop yourself out at 2%? Also, if 2% is max loss for a method that can go to 8:1 on losing:winning position sizes, what would be a typical winning day %? Something between .25-.75%, thereabouts, does that sound right?

 

[romik]

Quote from ryank:

I totally agree. I keep getting the words "the market can stay irrational longer than you can stay solvent" dancing in my head though.

There are systems free to the general public that promise 75% win rate, bottom line is why wouldn't you, knowing established probability, start not with a maximum lot allocation based on 2% risk, but start with fewer contracts and add after every losing trade? That makes more sense then starting to trade a maximum amount of contracts and keeping same size all the time.

 

[illiquid]

Quote from romik:

This method can generate ~40% per annum (ROI) managing $500k. Where is the fallacy in that case?

Is that really how you consider what kinds of systems to employ and how you explore for edges? What I mean is, that's not a trick question?

 

[romik]

Quote from illiquid:

Is that really how you consider what kinds of systems to employ and how you explore for edges?

Yes, everything is to do with preservation of capital & ROI. Nothing else.

 

[illiquid]

Quote from romik:

There are systems free to the general public that promise 75% win rate, bottom line is why wouldn't you, knowing established probability, start not with a maximum lot allocation based on 2% risk, but start with fewer contracts and add after every losing trade?

Did you consider the fact that doing so may turn positive expectancy into a negative one -- especially with the added limit of 2% max loss?

 

[ryank]

Quote from romik:

There are systems free to the general public that promise 75% win rate, bottom line is why wouldn't you, knowing established probability, start not with a maximum lot allocation based on 2% risk, but start with fewer contracts and add after every losing trade? That makes more sense then starting to trade a maximum amount of contracts and keeping same size all the time.

I think you may have misunderstood, I agree with your method and it should work out well over time. I also agree that you should start with a small number of contracts and add after a loss. I'm interested in watching you continue to see how this method performs. My comments were to no one in particular, just to point out how quickly the losses can add up and to make sure that someone thinking about trading this way has the cash resources and emotional control to survive using this method.

 

[illiquid]

Quote from romik:

Yes, everything is to do with preservation of capital & ROI. Nothing else.

If preservation of capital is your priority, where would you draw the line and stop trading a certain method?

 

[romik]

Quote from illiquid:

If preservation of capital is your priority, where would you draw the line and stop trading a certain method?

If your overall Gross Loss is bigger than your Net Gain. Profit Factor < or = 1.00

 

[illiquid]

Quote from ryank:

I think you may have misunderstood, I agree with your method and it should work out well over time. I also agree that you should start with a small number of contracts and add after a loss. I'm interested in watching you continue to see how this method performs. My comments were to no one in particular, just to point out how quickly the losses can add up and to make sure that someone thinking about trading this way has the cash resources and emotional control to survive using this method.

You'd also have to consider the following fact: you would see the least delta in account value the better you actually trade, while the more you lose the greater leverage you are allowed to use.

Now think of this in light of one's trading career, over the long haul -- what are you rewarding here? Where is the impetus to hone one's abilities in market timing, if you are rewarded least (per trade) when you are at your best, while allowed to hold the largest size while you are trading at your worst?

 

[romik]

Quote from ryank:

I think you may have misunderstood, I agree with your method and it should work out well over time. I also agree that you should start with a small number of contracts and add after a loss. I'm interested in watching you continue to see how this method performs. My comments were to no one in particular, just to point out how quickly the losses can add up and to make sure that someone thinking about trading this way has the cash resources and emotional control to survive using this method.

Although I have quoted your post, the questions were aimed more towards Illiquid