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Experienced trader feedback wanted - doubling positions when in a loss
- Thread starter silvermotion
- Start date
Quote from silvermotion:
Hello fellow traders
I have a small question about position doubling. One of my trading buddies Trades using the murrey math in sim and he doubles positions on the russell 2000 and SP500 eminis every 2 points the trade goes against him. (start with one contract on entry, then 2, 4, 8 ,16, 32, 64) ...
regards,
Gabriel H
Actually, that's not really doubling the position. This is:
1 ... +2 (=3) ... +6 (=9)... +18 (=27) ...
It gets real big real fast. And you need a 33% retrace from your last entry to break even.
Quote from syrre:
TS,
1. Read this: http://en.wikipedia.org/wiki/gambler_fallacy
2. Get off the demo acct. and start trading without using lottery strategy. Almost everyone make 'money' on demos. Most people lose in real trading due to several human nature effects.
3. If profitable in real trading for 45 consecutive days, pm me.
Agreed, if you are on sim, don't spend more than 1 month, otherwise you will get a false sense of reality. I am coming up on my 2 year anniversary, it's been tough, but rewarding. I was joking with my trading buddy online that the more I get experience the more I realize I am really trading against my fears and anxiety rather than against other traders.
Quote from tomahawk:
Actually, that's not really doubling the position. This is:
1 ... +2 (=3) ... +6 (=9)... +18 (=27) ...
It gets real big real fast. And you need a 33% retrace from your last entry to break even.
exactly
so far, it did worked good (he trades in sim since he just paid 4000$ for the murrey math gold package and hes learning it) because every time he ''doubled'' he managed to get out of the trade be+1 (he wants 15 tics targets on ER, or 6 on ES, which is 1.5 pts) then as soon as a trade goes against him he places his exit at be+1).
the maximum number of times he ''doubled'' was 5
of course in sim you have unlimited funds.
so thank you for all the answers, you guy confirm what i expected, this is an impending disaster, and since hes having good results in sim its boosting his confidence so he will do the same in live (maybe) and end up getting a big loser that will wipe the account.
Indeed. And the first loser he can't sustain will likely be the one that takes out his account. He'll blow out all at once -- probably in one day -- and so fast he won't know what hit him. Like taking an assassin's bullet to the head.so thank you for all the answers, you guy confirm what i expected, this is an impending disaster, and since hes having good results in sim its boosting his confidence so he will do the same in live (maybe) and end up getting a big loser that will wipe the account.
With that trading plan it's not a matter of if, it's a matter of when. It's a guaranteed failure.
He'd be better off with a trip to Vegas. At least he could get laid on the way to his blowout...
The posters above who stated that pyramiding into strength is the real way to do it are right. A loss is a loss. Unrealized gains/losses are gains and losses. Every dime. Individual gains or losses on one trade are moot for many or most strategies. Getting it all back is the same as getting out and finding a better trade (less transaction costs, which with a good setup should not be much). That being said, do you go long into a new trade off of a chart that is falling like a knife? All else equal, no, so why would someone double into a trade that is not working? If he is sure that it is a good trade and can give himself a good reason why it is, then stay in, but take the capital that would have been a double down and go into another security that has a correlation that is close to 0 with the one you are in, for a good reason of course. Thats not going to guarantee anything, but will give him better results over time than his strategy, even if he has been doing OK lately. And even then, getting out of a loser is never a bad idea. The days when we have fat-tail events like a market up or down hundreds and hundreds of points, it is those people getting shaken out after they got used to what they thought was a viable strategy-many going bankrupt or lossing big. That is part of what I call the rubber-band effect-one of the reasons for support and resistance areas. Read stories about George Soros, how he never cared whether he was up or down on a trade, and you will see how someone like this acquired billions and bankrupted the Bank of England. The first thing I think of when I'm down is getting out, sometimes to a fault, because taking stops early is another way many traders fail too, but not as quick as what you were referring to! So to combat that I consider stops the same as targets (trailing stops-no target, per se). Small loss, small gain, big gain-not important-a viable strategy will allow enough big gains to combat financial and opportunity costs of options 1 and 2.
If I were you I would take my capital out and tell your friend you want to measure his success vs. yours. You seem pretty knowledgable about the key to successful trading, so after reasonable time, like a quarter, compare your % gain to his. Don't worry about day to day gains or losses-looks can be deceiving. Its just like fishing, if you can catch just one big fish now and then while not using too much bait then that is all you need to do. But if you keep throwing bait into a losing hole because a lot of small fish like to bite there or just nibble your bait away, then you might have a lot of fun but you're likely not to even pay for the bait.
If I were you I would take my capital out and tell your friend you want to measure his success vs. yours. You seem pretty knowledgable about the key to successful trading, so after reasonable time, like a quarter, compare your % gain to his. Don't worry about day to day gains or losses-looks can be deceiving. Its just like fishing, if you can catch just one big fish now and then while not using too much bait then that is all you need to do. But if you keep throwing bait into a losing hole because a lot of small fish like to bite there or just nibble your bait away, then you might have a lot of fun but you're likely not to even pay for the bait.
Martingale betting methods can be useful, can overcome
a small negative expectation or expand a positive expectation,
when the return series being traded is antipersistent, mean
reverting, or has a variance ratio less than one. Stock index
return series at the interday time frame have, for the past few
years, had precisely those characteristics.
Intraday trading markets are a pretty poor pseudo-random
number generator and such return series fail most of Knuth's
standard tests.
The first two random number generators shipped with WinCraps
could be beaten by a number of martingale betting schemes.
Interestingly, these RNG's failed the same randomness tests
that intraday market return series do.
The trader in question may have a small positive expectation
going in due to his "Murray Math" trading method. Even with
a zero edge, martingale system "Oscar's Grind" against even
a slightly antipersistent series, has, given a sufficiently large
initial bankroll, been shown to be a recurrent Markov chain --
meaing you won't blow out trading it!
a small negative expectation or expand a positive expectation,
when the return series being traded is antipersistent, mean
reverting, or has a variance ratio less than one. Stock index
return series at the interday time frame have, for the past few
years, had precisely those characteristics.
Intraday trading markets are a pretty poor pseudo-random
number generator and such return series fail most of Knuth's
standard tests.
The first two random number generators shipped with WinCraps
could be beaten by a number of martingale betting schemes.
Interestingly, these RNG's failed the same randomness tests
that intraday market return series do.
The trader in question may have a small positive expectation
going in due to his "Murray Math" trading method. Even with
a zero edge, martingale system "Oscar's Grind" against even
a slightly antipersistent series, has, given a sufficiently large
initial bankroll, been shown to be a recurrent Markov chain --
meaing you won't blow out trading it!
I am not supporting it, just offering it up for conversation.
By Mike Lea in Proportional betting:
Oscar's Grind
Oscar's Grind may be the ultimate in maximizing the number of small wins in relation to the large losses. The originator, only known as Oscar was a craps player who told reporters he gambled a lot and had never had a losing trip. This is not inconceivable. According to Tom Ainsley (and much of this discussion has come from Mr. Ainslie's "How to Gamble in a Casino") Julian Braun's computer studies showed the prababilites a house limit when the limit was 500 times the smallest allowable bet would only be once in 4,250 sessions. Braun's calculations also showed that bucking a $1.00 to $500.00 house limit, the average loss (because the progression would reach the house limit) would be over $13,000.00.
So here is Oscar:
Rule 1: The goal is to win one unit at the end of each progression and, whatever larger bet might be dictated by the other betting rules, will be dropped to a bet just large enough to gain one unit. This rule overrides.
Rule 2: Bet 1 is one unit.
Rule 3: If Bet 1 is lost, Bet 2 is one unit.
Rule 4. After a loss, the bet is the same as the bet just lost.
Rule 5 After a win, the bet is one more than the bet just won.
Example: First four bets are lost, player is down 4.
Next Bet (1 because it is the same as the bet just lost, Rule 4) won.
Next bet 2, Rule 5. Player down 3. Lose. Player down 5.
Next bet 2, Rule 4. Win. Player down 3.
Next bet 3, Rule 5. Win. Player even.
Next bet 1, Rule 1 overiding Rule 5 which would say bet 4.
By Mike Lea in Proportional betting:
Oscar's Grind
Oscar's Grind may be the ultimate in maximizing the number of small wins in relation to the large losses. The originator, only known as Oscar was a craps player who told reporters he gambled a lot and had never had a losing trip. This is not inconceivable. According to Tom Ainsley (and much of this discussion has come from Mr. Ainslie's "How to Gamble in a Casino") Julian Braun's computer studies showed the prababilites a house limit when the limit was 500 times the smallest allowable bet would only be once in 4,250 sessions. Braun's calculations also showed that bucking a $1.00 to $500.00 house limit, the average loss (because the progression would reach the house limit) would be over $13,000.00.
So here is Oscar:
Rule 1: The goal is to win one unit at the end of each progression and, whatever larger bet might be dictated by the other betting rules, will be dropped to a bet just large enough to gain one unit. This rule overrides.
Rule 2: Bet 1 is one unit.
Rule 3: If Bet 1 is lost, Bet 2 is one unit.
Rule 4. After a loss, the bet is the same as the bet just lost.
Rule 5 After a win, the bet is one more than the bet just won.
Example: First four bets are lost, player is down 4.
Next Bet (1 because it is the same as the bet just lost, Rule 4) won.
Next bet 2, Rule 5. Player down 3. Lose. Player down 5.
Next bet 2, Rule 4. Win. Player down 3.
Next bet 3, Rule 5. Win. Player even.
Next bet 1, Rule 1 overiding Rule 5 which would say bet 4.