How do you cut losses?
- Thread starter hurricane_sh
- Start date
Develop processes that position into the U.S. equities market * over multi month/ yearly time spans and that use quantitative variables that signal on fixed, predetermined dates ( in this case, signaling allocation from equities to cash / bonds and vice versa ). The use of ETFs that represent profitable stock universes / asset classes ** help diversify risk and have high(est) potential asset growth. If the process is statistically robust over a multi decade test sample, one can better rationalize losses (or gains), or any market behavior in between the signaling dates, as "noise".
* the U.S. equities markets and economy represent stable policy, debt, and currency, highest innovation and entrepreneurship, lender of last resort, persistence of growth trajectory, fiduciary responsibility to shareholders, liquidity, etc. The statistical evidence leans towards keying the investment process off of the long term trend of the U.S. equity markets vs. short term ( stocks have risen 60+% and fallen 30+% over long periods ),
** stock universes ( small cap value, small cap, mid cap growth ) whose factors ( size, value, volatility ) have driven the highest performance and "explained" alpha premium over buy and hold https://docs.google.com/document/d/1kToqLWLISRk4n4YnSzv1hT5kBN54l5CvhwGgDwJKPJI/edit?usp=sharing
- Don't quit your day job
- Don't use leverage
- Open a Roth IRA
- Sometimes money is made by sitting in cash
- Don't be a hostage to the markets
- let the markets, profitability of the U.S. economy work for you
* the U.S. equities markets and economy represent stable policy, debt, and currency, highest innovation and entrepreneurship, lender of last resort, persistence of growth trajectory, fiduciary responsibility to shareholders, liquidity, etc. The statistical evidence leans towards keying the investment process off of the long term trend of the U.S. equity markets vs. short term ( stocks have risen 60+% and fallen 30+% over long periods ),
** stock universes ( small cap value, small cap, mid cap growth ) whose factors ( size, value, volatility ) have driven the highest performance and "explained" alpha premium over buy and hold https://docs.google.com/document/d/1kToqLWLISRk4n4YnSzv1hT5kBN54l5CvhwGgDwJKPJI/edit?usp=sharing
- Don't quit your day job
- Don't use leverage
- Open a Roth IRA
- Sometimes money is made by sitting in cash
- Don't be a hostage to the markets
- let the markets, profitability of the U.S. economy work for you
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I read in your article about this trading or rather investing method: If you think that's not a big deal, here's the math: A $1,000 investment in 1930 (equivalent to $14,084 in today's dollars) grew to $2.4 million at 9.7% -- or to $13.6 million at 12%.
Speaking about math, I have an example from trading exactly the opposite way from what you propose:
Daytrading the ES with a $1500 investment ($1000 is impossible because of minimum margin of $1306). Margin $1306, max position 250 contracts. $5 commission per RT. Profit 1 points ES BEFORE commission (so commission is still deducted after making 1 point!).
To achieve the return of your sample, daytrading should make $3.6 million.
That point is reached after 391 trading days, in other words in about 18 months.
Only question is can you make for 18 months 1 point a day consistently? Missing a few days that are compensated by other days that made more than 1 point can result in “equal to 1 point a day consistently”. So you don’t have to make EVERYDAY 1 point and missing some days will not ruin your return as some days will give you more than 1 point.
The only question is: What are your abilities? What gives you the best risk return? Better in investing than in trading? Choose investing. But if you are better in trading you should definitely trade as returns will be much higher. You can even stop after 18 months whereas in investing you should wait 86 years before you can spent some money, at least if you are still alive. Almost all people will be dead before reaching the $2.4 million and will never profit from their money.
The remark: “why do 99% never achieve these returns in daytrading?” can be countered by:” why do 99% of investors never make the returns of your sample?”
Your study was made in hindsight. In hindsight I would also always find the best investment. But reality is that most people never make the $2.4 million, most even don't make half of it.
The period of your sample is also the most favorite period in history of the S&P. Will companies be able to continue their growth at this rate? I am afraid not.
If I am right the result might be that people invest and wait for 84 years to conclude that, in hindsight, there were much better options. To know you are right you have to wait 84 years, to wait if the daytrader is right you have to wait 18 months (or even less if you are not good as trader).
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A common sense way of cutting losses is by increasing your win rate by identifying high expectancy signals. In the theoretical limit that you reach 100% win rate your close position losses are exactly zero. This short article by an expert offers a good argument for maximizing win rate. Obviously, some trading styles do not allow that, example trend-following. In that case stops is a good tool. Note that HFT win rate is very high and that makes it profitable.
Why not - it the absolute best one going
And when does it become an actual reversal - completely decimating your last day..., week..., month..., quarter..., year..., even career's - worth of profit(s)
Be a trader..., or be an investor - never confuse the two
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Uncertainty is a bitch..., but also an absolute fact in this business
RN
I know it sounds Hokie and cliche, but keep a personal daily trading journal.
If you can minimize repeating mistakes - that's the same as positive equity gains in your account. It will also tighten up your trading system in terms of entry, exit, and position management. The effectiveness of your journal will be directly correlated to how brutally honest you can be to yourself.
If you can minimize repeating mistakes - that's the same as positive equity gains in your account. It will also tighten up your trading system in terms of entry, exit, and position management. The effectiveness of your journal will be directly correlated to how brutally honest you can be to yourself.
strong will