How to never get an account wiped out?

Quote from gg12:

Hydroblunt

Why not using leverage?
If you have an edge and great money management, what's wrong about leverage?
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Cause an edge does not guarantee that you are gonna 100% correct, far from it. It can also dissapear in a blink of an eye.
Cause great money management means nothing when you can't exit even remotely close to where those money management signal you should exit. Ever hear of running the stops or gaps or trading halts?

I did not say it's a magic money making formula, I am just saying that if you do not want your account wiped out clean, don't use leverage. Pretty damn hard to actually run an account to zero if it's a 100% cash account. If you are starting out, don't use leverage, make your cash last while you losing.

Debt/leverage can be a very powerful form of control.
 
What is the success formular for me as a trader?

a) a more accurat probabilistic view of the market (vs. aggregation of all other players)
b) a long term oriented agressive betting strategy
c) placing bet tactics

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a) = EDGE
b) = MONEY MANAGEMENT
c) = APPLY
---------------------------------

Advantages of the Kelly System are

1) account can't blow off (if time is not limited, edge is available and accout size is infinitely divisible)
2) likelyhood to perform better than any other system almost sure (exponential growth possible)
3) achieves money target in probably shortest time vs. other approaches

But there are also disadvantages
http://en.wikipedia.org/wiki/Kelly_criterion

Therefore I think that re-investing gains is more effective than allocating fixed amounts statically to every trade.

I have calculated my geometric average from the trades I have made so far:

until 1/3 -78% (resulting from early trades)
1/4 +13.0%,
1/5 +5.7%,
1/8 +11.2%,
1/9 11.4%
1/10 +16.2%
1/11 +3.6%

The geometric growth of my account is currently 0.85 or -15%. That is mainly because of the huge DD which happened at the beginning. Leaving that DD out, geometric mean would be 1.10 or +10%.
http://en.wikipedia.org/wiki/Geometric_mean

My target is to bring it up to 1.02 mid term, which means 2% per trading day with a risk of 25% on the account on a single day.

Only 36 days successfully applying the system would double the account; see also http://en.wikipedia.org/wiki/Rule_of_72
If 18 active trading days per month are managable, an account would double every 2 months ...
 
Quote from gg12:

Willleung

Thank you for your openness explaining your recent HKD experience. Your system is obiously based on an different rule set compared to the Kelly formula system.

I will take the extrem volatile property of the Kelly system and focus solely
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on research for an edge
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and apply everything necessary to max the geometric growth. This includes the a perception of higher edge leads to higher bet sizes.

Please look at the logic:

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
No Edge (50% for success, 50% fail) results in 0% invest.
60% Edge results in 20% of the account been risked in a trade.
70% Edge results in 40% of the account been risked in a trede.
...
100% Edge results in 100% of the account been risked.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

The formular for the optimal bet size is:

BidSize% = 2*Edge - 1

PS: I am not scared about loosing, since I decided at the time I have been funding my account to be willing to loose ALL the money or to get rich!
So FEER is not the main emotion here.

It's GREED, IMPATIENCE and EGO. I need to work on all of that on becoming a succesful trader.
I am also working on PERSISTANCE (That's one of the reasons why I am posting).
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Hello GG,

I would say most trader don't have an edge if it is defined by the winning % alone. (most are 50/50)

As you know risk and reward, people use their risk management along with their system to give them a positive expectancy. My system perform worst taking a trigger stragiht off, in terms of winning % but it keeps my drawdown to a manageable level.


Just think if I keep my maximum acceptable DD to a certain dollar amount, let's say 30% (when pass, I will stop), I better system with a smaller drawdown will allow you to use less capital to trade. Let's say an average loss of $3000 HKD per contract.

System A, 7 loss in a roll, $21k HKD; $21k / 30% = $70k captial per contract

System B, 14 loss in a roll, $42k HKD; $42k /30% = $140k captial per contract

Now just think System A earn 3000 pts per year and System B earn 4000 pts per year? Your account's return with system A will out perform system b by 50% (per $140k captial before margine of safety; 2 x 3000 pts vs 1 x 4000 pts).


Another thing I would like to share is, winning % across a period do not give you the distribution of the winning trades and the losing trades. Unless you know the distribution from that, you are not going to have an optium position size per trades. I can't, hence I maintain my position size. (attack is my best defence)


GG, I have 100% of my networth in my account, for me it's either off a building or get rich. My bottomline is acturally under 30%, but I am having returns from 100% of my networth . If I only put in half, then I would be risking 60% of the account (same risk dollarwise) and having return from 50% of my networth.

At the end, trade management, risks management, money management only do two things, maximise return and minimise risk.

Cheers





Will
 
Quote from cvds16:

you will blow up, it's only a matter of time ...
Why ? because you trade too big
How do I know ? because your returns are abnormal in size
Reason ? you risk too much
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Have you forgotten to say "Thank you!"? :D
 
Willleung/OddTrader

---------------------------------------------------
The only think I want is to show growth.
---------------------------------------------------

If you look at the statement 'you will blow up ... because ... you risk too much '
Is that a correct statement?

The opposite is 'you will not blow up if you don't take too much risk'
How to get max growth with that approach?

The absolute bet size is a function of the account SIZE.
The relative (%) bet size is a function of EDGE.

What is more important arithmetic growth or geometric growth?

PS: I don't care about my initial trading capital (it's written off and I don't force myself to get it back). I am not immediately dependent on the alley of it.

PS2: If at some point in time the account will probably have reached a high absolut value. That's the reason why I spend effort in it and care. If my efforts pay off I can take out some 1000s of $s from the account without even reducing the it by a single 1 %.
 
Quote from gg12:

I had good days on 1/4 +13.0%, 1/5 +5.7%, 1/8 +11.2%, 1/9 11.4% and I am currently at 32.82% of my original investment.
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1/6=-100%? 1/7=-150% ? :D
 
until 1/3/07 -78% (resulting from early trades)
1/4/07 +13.0%,
1/5/07 +5.7%,
1/8/07 +11.2%,
1/9/07 +11.4%
1/10/07 +16.2%
1/11/07 +6.3% (correction)
1/12/07 +3.6%
1/15/07 +3.6%
1/16/07 -8.9%
 
Quote from gg12:

Willleung/OddTrader

---------------------------------------------------
The only think I want is to show growth.
---------------------------------------------------

If you look at the statement 'you will blow up ... because ... you risk too much '
Is that a correct statement?

The opposite is 'you will not blow up if you don't take too much risk'
How to get max growth with that approach?

The absolute bet size is a function of the account SIZE.
The relative (%) bet size is a function of EDGE.

What is more important arithmetic growth or geometric growth?

PS: I don't care about my initial trading capital (it's written off and I don't force myself to get it back). I am not immediately dependent on the alley of it.

PS2: If at some point in time the account will probably have reached a high absolut value. That's the reason why I spend effort in it and care. If my efforts pay off I can take out some 1000s of $s from the account without even reducing the it by a single 1 %.
More...

GG,

I start trading fulltime HSI since Late August 2006. I went from 1 to 3 (size wise, 300%) in 3 months. Then I got my biggest DD. I love the market, and I would like to do it for the rest of my life if the market and my health allow me to do so. I retain 80% of my profits in the account, live modestly (how does $1k USD/month in an asian city, including Rent, Internet and Phone Bill, sound to you? comfy??), trading is my life now, and will I be happy swing trading 3 contracts for the rest of my life? I need growth, I need a size of 25 contracts to make $500k USD a year, this should take me 3 or 3.5 years. All I am saying is, do it smartly.

I am a average winning % (50%), good profit factor (3+:1), and I still need to mind getting wrap out or at least maintaining my size after DD.

I was hoping to tell you to up your size between equity peaks, to grow safely.


Try this.

Winning % =50%

0.5^7=0.0078%, so less than seven loss in a roll should be possible.

so, in 12 trades (6 losses, 6 wins) you are going to come out a head, but where do you put in your next trade? How the hell are you going to know when is the winners and losers distributed in the next 12 trades? Imagine you are going to have 6 losses next, and and you are trading 33% larger (ie, 3 to 4 cts)


Potential Max DD:

6 trades x Avg. Loss x 1.33 x some sort of safety margin


Captial Required before (I) up my size:

Potential Max DD / DD as a % of your account (30% for me)


I missed some trades this month, due to slippage (no chasing) and directional preference (only one, but it's lame, and it hurts) given how selective I am, I am down at least 25% in terms of monthly profit. I take trading as seriously as you do. I hope you do well, and I wish you can do you best in your own way. Give my money management rules a try (on paper), if it helps you, that's great, I am giving back to the community, if not, then screw me.




Will
 
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