If trend following, can money management save you in chop?

Quote from kut2k2:

Would some kind soul point out to poor ol' Crankus Maximus what his Probability 101 mistake is here? I'm too busy laughing to do so myself. :D
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Of course you are busy laughing. All lunatics laugh all the time while they expect someone else to do the job for them.

Quote from kut2k2:

Now he's off on a new tangent wrt win rate. Except his new crank theory is based on the Gambler's Ruin Theorem, which has the very specific restriction that W = |L| = 1.D
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You are a dishonest person, you admit now that your risk of ruin formula applies only when W = |L| = 1, a specific and even trivial case. You are such an intellectually dishonest individual and you should be ashamed of yourself really. When I was pointing this out you were insulting me.

DontMIssTheBus was right, nobody should pay attention to a lunatic like you.
 
Quote from bone:

I don't think that is true at all. The fact of the matter is that many ET members just think of it as an afterthought - that somehow the entry signal needs to be the 'holy grail' and that everything else takes care of itself provided you have the ultimate trade entry signal.

Money ( position ) management need not be complex or controversial. Set your profit target and stop-loss level at the time of entry. Bump your sizing up incrementally when you are putting together winning trades - in other words, lever your consistency. Bump your sizing back after your second consecutive loser. That and a modicum of common sense will take you far.
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I use unique money management systems trading probabilities , they work great and are profitable ,they work if mark gets choppy.I don't trade trends as 80 % of them fail or fizzle out , I don't use the money management taught by mentors or books .

I look for trading systems with break even positive expectancy and high hit rates , the money management makes the profit.
 
Quote from intradaybill:
Quote from kut2k2:

Would some kind soul point out to poor ol' Crankus Maximus what his Probability 101 mistake is here? I'm too busy laughing to do so myself. :D
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Of course you are busy laughing. All lunatics laugh all the time while they expect someone else to do the job for them.
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I've already done the job. You on the other hand have yet to realize that there is a mistake in your "derivation", much less what it is. Find it yourself, maybe you'll finally learn something.
Quote from intradaybill:

You are a dishonest person, you admit now that your risk of ruin formula applies only when W = |L| = 1, a specific and even trivial case. You are such an intellectually dishonest individual and you should be ashamed of yourself really. When I was pointing this out you were insulting me.

DontMIssTheBus was right, nobody should pay attention to a lunatic like you.
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You are as always just plain wrong. I pointed out the limitation of the Gambler's Ruin Theorem several times, but it still serves as a counter-example to your crank theory that ALL systems are doomed to fail eventually, regardless of whether they have positive expectation or not. I also posted and even derived the Griffin formula twice, and the Griffin formula was specifically designed to overcome the limitation of the Gambler's Ruin formula.

It really is tedious having to explain elementary math to cranks who think they already know it all. :( Go take some remedial math classes, and this time try to stay awake and actually learn something.
 
Intradaybill,

One thing I think you are failing to realize and what Kut2k is trying to explain with his math/formulas is that even with a win rate of 50% or less ruin is NOT CERTAIN,.....UNLESS,....you live forever.

See the thing is,... if your win rate is <50% it is true (as you have mentioned) that you could experience drawdowns of length and magnitide to wipeout a trader. However, if this risk of ruin is only a 1% chance and you adjust your risk per trade to make sure this is the case then you should have little to worry about. I do not need 100 years of good trading I only need about 20 years of good trading and i am willing to accept a 1% chance of being wiped out over a 1 year span during that 20 year trading lifetime. If I expected to live to 150 and needed income for the next 100 years then what you say about EVENTUALLY being wiped out would be more important.

Just my 0.02
 
Quote from N54_Fan:

Intradaybill,

One thing I think you are failing to realize and what Kut2k is trying to explain with his math/formulas is that even with a win rate of 50% or less ruin is NOT CERTAIN,.....UNLESS,....you live forever.
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He is not explaining anything. He is a crank who plagiarized a proof used by casino gamblers in games whose outcomes are pure random walks and the probability spaces are well-defined in advance. He has only proved that given a random walk with equal loss and win, if the win rate is greater than 50% then risk of ruin is less than 1. This is so trivial that you do not even need a proof to argue it.

Trading system performance is path dependent and that path is very often marked by persistent trends or persistent volatility, nothing like a random walk.

You cannot know when a steak of losers will hit you. It may come as soon as you start or after 1 million years. The fact is that risk of ruin is certain.

Things are more complicated than the copy and paste of plagiarized proofs idiots like him do.

Consider the statement:

Win propability of trading system = p or P(w) = p

Is it true or false?

Let p1 be the probability that it is true

then P(P(w)=p) = p1

But then, let p2 be the probability that the above is true. Then

P(P(P(w)=p) = p1)) = p2

.........................................

and so on, ad infinitum

An infinite regress emerges in which there are infinite random walks.

Why educating the crank here? I do it not for him but for you because I think people like you who are polite deserve getting exposed to the deep issues that are not known to cranks like him

The issue is that the infinite regress of probabilities makes it impossible to know the propability of the original statement,

P(w) = p

Thus, any proof based on an assumption of knowing that probability is a crank's proof. He is a crank, period.

This is called in math "Infinite Hierarchies of Probabilities", it is studied at graduate levels and it is an unsolved problem.

Probabilities can only be known when the probability space is well-defined and a countable set. This does not apply to trading systems where the probability space depends on infinite possible unknown path.

These are some of the reasons that I laugh with the arrogance of that guy. Trading is not rulette or poker. Those proofs he plagiarized apply only to those games with finite probability spaces known in advance and path independent. We know for example than when tossing a fair coin after a certain number of tosses the calculated win rate converges asymptotically to the true win rate. This is not true with trading systems because they are path dependent. Every calculated win rate is only probable in an infinite regress fashion.

What is more sad is that he never appreciates the effort others put to educate him.
 
Quote from intradaybill:



Trading system performance is path dependent and that path is very often marked by persistent trends or persistent volatility, nothing like a random walk.

You cannot know when a streak of losers will hit you. It may come as soon as you start or after 1 million years. The fact is that risk of ruin is certain.


This is called in math "Infinite Hierarchies of Probabilities", it is studied at graduate levels and it is an unsolved problem.

Probabilities can only be known when the probability space is well-defined and a countable set. This does not apply to trading systems where the probability space depends on infinite possible unknown path.

Trading is not rulette or poker. Those proofs he plagiarized apply only to those games with finite probability spaces known in advance and path independent.
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Very good summary. I completely agree. This would explain why edges get dull, managers run automated funds, and all manufacturing equipment has big red mushroom shaped "oh shit" buttons on them.

"System trading is ultimately discretionary" -Ed Seykota, quoted from Market Wizards
 
Quote from intradaybill:

Trading system performance is ...nothing like a random walk.

You cannot know when a steak of losers will hit you.

An infinite regress emerges in which there are infinite random walks.

Probabilities can only be known when the probability space is well-defined and a countable set. This does not apply to trading systems where the probability space depends on infinite possible unknown path.
We know for example than when tossing a fair coin after a certain number of tosses the calculated win rate converges asymptotically to the true win rate. This is not true with trading systems because they are path dependent.Every calculated win rate is only probable in an infinite regress fashion.
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The above first statement does not seem to tally with the rest of the comments.
What does it mean by "win rate is only probable in an infinite regress fashion"?
If win rate is infinitely random for trading, then statistics like expectancy is meaningless for traders
since "You cannot know when a steak of losers will lead to certain ruin" suddenly.
 
Quote from The_Tourist:

The above first statement does not seem to tally with the rest of the comments.
What does it mean by "win rate is only probable in an infinite regress fashion"?
If win rate is infinitely random for trading, then statistics like expectancy is meaningless for traders
since "You cannot know when a steak of losers will lead to certain ruin" suddenly.
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You know you're dealing with a world-class crank when his posts make no sense no matter how you parse them. Suddenly out of the blue, imbecilebill is trying to pull this "infinite regress" crap which he NEVER mentioned before and which certainly does not lead to his crank conclusion that ALL trading systems without time or target limits fail regardless of path or parameters. First of all, no sane statistician adheres to "infinite regress"; it is a philosophical issue, not a mathematical issue. Sort of like trying to figure out how many angels can dance on the head of a pin, that's how relevant to reality imbecilebill's "infinite regress" nonsense is.

"Infinite regress" means ultimately you can't know anything, so wtf good is it? Only a hopeless crackpot troll would attempt to use this utter nonsense in a discussion about determining risk of ruin, and that's exactly what happened here.

He's a proven waste of time.

imbecilebill >>>> ignored.
 
Quote from Wide Tailz:

Very good summary. I completely agree. This would explain why edges get dull, managers run automated funds, and all manufacturing equipment has big red mushroom shaped "oh shit" buttons on them.

"System trading is ultimately discretionary" -Ed Seykota, quoted from Market Wizards
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Ed Seykota was correct. The sad thing is that in the process of trying to elevate the level of the discussion you get attacked, from lunatics like kut2k2 and his sockpuppets.

That moron does not understand and at the same time cannot accept that he is wrong. I have tried to introduce him to one of the hottest topics in mathematics currently and instead of thanking me he throws all kind of dirt.

One more reason that these forums are becoming slowly dead. Why should I stay here and why should I try to have any discussion of value at all when lunatics like him and his sockpuppet with complete ignorance of the issues will attack me right away because their ego is under attack?

Profile For The_Tourist

Date Registered: 11-11-11

One of his remarkable posts: http://www.elitetrader.com/vb/showthread.php?s=&postid=3358300#post3358300

NO I WILL NOT STAY IN THIS FORUM ANY LONGER.

YOU GUYS STAY WITH KUT2K2 AND THE_TOURIST

I AM SURE YOU HAVE A LOT TO LEARN FROM THEM.

KUT2K2 SUCCEEDED IN MAKING ME GO AWAY.

BYE
 
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