If You Trade One Instrument Only, How Do You Deal With This?

T

tradingjournals

A one instrument-only trader would in principle end his day either with a win, or a loss. Assuming a positive edge, losses would wait for future wins to be cleared. This correlation between wins and losses across time should be inherent to the results of any one instrument-only trader. If there is a 50/50 prob of loss/win, this can also be thought of as compounding only half the time at best.

How do deal with this? Some would say that is precisely why they trade two instruments or more-- and may proudly add that their profit center in one instrument would clear losses in the other instrument, which would then allow them to compound faster than one instrument-only traders.

Do the people who trade only one instrument think this is really a problem (assuming they were aware it was a problem)? If yes why? If not why?

For those who think/know it is indeed a problem, what are the techniques you use or know of to deal with it?

Those who trade multiple instruments, could you share your experiences and thoughts on this subject?

An answer I have would be to pool resources with another trader whose losses are not correlated to mine, which could reduce the variance of both without lowering the returns.
 
what i will say is not my original knowledge, but rather what I have learned from reading books from Mark fisher, Richard Weissman, and a few others....

if you have a profitable system, you are better off trading it across a basket of uncorrelated instruments... that way if half is right and the other half is wrong you either break even or make $$$ depending on how you positioned the trades... regardless, you always come out ahead, just like a casino...

while trading one specialized instrument might seem better, it is always best to trade a basket IMO... that way one does not forces a trade in one market or the other...

anyhow, just my 2 cents for whatever they are worth...
 
Quote from tradingjournals:

A one instrument-only trader would in principle end his day either with a win, or a loss. Assuming a positive edge, losses would wait for future wins to be cleared. This correlation between wins and losses across time should be inherent to the results of any one instrument-only trader. If there is a 50/50 prob of loss/win, this can also be thought of as compounding only half the time at best.

How do deal with this? Some would say that is precisely why they trade two instruments or more-- and may proudly add that their profit center in one instrument would clear losses in the other instrument, which would then allow them to compound faster than one instrument-only traders.

Do the people who trade only one instrument think this is really a problem (assuming they were aware it was a problem)? If yes why? If not why?

For those who think/know it is indeed a problem, what are the techniques you use or know of to deal with it?

Those who trade multiple instruments, could you share your experiences and thoughts on this subject?

An answer I have would be to pool resources with another trader whose losses are not correlated to mine, which could reduce the variance of both without lowering the returns.
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Your posts contain a lot of errors. And after an eroreous hypothesis, you ask questions whose answers you could search out on google.

Besides this you are a thread starter. do you feel it is neccesary to start a thread any time you have a new unthought out question? consider thinking using a journal or something. maybe keep your thoughts organized in some small way.
 
Quote from jack hershey:

Your posts contain a lot of errors. And after an eroreous hypothesis, you ask questions whose answers you could search out on google.

Besides this you are a thread starter. do you feel it is neccesary to start a thread any time you have a new unthought out question? consider thinking using a journal or something. maybe keep your thoughts organized in some small way.
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I believe you did not understand what I wrote. Also, your post summarizes how some students may view their teacher thoughts when they are learning something they have not yet learned/mastered but think they do.
 
Quote from ofthomas:



if you have a profitable system, you are better off trading it across a basket of uncorrelated instruments... that way if half is right and the other half is wrong you either break even or make $$$ depending on how you positioned the trades... regardless, you always come out ahead, just like a casino...
More...

Thanks. I agree with you. How do you allocate funds to instruments? Do you know of sites that post uncorrelated instruments (and monitors correlations)?
 
I trade only CL and not only is it not a problem to trade a single instrument it is an advantage. That said, I'm speaking from the prospective of a discretionary trader that would have a hard or even impossible time trading a basket.

I'll guess you are automated and, if that is the case, diversification has its advantages. For those of us running it by hand, a single point of focus generally will outperform splitting our concentration and energy over multiple instruments.

Quote from tradingjournals:

A one instrument-only trader would in principle end his day either with a win, or a loss. Assuming a positive edge, losses would wait for future wins to be cleared. This correlation between wins and losses across time should be inherent to the results of any one instrument-only trader. If there is a 50/50 prob of loss/win, this can also be thought of as compounding only half the time at best.

How do deal with this? Some would say that is precisely why they trade two instruments or more-- and may proudly add that their profit center in one instrument would clear losses in the other instrument, which would then allow them to compound faster than one instrument-only traders.

Do the people who trade only one instrument think this is really a problem (assuming they were aware it was a problem)? If yes why? If not why?

For those who think/know it is indeed a problem, what are the techniques you use or know of to deal with it?

Those who trade multiple instruments, could you share your experiences and thoughts on this subject?

An answer I have would be to pool resources with another trader whose losses are not correlated to mine, which could reduce the variance of both without lowering the returns.
More...
 
Quote from tradingjournals:

Thanks. I agree with you. How do you allocate funds to instruments? Do you know of sites that post uncorrelated instruments (and monitors correlations)?
More...

based on avg range to determine risk.. as to correlations... i have my own spreadsheet models using cqg as well as mrci..

http://www.mrci.com/special/correl.htm
 
Quote from tradingjournals:

A one instrument-only trader would in principle end his day either with a win, or a loss. Assuming a positive edge, losses would wait for future wins to be cleared. This correlation between wins and losses across time should be inherent to the results of any one instrument-only trader. If there is a 50/50 prob of loss/win, this can also be thought of as compounding only half the time at best.

How do deal with this? Some would say that is precisely why they trade two instruments or more-- and may proudly add that their profit center in one instrument would clear losses in the other instrument, which would then allow them to compound faster than one instrument-only traders.

Do the people who trade only one instrument think this is really a problem (assuming they were aware it was a problem)? If yes why? If not why?

For those who think/know it is indeed a problem, what are the techniques you use or know of to deal with it?

Those who trade multiple instruments, could you share your experiences and thoughts on this subject?

An answer I have would be to pool resources with another trader whose losses are not correlated to mine, which could reduce the variance of both without lowering the returns.
More...

Independent losses and wins shouldn't interfere with routine compounding.

Take a set period (weekly, bi-monthly, monthly), and rebalance risk per trade, accordingly, at the end of each set period. With a positive edge, the account compounds.
 
Quote from tradingjournals:

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Do the people who trade only one instrument think this is really a problem (assuming they were aware it was a problem)? If yes why? If not why?
More...

I don't think this is a problem. It is possible to be right only 50% of the time, and have a positive expectancy. I am very happy when my stats show I am right 50% or more of the time, as on average I always scalp 3 to 4 ticks profit, and lose 2 to 3 ticks. Trading only one instrument allows the traders skill of entering and exiting at higher probability times to develop more efficiently for that market then if they were trading multiple markets. Talk to prop traders and research prop shops to verify this. Systems traders probably would look to diversify risk through multiple markets if this is what you are referring to.

If a day is a losing day.. sure you could try trade another instrument to turn the day around but it rarely works that way. Best to use a maximum loss for the day have you walk away from the market knowing that on average you will negate that loss with one normal profitable day. Using this logic you can then manage your weeks to allow for a losing day, 3 profitable days and scratch day for instance.

Diversification i suppose does minimize risk if trading consistently across multiple instruments... however it also limits profitability to the same extent. I think it better to crush one market and be OK with a losing day.. assuming you have a consistently profitable edge over all.
 
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