call it martingale or reversion or adding,averaging but an up move pulling back happens at least once a month, the hard part,is mis guessing where to start entering so that when you are sized in,it goes even higher and stops you out, this move comes every month,so it's how you are reading the market,what are you using ,does it work with that scenario,if so, the vague description magic mentioned works like a clock..havent tried it but it must work buying as we drop to avg in and sell higher
Increasing Size During Drawdown
- Thread starter oldtime
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As i said,i don`t think as you think.I do understand the expectancy concept in this way:I do what the others(who paint a picture on the chart,and who give,sometimes a donation to the crowd)do.That`s what i do and continue to do.The little problem is that i undercapitalized a bit so have to pick the crumbs for them,the only thing that bothers me so far.But that`s ok,it`ll soon be solved.
Let me put it this way. Most bets in games at a casino give the house a positive expectancy of 1/2% to 10%, and a casino is considered a license to print money. A system with just 15% expectancy and a 10% allowable drawdown can realize 50-100% annual returns. You are claiming to have 100% expectancy, which should get you somewhere in the realm of 2,000% annual returns.
Starting with a measly $10K you would only be under-capitalized for a couple months. At that point you'd be making more every month than most people make in a year. And after 12 months you'd be making more in a month than most see in a lifetime.
If you really have a 100% expectancy system, then under-capitalization isn't an excuse. Your responses are suggesting to me that you actually don't understand the concept of expectancy, and I'm just trying to help.
Thanks for trying,really,i appreciate your help.But it`s all good on the paper,what you say.99% of the hedge funds are aware of the expectancy,too.So where is the money?
Undercapitalization IS an excuse.C`mon man,are you for real!
Besides,$10K even with 2000% anual return is still only $200K per year.To make millions you still need millions.I don`t claim i have a 100% system,no one has.I`m trying to say,that my expectations on the market are always the same,everyday.
I have a relative who is the pit boss at a casino.Long story short,they once made an attempt to start their own casino,but hit the losing streak at the very begining and went belly up.Capitalization is the crusial part in any endeavour.For trading,at least $300K to make a decent living safely.
You seem to be confusing things. Expectations and Expectancy are two very different things.
Expectation : A strong belief that something will happen or be the case in the future.
Expectancy : Statistically expected gain per dollar risked.
A 100% expectation is simply a strong belief that something will happen. A 100% expectancy means that your system is proven to make $100 every time you risk $100. That's why I said under-capitalization would be a non-issue to you. You suggested that you have 100% expectancy. If that were the case, you'd be making about 85% monthly returns. You would only be under-capitalized for a VERY short period.
You also seem to be confusing 100% expectancy with 100% win rate. Obviously, nobody has 100% win rate, but it is statistically possible for someone to have >100% expectancy. Technically, a trader could even have a 300% expectancy, but that person would become very wealthy, very quickly.
Re: hedge funds being aware of expectancy. I think you'd be surprised by how many of them have no idea about the concept of expectancy. The vast majority of fund managers don't ever determine what their expectancy actually is, let alone quantify it for each trade. By vast majority, I mean probably >99%. And of the ones who do figure it out, many realize that their expectancy is only something like 1% or maybe even negative over the long term.
How can a person possibly know how to manage a trade if they don't know how their actions will change the expectancy of that trade? How can they determine what the proper position sizing might be without this information?
Thanks for your clarificantion.I see what you mean.Honestly, i never thought about it,but i can say,that the EXPECTANCY of my model may vary and i can`t say beforehand what it would be.But in majority of the cases,i can say, it`s something around 100%,or higher.
But what is the use of it anyway?It`s not a good idea to artificially maintain the expectancy within the framework of a certain percentage.What if an expectancy for the next trade would be 99%(rough example)?You won`t take this trade?
Determining historical expectancy is very simple.
Expectancy = (Probability of Win * Average Win %) â (Probability of Loss * Average Loss %)
Example I
You are 50:50 winners and losers.
Average win = 2%
Average loss = 1%
(50*2)-(50*1) = 50
Expectancy +50%
IOW, for every dollar risked you expect to make 50 cents. In the real world, a 50% expectancy system is VERY rare.
Example II
You are 90:10 winners and losers
Average win 1%
Average loss 10%
Expectancy -10%
This is a losing system over time.
So the expectancy of your total history is easy to determine, just remember to figure it net of all costs. The harder part is to break it out into different types of trades and to determine what the expectancy is going to be for any potential trade. To do this, you must accurately determine the likelihood of all the various outcomes. I'm not willing to describe how to do that here, and it would take too much time anyway.
The point is that a huge majority of traders and managers really don't know whether they have a positive or negative expectancy over time. They just do what seems to work until it doesn't work any more and then they whine that the market changed. The reality is that their system had a long term negative expectancy and they didn't know it.
Determining historical expectancy is very simple.
Expectancy = (Probability of Win * Average Win %) â (Probability of Loss * Average Loss %)
Example I
You are 50:50 winners and losers.
Average win = 2%
Average loss = 1%
(50*2)-(50*1) = 50
Expectancy +50%
IOW, for every dollar risked you expect to make 50 cents. In the real world, a 50% expectancy day trading system is VERY rare. Whomever owns it would be a very wealthy person.
Example II
You are 90:10 winners and losers
Average win 1%
Average loss 10%
Expectancy -10%
This is a losing system over time.
So the expectancy of your total history is easy to determine, just remember to figure it net of all costs. The harder part is to break it out into different types of trades and to determine what the expectancy is going to be for any potential trade. To do this, you must accurately determine the likelihood of all the various outcomes. I'm not willing to describe how to do that here, and it would take too much time anyway.
The point is that a huge majority of traders and managers really don't know whether they have a positive or negative expectancy over time. They just do what seems to work until it doesn't work any more and then they whine that the market changed. The reality is that their system had a long term negative expectancy and they didn't know it.