Numbers losing touch with reality

I

illiquid

August was a breakthrough month for me. The peak was a tenfold increase from my prior year's average p/l -- but I gave back most of it the last week of the month.

For September, I repeated the same performance but managed to close the month at the highs instead.

The first 2 days of October equalled half the prior month's numbers; the next 2 days, gave almost all of it back. Luckily closed out the week with a one-day best.

But this week was the first time I started to take a second look at my numbers and the swings, and realizing that I've completely lost touch with the reality of the figures. It never bothered me before, the swings back and forth. I've always felt that to deserve to earn a certain amount you need to be willing to lose it at any time as well -- you can't let the numbers own you. But how far can it go before it just gets ridiculous? I've been just putting my head down and going with the increases, adding size so long as the liquidity was there. But is this just too far too fast?

I've been around the block a few times and had my struggles, and my numbers have always fluctuated pretty wildly intramonth, but my confidence has been growing with the fact that my net gain by the end of each month has actually been pretty consistent over the past year. Only now things have gone to a new level, and pretty quickly at that. Should I be throwing cold water on my face and stepping back, given my propensity to swing, knowing I could give it all back and then some, and just slow things down a bit? Or is this just the way things go, and not try to fix what ain't broken? In other words, keep not thinking about it?
 
Quote from illiquid:

August was a breakthrough month for me. The peak was a tenfold increase from my prior year's average p/l -- but I gave back most of it the last week of the month.

For September, I repeated the same performance but managed to close the month at the highs instead.

The first 2 days of October equalled half the prior month's numbers; the next 2 days, gave almost all of it back. Luckily closed out the week with a one-day best.

But this week was the first time I started to take a second look at my numbers and the swings, and realizing that I've completely lost touch with the reality of the figures. It never bothered me before, the swings back and forth. I've always felt that to deserve to earn a certain amount you need to be willing to lose it at any time as well -- you can't let the numbers own you. But how far can it go before it just gets ridiculous? I've been just putting my head down and going with the increases, adding size so long as the liquidity was there. But is this just too far too fast?

I've been around the block a few times and had my struggles, and my numbers have always fluctuated pretty wildly intramonth, but my confidence has been growing with the fact that my net gain by the end of each month has actually been pretty consistent over the past year. Only now things have gone to a new level, and pretty quickly at that. Should I be throwing cold water on my face and stepping back, given my propensity to swing, knowing I could give it all back and then some, and just slow things down a bit? Or is this just the way things go, and not try to fix what ain't broken? In other words, keep not thinking about it?
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Have you run a MC Sim on your data? What is your win rate and % capital at risk per trade? Do you keep stats on your trades?

A lower than 50% win rate would suggest that your wild swings in capital are just due to a recent winning streak. However, remember it is still also possible to have a losing streak with large losses. The higher your win rate the more you can risk per trade and still have a relatively low risk of draw down. I suspect from what you describe that your win rate is ~50% and you are risking >1% per trade but have a positive expectancy system. If that is the case you could reduce your risk of draw down by reducing your capital at risk per trade. Also, I would look closely at the stats of your winning trades and find what they have in common compared to the losing trades so that you could increase your win rate and reduce draw down and volatility swings in equity.
 
... If % drawdowns aren't making new lows, I'd say you're good.

My profitability is strongly correlated to the VIX. Perhaps yours is too.... Good advice to study winners and losers.
 
Quote from illiquid:

August was a breakthrough month for me. The peak was a tenfold increase from my prior year's average p/l -- but I gave back most of it the last week of the month.
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Sorry to hear that. What are you trading? How much are you risking per trade? What is your winning rate and payoff ratio?
 
I don't put much credence on statistics in my own trading, beyond the most basic of tallies. I'm sure the win rate on ALL my trades regardless of holding time is well below 50%. But when things line up correctly I'm not afraid to go for the jugular, as they say. Most of my trades are situational in nature and I'm comfortable with holding times ranging from 1 minute to 3 months, so it's not easy to draw any insight out of averaging the numbers.

From what I can tell, the swings in P/L occur for 2 main reasons:

1) Overconfidence after a period of good trading -- the cushion is "there" to allow me to try new ideas or hold on to bad ones longer than I should. This has always been and probably always will be, I've never been afraid to sacrifice current gains as tuition for pushing further ideas. If I tried to clamp down on this completely, I don't think I'd be where I am today. That said, there's no question I've also a tendency to be stubborn as hell about letting certain ideas go.

2) The preference for sitting through drawdowns en route to a target, rather than locking in gains with the necessity for finding a re-entry -- I'd rather risk open profits vs missing out on the entire move. This is more of a recent issue, as my hold times have grown longer on average.

For me these are both reasonable explanations for the volatility in my performance, and I've always expected things would never change much in this department. But it's gotten to the point where the figures are starting to become totally meaningless in my head, just a score in a game. I suppose it's akin to poker players letting vast sums of money ride on the outcome of a random card -- of course, that's just the surface of it and not the truth at all.

But is it healthy for a trader of one's own account? This is not house money I'm trading with, nor OPM. The fear is missing the forest for the trees when it comes down to why one trades in the first place. Put simply, is being "dead" or numb to the numbers an advantage for a trader, or just a disaster waiting to happen?
 
Possibly there is a 3rd


You, some other members, and myself took a journey awhile back.. from that, your eyes cleared and you’ve enjoyed the benefits (you’re out of your own way, profit is there)

What you’re doing now, imo, is benefitting from the mkt’s volatility – but then – you’re also suffering from it (as reflected in your account’s volatility….)


What’s our mantra – oh yeah – protect capital FIRST… make money second

You’re doing the second, but not the first rigorously enough

Iow you are “mkt” volatility punch drunk


May be I’m wrong, only you know that


Being insensitive to numbers is good..., ignoring the writing on the wall – is dangerous


eta Volatility covers up sloppiness, but then castrates those who are


RN
 
Quote from illiquid:

I don't put much credence on statistics in my own trading, beyond the most basic of tallies....

From what I can tell, the swings in P/L occur for 2 main reasons...

For me these are both reasonable explanations for the volatility in my performance, and I've always expected things would never change much in this department....

Put simply, is being "dead" or numb to the numbers an advantage for a trader, or just a disaster waiting to happen?
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Look at these statements you make! You do not put much credence in stats yet you THINK your volatility is related to certain ways you trade. If you have stats you could analyze it and know for sure. If you "suspect" you win rate is less than 50% then how can you make a decision on risk per trade? Do you have any idea what the risk is of a 30% drawdown is in your system?...50% draw down?...100% draw down? You do not because you dont keep stats. So now you WONDER whether this is just you being numb to the numbers as if you are in the zone or something rather than being naive about the potential disaster you have on your hands.

My vote is disaster waiting to happen!!

IF you had stats about your system and KNEW with good confidence that the way you trade would result in certain draw downs and that in the end you will be fine and clearly profitable THEN I would say its best to be numb to the numbers... IF that were true you would have PROVEN to yourself that your system would perform in th elong run and not just in certain markets. That way when a string of bad trades come you can sit back and relax KNOWING you will ultimately be fine.

Not trying to bash you but seem to be risking too much for a system that has <50% in rate and certainly with NO stats.

Just enter this stuff in Excel and run some stats,...so simple. I can not understand why people do not do this? Dont professional Baseball teams keep detailed stats of this batter against that pitcher and with 2 outs and 1 man on base?...Yes they do...they are in the BUSINESS of winning games. We should do the same. Over time building stats about our system will tell us how our systems and how our own minds/emotions will perform in a given period. KNOWING that will build confidence to allow one to be numb for the right reasons and not because the numbers just look like a score on a video game that means nothing.

Just my 2 cents.
 
Quote from illiquid:

August was a breakthrough month for me. The peak was a tenfold increase from my prior year's average p/l -- but I gave back most of it the last week of the month.

For September, I repeated the same performance but managed to close the month at the highs instead.

The first 2 days of October equalled half the prior month's numbers; the next 2 days, gave almost all of it back. Luckily closed out the week with a one-day best.

But this week was the first time I started to take a second look at my numbers and the swings, and realizing that I've completely lost touch with the reality of the figures. It never bothered me before, the swings back and forth. I've always felt that to deserve to earn a certain amount you need to be willing to lose it at any time as well -- you can't let the numbers own you. But how far can it go before it just gets ridiculous? I've been just putting my head down and going with the increases, adding size so long as the liquidity was there. But is this just too far too fast?

I've been around the block a few times and had my struggles, and my numbers have always fluctuated pretty wildly intramonth, but my confidence has been growing with the fact that my net gain by the end of each month has actually been pretty consistent over the past year. Only now things have gone to a new level, and pretty quickly at that. Should I be throwing cold water on my face and stepping back, given my propensity to swing, knowing I could give it all back and then some, and just slow things down a bit? Or is this just the way things go, and not try to fix what ain't broken? In other words, keep not thinking about it?
More...

Don't do it man. The more you make by bloodshedding innocent victims' trading account, the more you'll give back. This career path you have chosen... it its evil!
 
Quote from Redneck:

What you’re doing now, imo, is benefitting from the mkt’s volatility – but then – you’re also suffering from it (as reflected in your account’s volatility….)


What’s our mantra – oh yeah – protect capital FIRST… make money second

You’re doing the second, but not the first rigorously enough

Iow you are “mkt” volatility punch drunk

RN
More...

All true. I've always been a "best defense is a good offense" type. The only way I know how to "protect capital" is to slow down and "non-rationally" (in respect to the markets) and arbitrarily cut position size. Note that this usually occurs naturally at the end of each month after my I get paid; a withdrawal is made and my size/leverage is usually reset back the the "usual" level to reflect the captial reduction. Lately however I've been able to maintain the same level or higher by delaying this event a few more days out.
 
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