Overtrading and the other thing

Quote from kut2k2:

Interesting alternative.

How do you determine what your minimum position is? And is NAV just another word for your trading account? Thanks.
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- NAV : Net Account Value - I think this is pretty standard.

- Minimum position size: 1 contract for futures, which is the only thing I trade ... I would say whatever makes sense after accounting for commissions for stocks, 1 lot (or micro-lot) for Forex.
 
Quote from dom993:

- NAV : Net Account Value - I think this is pretty standard.

- Minimum position size: 1 contract for futures, which is the only thing I trade ... I would say whatever makes sense after accounting for commissions for stocks, 1 lot (or micro-lot) for Forex.
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Thanks. I never heard of NAV outside of the context of a mutual fund share price before.
 
Quote from kut2k2:

Hi again, Dom

How many sims do you run? Thanks.
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I am not going to be ignored.

You do not understand the question you're asking.

Overtrading:

Incentive to churn or recommend inappropriate size or changing market positions too frequently outside of a professional or advisory setting wherein you are compensated for the amount of commission you generate creating conflicts of interest from the relationship that must be disclosed.

Shall I go over how long it's going to take Mr. Hershey to show up here?
 
Quote from kut2k2:

How many sims do you run? Thanks.
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Usually 10,000 runs ... it doesn't make much difference from doing only 1,000 runs if you are looking only at mean & st-dev, though (the only differences are the actual values at/near both extremes)
 
There is a reason why bucketshop brokers give their clients huge amounts of leverage, they want them to over trade as they make money from their client's losses.

No matter how good a trader you are or how good a system you have one day you'll make a truly awful trade, and if you're over-leveraged that will be the trade that wipes out your account.

Not over trading is simply an essential part of any half decent risk management system, and no trading system will succeed without a proper risk management strategy in place.
 
Quote from CFDTraderUK:

There is a reason why bucketshop brokers give their clients huge amounts of leverage, they want them to over trade as they make money from their client's losses.

No matter how good a trader you are or how good a system you have one day you'll make a truly awful trade, and if you're over-leveraged that will be the trade that wipes out your account.

Not over trading is simply an essential part of any half decent risk management system, and no trading system will succeed without a proper risk management strategy in place.
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Exactly my position as well. :)

My question in the OP was what is acceptable for a trading fraction, if you could restrict the range of values around the optimal trading fraction? I gave my ideal range of values (95% to 105% of true Kelly) but I hold back my acceptable range because I didn't want to unduly influence anyone else's response.
 
I would view 'overtrading' (i.e. trading with too much size/risk) as having a >1% chance of losing more than your maximum drawdown tolerance - either from a nasty losing streak, a shock market event, or excessive position correlation across your portfolio. There are also things like execution risk, market closures, broker bankruptcies etc to consider. I use the Monte Carlo approach with conservative win rate and payoff assumptions, to calculate my likely drawdowns, trying to account for the tendency of position correlation to increase during risky market environments.

I find that keeping within my drawdown tolerance, and being adequately protected against shock market events, makes it impossible to come anywhere close to the mathematical Kelly fraction, or even half of it. My maximum career drawdown is around 23% and my personal tolerance is about 20-25%, that is over quite a long time and through events like 9/11, dot.com crash, 2008 crisis, flash crash - so my own risk management approach has achieved its goals so far.

I think it's hard to use appropriate risk management if someone has not traded through at least one market crash and bear market - they simply don't have the experience and knowledge to make informed comments on risk. Even when they think they are being careful, they usually aren't.
 
Some people use trading all the time . It is not good practice . they should set a target to get profits , after it close trading .You can just watch market . Market is open 24 hours it does not means we should trade again and again all the time . Avoid over trading it can make you sick.
 
kut2k2 said:
I thought this thread was going to be simple. But fortunately I did a little research and came to realize that many ET members regard overtrading as something that didn't even occur to me.

Much to my surprise, it turns out that "overtrading" is an ambiguous word. I regard it as trading too large a size, i.e., trading too large a percentage of your account. But many (most?) here regard it as "trading just for the sake of trading", i.e., trading too frequently.

That's cool, language can be ambiguous and I'm a flexible guy. But this is the Trading Management forum, not the Psychology forum, and people who trade too frequently are what I call trading addicts, not overtraders.

So this thread isn't for members with discipline problems or emotional problems that lead to some trading addiction, this is for those who have discipline and a plan that works, i.e., yields positive expectation.

So the question is, when are you trading too much size?

More specifically, given that you have a trading system with positive expectation, you also have an optimal trading fraction (hereafter referred to as your "Kelly fraction") which most likely is unknown to you.

The reason for the unknowing is that outside of the fairyland examples of biased and/or uneven-payoff coinflips, the Kelly formulas are only approximations.

But let's assume that you could find a formula that consistently fell within a range of your true Kelly fraction. What would this range be, ideally or acceptably?

Oh yeah, the "other thing" in the title is undertrading : when are you trading too little size?

I previously posted that ideally I wanted something consistently between 90% and 100% of the Kelly fraction, but that works out to 95% ± 5%. Now I think a more realistic goal might be 100% ± 5%.

So is 105% of Kelly overtrading? Not to me but YMMV.

So what is an acceptable range of trading fraction values for you?
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A more important question is Kelly Fraction of WHAT? Net worth or account size? Too many people use a fraction of their accounts in their trading but I'm not sure that makes sense, when you consider position sizing you have to take into account your net worth. If Bill Gates opened an IB account with $1M, he shouldn't be betting using Kelly or half Kelly or anything like that, he should be way more aggressive because that amount is nothing for him. And vice-versa if you have a big account but you have debt to your name (like a big mortgage), you should bet less in that case
 
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