poker player tries his hand at futures trading

[slapshot]

Quote from fletch2:



I will re-state what I said before: I don't care about win rates.

Give me a positive expectancy and sufficient opportunity to exploit my edge.

Win rate is just another stat, by itself it is not a meaningful metric.

Fletch

Respectfully, you may want to re-think this statement. Win-rate is the most important individual metric. Why?

A low win-rate system only needs a few % points lower than it's average hit rate to produce losses - a high win-rate system generally has more margin for error and can still remain profitable or breakeven even if it hits a rough patch******

i.e. a system that averages 30% win rate or 3 out of 10 only has to miss/take loss 1 or 2 extra times in that sample size of 10 trades and it is no longer profitable. Too dependent on those 3 trades for all of the profits.

A system that wins 80% of the time with decent risk reward or 8 times out of 10 can miss 2 or 3 or even 4 times extra per the sample size and still be decently profitable or breakeven at say 55 or 60% win rate, depending on gain/loss sizes. The profits are amortized out over many more trades, which makes the impact of a temporarily lower win ratio less dramatic on the equity curve.

***** all of this assumes that some other factors are in line as well.

 

[Raystonn]

Out of curiosity, what does the backtest show your results would have been for the period during which you took a break?

-Raystonn

 

[traderob]

Quote from slapshot:

Fletch,

I have been reading this thread with interest, once again marveling at all the BS and naysaying provided by other posters to what could otherwise be a fascinating discussion.

However, as a winning poker player and trader, I can tell you emphatically that there are some things you are also "dismissing" as well that others have tried to clue you in on. Due to your inexperience with actual trading.

1) Math skills are not trading skills - this is evidenced by the fact that 80% of mutual fund managers can't even outperform the SP500, even though they have every conceivable resource for math, engineering, statistics - many of them have more degrees and skill than either of us, all to no avail. But I still outperform most all of them with my discretionary trading due to experience, not smarts. It took me about 5 years to master.

2) Before you tell me that discipline, self-control and dealing with fear/greed are going to be eliminated by mechanical trading, I'll just let you know that is wrong. Overoptimization, curve-fitting, inability to stick with a system during drawdowns and chronic re-engineering are the mechanical trader's Grail Hunts to deal with these very emotions - and it is actually very hard to create a robust mechanical system that forward-tests well under all market conditions and that won't get crushed by all of the other systems it is aligned against.

You could spend a year designing the perfect mechanical system for your little 2 or 10 contract trades and some hedge fund that trades 500 or 1000 at a shot has a system that by accidental design usually takes the other side of your trades, hence negating that same edge you thought you had. And they may only trade it in certain markets along with their 14 other black box systems, so it is very hard for you to adapt to it. (now multiply this phenomenon by 50 or 150 or 500 systems in play, depending which second in time we are speaking about) it makes trading very hard to quantify mathematically. The only math needed to trade well is good risk/reward ratio - 6th grade math.

3) When you play poker, you can read the whole table, there are not several hundred thousand other players waiting to impact "the hand" with 1 contract or 1000 in the next 2 seconds and with cards you have a finite combination of hands and odds. In the markets, the combos are exponentially limitless. Therefore "odds" by necessity becomes a more fluid term.

I hope you know I am trying to be part of the solution and not the problem.

Respectfully,

Paul

Great Post, much appreciated.

 

[illiquid]

Maybe this analogy works and maybe it doesn't, but in poker parlance I think one can approach trading as either as a "low-limit" or "no-limit" game.

The "low-limit" game would be analagous to trading individual equities and having the ability to scan a large number of markets, waiting for the same setups to pop-up day in, day out, and just hitching a ride.

The "no-limit" game would be more in line with trading a single futures markets in a discretionary manner, in terms of depth of both money in play (scalability) as well as level(s) of "thinking" aka discounting (what they think you think they think you have etc).

One is more a science and above all else dependent upon the past repeating itself in the future; the other is more an artform in dealing with unique situational criteria. One lends itself more to traditional "TA", the other to market psychology; one is playing the percentages, the other is either right or wrong with each individual trade (hand).

Obviously it's an artificial analogy and hardly meant to be explicit, but maybe for someone who is a poker player first it might make some sense.

 

[fletch2]

Quote from slapshot:

Fletch,

I have been reading this thread with interest, once again marveling at all the BS and naysaying provided by other posters to what could otherwise be a fascinating discussion.

However, as a winning poker player and trader, I can tell you emphatically that there are some things you are also "dismissing" as well that others have tried to clue you in on. Due to your inexperience with actual trading.

1) Math skills are not trading skills - this is evidenced by the fact that 80% of mutual fund managers can't even outperform the SP500, even though they have every conceivable resource for math, engineering, statistics - many of them have more degrees and skill than either of us, all to no avail. But I still outperform most all of them with my discretionary trading due to experience, not smarts. It took me about 5 years to master.

If you want to amend that slightly to say "math skills are not sufficient trading skills", I will agree wholeheartedly.

2) Before you tell me that discipline, self-control and dealing with fear/greed are going to be eliminated by mechanical trading, I'll just let you know that is wrong.

Did I say that? All of those things are central to the game of poker, and I believe are skills that will likely translate.

3) When you play poker, you can read the whole table, there are not several hundred thousand other players waiting to impact "the hand" with 1 contract or 1000 in the next 2 seconds and with cards you have a finite combination of hands and odds. In the markets, the combos are exponentially limitless. Therefore "odds" by necessity becomes a more fluid term.

Agree 100%.

Fletch

 

[fletch2]

Quote from slapshot:

Respectfully, you may want to re-think this statement. Win-rate is the most important individual metric. Why?

A low win-rate system only needs a few % points lower than it's average hit rate to produce losses - a high win-rate system generally has more margin for error and can still remain profitable or breakeven even if it hits a rough patch******

i.e. a system that averages 30% win rate or 3 out of 10 only has to miss/take loss 1 or 2 extra times in that sample size of 10 trades and it is no longer profitable. Too dependent on those 3 trades for all of the profits.

A system that wins 80% of the time with decent risk reward or 8 times out of 10 can miss 2 or 3 or even 4 times extra per the sample size and still be decently profitable or breakeven at say 55 or 60% win rate, depending on gain/loss sizes. The profits are amortized out over many more trades, which makes the impact of a temporarily lower win ratio less dramatic on the equity curve.

***** all of this assumes that some other factors are in line as well.

I agree with that in general, although you could make similar arguments for 70% win rate strategies, when the winners are small per trade. If you put a little extra slippage per trade, your consistent winners become consistent losers.

I don't think high win rate systems have a monopoly on robustness. Certainly depending on winning "lotteries" with very low win rates is probably not a good idea. So I overstated my position originally. I was annoyed with the original poster who seemed obsessed with the idea of not having losing trades. Which I think you will agree is nonsense.

Fletch

 

[fletch2]

Quote from Raystonn:

Out of curiosity, what does the backtest show your results would have been for the period during which you took a break?

-Raystonn

I would have doubled my $10k account.

Fletch

 

[Don Bright]

Just remember guys (and gals)..."There are no systems" - if there were, they would end up with all the money. There are excellent "strategies" that can be automated for efficiency, but even these have to be tweaked constantly.

I feel bad for the guys who, instead of simply learning how to trade (remember, trading is "simple" - but not "easy" - and you know what I mean). I have had dozens, if not hundreds, of guys come to me after spending months or years with "system development" - sacrificing a lot of time and $$ (and potential profits if they would have traded instead of developing something that won't really work).... and they are devastated when they put these things into practice, and for whatever reason (or excuse) they come with...lose money.

Don

 

[fletch2]

Quote from Don Bright:

Just remember guys (and gals)..."There are no systems" - if there were, they would end up with all the money. There are excellent "strategies" that can be automated for efficiency, but even these have to be tweaked constantly.

I feel bad for the guys who, instead of simply learning how to trade (remember, trading is "simple" - but not "easy" - and you know what I mean). I have had dozens, if not hundreds, of guys come to me after spending months or years with "system development" - sacrificing a lot of time and $$ (and potential profits if they would have traded instead of developing something that won't really work).... and they are devastated when they put these things into practice, and for whatever reason (or excuse) they come with...lose money.

Don

Most are losers. Not news.

Fletch

 

[Don Bright]

Quote from fletch2:

Most are losers. Not news.

Fletch

For every "loser" doesn't there have to be a "winner"? Even in Poker, for the most part.

This applies especially to "zero sum games" like futures. Trading stocks obvioulsy has "value added" (8% growth, earnings, dividends, stock splits, interest on short stock, etc.) which means, that even after expenses, there can be a bigger "pie".

Maybe it's Goldman who "wins" (hedge funds etc.) from the small retail trader...I totally understand that, but nonetheless, someonw will end up with the money. It's often times a "growing in expertise" type trader or poker player.

Poker can actually be harder, not the playing but the vigorish. Paying 6% on top of a $10,000 entry fee seems pretty high, when you can buy 1,000 shares of a $35 stock ($35,000) for 10 bucks or so (1/200th of the tournament vig).

Just yakking...

Don