poker player tries his hand at futures trading

[fletch2]

Quote from Don Bright:

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

Every losing dollar there has to be a winning dollar. But it seems one person could win $10 while 10 lose $1. Or ten could win $1 while 1 loses $10.

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".

Agree it seems like an argument for trading stocks over futures.

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 [/B]

Agree. I think the next few years will push the vig down in online poker. There's just too much money to be made for the market not gain efficiency.

Just yakkin' back.

Fletch

 

[KS96]

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.

Not true. Your logic is flawed.
We don't do 10 trades and expect 3 winners so 1 winner less will hurt. We do thousands of trades. A million trades for a million dollars. Asymptotically, a winner less in thousands of trades, will not hurt more a 30% winrate system than 70% one.

 

[Raystonn]

Fletch,

I have a feeling the way we approach the markets is very similar. I will be watching this thread for some time.

May your tails be skinny.

-Raystonn

 

[fletch2]

Quote from Raystonn:

Fletch,

I have a feeling the way we approach the markets is very similar. I will be watching this thread for some time.

May your tails be skinny.

-Raystonn

My tail is getting skinnier the longer I sit at this damn computer.

Mind if I ask how long you've been at this game and how it's going so far?

Fletch

 

[fletch2]

Quote from KS96:

Not true. Your logic is flawed.
We don't do 10 trades and expect 3 winners so 1 winner less will hurt. We do thousands of trades. A million trades for a million dollars. Asymptotically, a winner less in thousands of trades, will not hurt more a 30% winrate system than 70% one.

Again I agree, but in practice what matters is probably somewhere in between these two sides of the argument, because we usually don't make enough trades for any given strategy for the asymptotic results to be the only thing that matters.

Trade frequency is an important variable for this very reason, IMO.

Try as I may, though, I cannot find good high frequency (10-100 trades a day) strategies yet.

Fletch

 

[Raystonn]

My tail is getting skinnier the longer I sit at this damn computer.

Mind if I ask how long you've been at this game and how it's going so far?

Fletch

I moved from equities to futures a couple years back. Prior to that I traded a large, diverse portfolio of stocks and had modest yearly returns that generally beat the major indices. The futures markets have better opportunity. If you know what you are doing, the risk:reward ratio can be far superior to that in equities.

I have a few systems that back and forward test profitably. I am trading one that has, amazingly, given about 5 times the profits and 1/5 the drawdown of what it tested historically. Lucky? Yes, but I'll take it. I'm expecting that massive drawdown to begin at any moment...

Just one quick analysis based on my own system. I can see that, if I had approached trading without proper testing and analysis, I would probably be killed the moment a real drawdown begins. Many on ET use what they call discretionary trading to take in profits. Doing so for a few months is easy. But without knowing the drawdown to be expected, these folks will invariably blow out their accounts, and then complain that the edge of their trading rules went away. Had they did their homework, they would know what to reasonably expect. They would know where to halt trading of that system, should it actually die. They would know how much leverage to use, and how adjustments to that leverage through position sizing will affect drawdowns and returns. When you know what to expect from a system, you can ensure you last through the lifetime of that system's edge rather than being blown out in a once-per-couple-years drawdown.

-Raystonn

 

[Don Bright]

Quote from fletch2:

Every losing dollar there has to be a winning dollar. But it seems one person could win $10 while 10 lose $1. Or ten could win $1 while 1 loses $10.



Agree it seems like an argument for trading stocks over futures.



Agree. I think the next few years will push the vig down in online poker. There's just too much money to be made for the market not gain efficiency.

Just yakkin' back.

Fletch

Not just online, the local tournaments even make it hard to overcome the costs.....LOL.

Don

 

[MGJ]

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.

The Barclay Group publishes their Systematic Traders Index which shows the performance of 400+ CTAs that trade other people's money using mechanical trading systems. (You can find the details here.) These CTAs and their trading systems are profitable; in fact, they are so profitable that investors keep shoving more money at them to invest, year after year. I've plotted the equity curve of the Barclay Systematic Traders Index below.

I plotted the equity curve as-is (including all fees), and then again with management+incentive fees removed, so you can see the performance of the mechanical trading systems without the fees. Most CTAs charge 2-and-20 fees, namely, 2% management fee PLUS 20% of net new profits above the previous highwater mark. However, to be conservative, I only added back 1-and-10 (not 2-and-20).

Trading systems make money, not only in theory, but also in practice. Have a look.

 

[Don Bright]

Quote from MGJ:

The Barclay Group publishes their Systematic Traders Index which shows the performance of 400+ CTAs that trade other people's money using mechanical trading systems. (You can find the details here.) These CTAs and their trading systems are profitable; in fact, they are so profitable that investors keep shoving more money at them to invest, year after year. I've plotted the equity curve of the Barclay Systematic Traders Index below.

I plotted the equity curve as-is (including all fees), and then again with management+incentive fees removed, so you can see the performance of the mechanical trading systems without the fees. Most CTAs charge 2-and-20 fees, namely, 2% management fee PLUS 20% of net new profits above the previous highwater mark. However, to be conservative, I only added back 1-and-10 (not 2-and-20).

Trading systems make money, not only in theory, but also in practice. Have a look.

Yes, interesting ...and just for fun, my wife's lifelong friend Patty Dunn (yes, that one)...clip from her "No. 17 in top 100 most powerful women in America)... "The daughter of a showgirl and vaudeville actor, Dunn, 52, wanted to be a journalist. Fearing this career move might leave her impoverished, Dunn started as a secretary and eventually climbed to the top of Barclays Global Investors, the asset management arm of the England-based financial firm. After a bout with breast cancer, Dunn has returned to Barclays in a nonexecutive role and is now focused on corporate governance issues and client relations. Earlier this year Dunn grabbed headlines with the ousting of Hewlett-Packard Chief Executive Carleton Fiorina; she serves as the struggling computer and printer company's nonexecutive chairman."

Obviously she's in the headlines for other things at this point in time (which my wife says "couldn't have done anything wrong"...we'll see).

And, I'm aware of what they do and how they do it (pretty much, things change). Patty's husband, Bill and I set up some computer programs back "in the day" just after he left Wells Fargo to go out on his own.

Dont' know why I get on a "memory lane" tangent, sorry LOL

Now for another perspective.

You show about a 12.37 annualized return. The overall market has annualized at about 9% PLUS dividends. So they are not "beating the street" by much, if any.

These systems would do nothing for a trader who is trying to make a living trading....we don't look for fractional returns on investment...most could not live on 3% per year, or even 20% per year of their normal $25K-$50K trading accounts.

(I may be off a bit on the math, doing it on the fly while watching new highs and a possible ESZ breakout, LOL).

Sorry for the long post...just yakking...

Don

 

[Raystonn]

Actually, it shows about a 15.5% annual rate of return. But I do agree that this is pretty bad for a trader.

-Raystonn