"Simple math" is not adequate. (Post for newbies)

Bad_Badness

Bad_Badness

It seems some have a tunnel vision obsession on the notion of win:loss ratio. Some drone on about how it is simple mathematics. 7th grade algebra is their alter. There is reason to consider other math disciplines that can be applied to system development.

To Wit:
  • A single trade is not an adequate paradigm to build a strategy.
  • A strategy should be built on representative sets, say 200-500 or 1000 trades*.
  • Trades do not move directly to a win or loss. They spend a lot of time in-between. In that time exits can be adjusted. TIME is a real factor.
  • Don't confuse "in theory" and "in practice". Certainly not "theory => practice", BUT also "practice => theory" for designing your system. They are two different models. I.e. build both not one and confuse the two.

Going beyond the 7th grade, simple statistics are better suited to "sets" of trades and should be considered as a "wrapper" for the algebra**.

I will stop with a comparison of two results where the MAE is the Loss, for simplification.

1) W/L ration 2:1 and a win probability of 40%;
2) W/L ration 1:15 and a win probability of 97%;

Consider:
  • What probabilities really mean.
  • Theory and practice are NOT the same.
  • You do have control on which trades are opened, which is another abstraction layer in the strategy. That plan should be logically and statically orthogonal. i.e. NOT THE SAME "plan"

In any case, just food for thought and not advocating any approach, but trying to frame the issue instead of pontificating one or the other. Lastly, easy-simple is not the same as complete or adequate. Easy-simple models come from unifying the numerous details and exceptions, not by ignoring them.

Feel free to flame away at your ego's peril, or not

*Unless you think each trade is uniformly the same, which, imo, is an absurd assumptions usually adopted because it is "easy" to model.

** There are other wrappers e.g. advanced statistics that can wrap first order parametric statistical systems. And models outside statistics that wrap entire statistical systems.
 
Bad_Badness said:
It seems some have a tunnel vision obsession on the notion of win:loss ratio. Some drone on about how it is simple mathematics. 7th grade algebra is their alter. There is reason to consider other math disciplines that can be applied to system development.

To Wit:
  • A single trade is not an adequate paradigm to build a strategy.
  • A strategy should be built on representative sets, say 200-500 or 1000 trades*.
  • Trades do not move directly to a win or loss. They spend a lot of time in-between. In that time exits can be adjusted. TIME is a real factor.
  • Don't confuse "in theory" and "in practice". Certainly not "theory => practice", BUT also "practice => theory" for designing your system. They are two different models. I.e. build both not one and confuse the two.

Going beyond the 7th grade, simple statistics are better suited to "sets" of trades and should be considered as a "wrapper" for the algebra**.

I will stop with a comparison of two results where the MAE is the Loss, for simplification.

1) W/L ration 2:1 and a win probability of 40%;
2) W/L ration 1:15 and a win probability of 97%;

Consider:
  • What probabilities really mean.
  • Theory and practice are NOT the same.
  • You do have control on which trades are opened, which is another abstraction layer in the strategy. That plan should be logically and statically orthogonal. i.e. NOT THE SAME "plan"

In any case, just food for thought and not advocating any approach, but trying to frame the issue instead of pontificating one or the other. Lastly, easy-simple is not the same as complete or adequate. Easy-simple models come from unifying the numerous details and exceptions, not by ignoring them.

Feel free to flame away at your ego's peril, or not

*Unless you think each trade is uniformly the same, which, imo, is an absurd assumptions usually adopted because it is "easy" to model.

** There are other wrappers e.g. advanced statistics that can wrap first order parametric statistical systems. And models outside statistics that wrap entire statistical systems.
More...
Hello Bad_Badness,

One simple question only.

Do you have proof of your trading system(s) having Edge?

Yes or No
 
For us amateur retails, simple trumps complex. Two examples:

1. The simplest math: SPY in general goes up, so you buy and hold SPY. Since 2009, SPY returns ~ 15.5% CAGR.

2. You could also get good results if you traded with an up bias, after 2009, simply assumed that SPY/RUT/DIA... would go up in general.
 
W/L Ratio ... unless scalping, or otherwise very active intraday, this ratio is just an important- sounding feel-good but meaningless metric.

10 trades...
9 winners
1 loser
10 trade NET profit... 0 .... but, but, the W/L ratio is 90%, I don't understand.

Time... Mark Fisher says it best IMO...
if you make a trade, and in your time frame it hasn't moved, then every single stupid person could make the same trade: How good could the trade be?

MAE/MFE... great metrics to use. Particularly during development, and then with periodic updates. JMO

Funny... Yesterday, I quoted Yogi Berra in a different thread.
In theory, there is no difference between theory and practice. In practice there is. ~ Yogi Berra


Carry On!
 
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SimpleMeLike said:
Hello Bad_Badness,

One simple question only.

Do you have proof of your trading system(s) having Edge?

Yes or No
More...
Yes but it should not be relevant. The posts are designed to stand on their own.

I know a lot of people like some proof people are knowledgeable. But that is a form of "appeal to authority" argument, which is considered fallacious. I will not engage is such stuff. From the tone of your post, it seems like if I don't provide "proof" your flames thrower is ready. So like I said, flame away.

I can tell you I have been around awhile. My old name is "Luto" going back to 2005. You can read over the, rather naïve posts from back then. I think I did post my long journey before I took a break, (a huge IB trade record) to "break even after comms" after someone claimed it was not true. The response after that was "very well done".

Nevertheless, assume everything I wrote is not based on anything except fantasy and put me on ignore. Thanks

PS: you might notice I never say how much I have, make or have made. Nor do I say how awesome my system is. I do say a lot: "Test and verify" and "it depends upon your system"
 
ironchef said:
For us amateur retails, simple trumps complex. Two examples:

1. The simplest math: SPY in general goes up, so you buy and hold SPY. Since 2009, SPY returns ~ 15.5% CAGR.

2. You could also get good results if you traded with an up bias, after 2009, simply assumed that SPY/RUT/DIA... would go up in general.
More...


Yep, Simple! Like take a job at Apple in 1997 and don't sell your stock options until 2020. Or MSFT, INTL during the 90s. Investing is a great way to go and should be a part of the portfolio. But this was about short term trading, which is an optional part of a portfolio.
 
Bad_Badness said:
Yes but it should not be relevant. The posts are designed to stand on their own.

I know a lot of people like some proof people are knowledgeable. But that is a form of "appeal to authority" argument, which is considered fallacious. I will not engage is such stuff. From the tone of your post, it seems like if I don't provide "proof" your flames thrower is ready. So like I said, flame away.

I can tell you I have been around awhile. My old name is "Luto" going back to 2005. You can read over the, rather naïve posts from back then. I think I did post my long journey before I took a break, (a huge IB trade record) to "break even after comms" after someone claimed it was not true. The response after that was "very well done".

Nevertheless, assume everything I wrote is not based on anything except fantasy and put me on ignore. Thanks

PS: you might notice I never say how much I have, make or have made. Nor do I say how awesome my system is. I do say a lot: "Test and verify" and "it depends upon your system"
More...
Hello Bad_Badness,

If a monkey say buy 5 contracts of ES at 8am on Monday and Sell those 5 contracts at 3 pm on Wednesday, our only job is to validate the monkey trade idea for Edge.

If a scientist says buy 5 contract when the differential equation and calculus derivative is accelerated times gravity and sell the 5 contracts at integral of 5dx, our only job is to validate the monkey trade idea for Edge.

That being said, post proof with Edge of your claims of
"Simple math is not adequate. (Post for newbies)"

Tell Newbies exactly what to do to reach Edge, otherwise, please offer no advice to newbies, they have enough worthless bullshit to read on a daily.

Leave newbies alone unless you telling them how to make money with proof of how you made money.
 
Another to the ignore list. Please do the same for me. My posts will only frustrate.

Just because you are not consistent (your posts), you should not assume everyone else is not. That is an emotional defense mechanism in action.

Even if I provided "proof", whatever that means, it would not help. Plus you would not be the type of person I would try to help with these types of posts.

The frustration is evident. Sorry, but from your post, you do know the right questions to ask (YET) and are searching for "solutions", but don't know what they look like or how to evaluate them.

Please ignore right away. You are probably a great thoughtful guy, but just rolling a different trading style or at a different point in your trading.
 
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