Steven Cohen: "This is not a perfect game [...] you’re going to be wrong a lot"

[1flyfisher]

If you want to succeed at this take my advice ....the most important rule to follow is Rule #1 Protect your capital.

problems is it goes against human nature and common behavior because greed fights against this most necessary skill.

 

[ByLoSellHi]

Quote from illiquid:

That's what many hedge funds do until they finally catch a bullet in the back of the head. What's the risk when you are using opm?

Ding! Ding! Ding!


Give that man a Ceegar!

There's no risk too great when the only downside risk is losing OPM!!!

OPM!!! The greatest too ever (for shysters).

 

[CFerret]

This thread describes the main reason why most wannabe traders fail....

 

[riskfreetrading]

Quote from lescor:

I have strategies that don't use stops and/or average into losers. There's many many ways to trade, there are no hard rules.

As for the Cohen comment, anyone with even a little trading experience wouldn't find that remarkable at all.

excellent post.

people may not realize that the use of a stop lowers performance (with a number that will shock them if they knew).

 

[FanOfFridays]

Quote from tickmagnet:
Funny , but I guess he compares it to sports betting. To break even you need 52 % of wins . If you beat this number you are
good , you can translate this to daytrading .

This has probably been said about 10,000 times but just to clarify, in case any beginners are reading this and get mislead, 52% win rate is either good or a disaster, depending on the size of your average win and your average loss. You can have a 70% win rate and lose your entire account very quickly.

 

[Cutten]

Quote from lescor:

I have strategies that don't use stops and/or average into losers. There's many many ways to trade, there are no hard rules.

There are some hard rules, such as never take a risk that could result in you going bust.

Not using a stop is only ok if you have less than say 70% of your capital in the position. Otherwise you are risking a >70% drawdown which is pretty much a blowup.

If you average too, then that means you have to start with even less than 70% of capital in one position. Also you cannot go short without a stop, or average into shorts without a stop.

If you do either 100%+ positions with no stop, or go short without stops, then you are going to go broke, it is simply a matter of time and there is nothing you can do to stop it other than abandon both those practises.

Note that numerous people have traded far longer than you have, with far greater capital, and eventually gone bust because they use the "no stops + leverage" or "shorts without stops" strategy.

 

[Cutten]

Quote from aradiel:



Mr. Schwager Question:
When you put on a trade and it goes against you, how do you decide when you’re wrong? (The question actually relates to him and his traders)"

Mr. Cohen Answer:
“This is not a perfect game. I compile statistics on my traders. My best trader makes money only 63% of the time. Most traders make money only in the 50 to 55 percent range. That means you’re going to be wrong a lot. If that’s the case, you better make sure your losses are as small as they can be, and that your winners are bigger"

I find it amusing that Cohen totally avoided answering the question

 

[aradiel]

Quote from lescor:

1.I have strategies that don't use stops and/or average into losers. There's many many ways to trade, there are no hard rules.

2. As for the Cohen comment, anyone with even a little trading experience wouldn't find that remarkable at all.

The comment 2 shows you agree (and think it is obvius) that traders make bad bets almost as often as good bets. So if you dont stop/or average into losers you simply start holding the position for a longer period of time, and stop trading.

I about comment 1, I still assume you close, sooner or later, losing positions that were not supposed to be stopped out in the first place. Right? Could you explain how do you do that?

 

[aradiel]

Quote from Cutten:

I find it amusing that Cohen totally avoided answering the question

To be fair, in other parts of the interview he gives clues about his approach to this matter:

Mr. Cohen Answer (to another question):
“If you think you’re wrong, or if the market is moving against you and you don’t know why, take in half. You can always put it on again. If you do that twice, you’ve taken in three-quarters of your position. Then what’s left is no longer a big deal. The smart thing is to start moving your feet. I find that too many traders just stand there and let the truck roll over them.”

He also cites an exemple of a wrong bet in IBM in '99. That year all tech companies were delievering not so good results because consumers were not active afraid of Y2K supposed bugs. Well, Mr. Cohen thought the same thing would happen to IBM and shorted the stock some days before the releasing of its earnings. What happened afterwards is that IBM results were "amazing" and the man covered his shorts that same day, losing around $ 15 per stock. "My premisse was wrong so I closed my position instantly" he said.

He doesnt get very specific about his methods and systems though.

 

[aradiel]

Quote from riskfreetrading:

excellent post.

people may not realize that the use of a stop lowers performance (with a number that will shock them if they knew).

RFT, I hope you realize you said a very dangerous and vague remark.