String of losses
- Thread starter AttoCEL
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After each consecutive loss some traders cut their position size for the next trade, some use a fixed position size and some multiple their position size. I encourage my team to master each one of these styles. Doing this extensive work and becoming familiar with the math behind it, and what you need to tweak to make each one of them profitable is the path to success in this game. The combinations of styles and parameters may seem endless but I assure you it is finite. As usual, the game can be mastered. I seek traders that are willing to put in the work.
This makes sense. He should have elaborated. haha
I'm in no way a trading or finance expert and can admit to being super naive around the myriad of things purported experts get up to, worry about or think about in regards to all things market related...
so do forgive me but I'm struggling with the implied premise to the original question.
If there is confidence in the underlying strategy (instrument selection, directional selection/neutral construction, risk exposure and so on) why is there a need to pay close or special attention to routine losses we know can and will occur from time to time?
While pondering this very question I was reminded of a journal entry I made back in 2016 that I feel illustrates and supports my inability to understand or appreciate the issue.
In the context of manual trading back in 2016 (I'm now automated) my approach was always systematic (measurable, repeatable, testable) and followed with quite a lot of discipline - these were currency agnostic plays driven by the same information, indications and criteria every single time.
This led to an attitude where loss runs were simply ignored - no position resizing, no de-risking, just continue to apply the exact same system for which a lot of time and effort had already gone into obtaining reasonable confidence around efficacy.
Consider the following therefore:
Thu 8 Sep 2016
Total Trades
87
Losing Trades
25
Losing Trades (% of Total Trades)
28.74%
Losing Trades (Total Amount)
£5874.39
Losing Trades (Longest Streak) ** Absolutely Horrible Back-to-Back Run At First **
18
Winning Trades
62
Winning Trades (% of Total Trades)
71.26%
Winning Trades (Total Amount)
£11633.74
Winning Trades (Longest Streak) ** Then A Decent Recovery **
28
Total Net Profit
£5759.35
Loss runs were always usually less than FIVE back then so EIGHTEEN should have been extremely alarming but overall confidence in the strategy evaluation meant that the best defence against loss runs was to keep trading and NOT allow the appearance of 'interesting losing activity' to precipitate unnecessary POKING or CHANGES to the system.
When I trade manually today it's the exact same approach - I'm EXPECTING to be right 70%+ of the time (or in any case to experience longer winning streaks then losing streaks) with only risk and exposure management ultimately producing the main difference.
Consider another entry from 2015 three years earlier:
Total Trades
30
Losing Trades
5
Losing Trades (Percentage of Total Trades)
16.67%
Losing Trades (Total Amount in Base Currency)
£154.07
Losing Trades (Longest Streak)
2
Winning Trades
25
Winning Trades (Percentage of Total Trades)
83.33%
Winning Trades (Total Amount in Base Currency)
£1243.45
Winning Trades (Longest Streak)
11
Net Total in Base Currency
£1089.38
My concern and questions for the original poster therefore are:
1. Do you have confidence in the underlying strategy?
2. Is questionable exposure and risk management amplifying the effect and impact of losing trades on the overall strategy for which there should already be confidence?
3. How many consecutive losses need to occur absent any pre-emptive resizing before the strategy is done?
4. If there is resizing - doesn't that imply that the strategy isn't treating each individual trade as a completely independent event?
5. If Losing trade L9 tweaks risk exposure that ends up impacting Winning trade W10's ability to return its full potential is that efficient or ok?
In my automated system total catastrophe in theory would require a sustained max-exposure losing streak of 50 (in reality a far higher number of losing trades would be needed since the pos. exposure ratio isn't fixed any more and is dynamically determined by separate analytics).
If I'm trading other people's money (which I'm not) or significantly more money that 50 number would be dialled up to 250 for example in the theoretical case reducing pos. exposure ratios (and percentage returns) by some similar proportion accordingly (if nothing else is changed).
As a safety, irrespective of exposure within each position, I have an alarm that dings if there is a 16th losing trade following a string of 15 since the longest losing streak in my automated system is currently 9 and it could be that something has gone wrong and killed either one of the BUY or SELL agents or gone wrong and caused one or the other to continuously signal in complete contradiction to the state of the prevailing market.
Given all of the above, you will hopefully understand why I'm struggling to understand the need to focus on losses that should really be a routine part of market participation for a fully back-tested and field-tested real-money trading strategy.
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There are 20 active hours in a day, 5 days in a week. Thats about 100 samples in one week if you're trading the hourly trend. One week is not enough for an efficacy qualification. Now zoom out to the weekly trend, there are about 100 weeks in a 2year period. The same way one week is not enough, two years is not enough.
I know a few people that have gotten lucky for years leading to inflated convictions. I need at least 5000 samples for elevated conviction levels. This high standard exposes worst case scenarios and produces a focus on sophistcated payment methods for a string of losses. The hit it big for a few years and run approach is not a generational solution. If you've developed an automatable system with a 70% strike rate, we would all be building shrines and bowing to your name. A trader that cannot daytrade if he chooses is no trader at all.
Food for thought, since you want to be spoon fed.
100 15min in 25hours
100 hours in a week
100 4hrs in 20days
100 days in 5months
100 weeks in 2years
100 months in 9years
100 samples is not enough. So 9years is not enough time to confirm a monthly trend system, the same way 2years is not enough for a weekly trend system, the same way 5months is not enough for a daily trend system, and so on. Markets are giant fractals.
A trader overthinking their strategy is a laughable notion. Trading is highly complex and it will take a lifetime of creative thinking to reach superior optimizations. Most of us do not have the intellectual capacity to afford an issue as luxurious as overthinking something. Chances are you're not a genius, don't ever stop developing.
Read all my posts in this thread, connect the dots. You're welcome
100 15min in 25hours
100 hours in a week
100 4hrs in 20days
100 days in 5months
100 weeks in 2years
100 months in 9years
100 samples is not enough. So 9years is not enough time to confirm a monthly trend system, the same way 2years is not enough for a weekly trend system, the same way 5months is not enough for a daily trend system, and so on. Markets are giant fractals.
A trader overthinking their strategy is a laughable notion. Trading is highly complex and it will take a lifetime of creative thinking to reach superior optimizations. Most of us do not have the intellectual capacity to afford an issue as luxurious as overthinking something. Chances are you're not a genius, don't ever stop developing.
Read all my posts in this thread, connect the dots. You're welcome
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