The Electric Day Trader and Ruin. How probability oppposes short-term investors.

[Ms Varima-Garch]

edge is good to make look if system balance

but edge is estimate, and in some case maybe even illusion

warrent buffet "the precision it projects is a chimera" (about something else)

but edge is still useful to make approximate look if system balance to the plus

i like secret of master trading game by the van tharp, it is equity curve simulator

 

[ByLoSellHi]

Quote from ByLoSellHi:

Wow. If true, that is seriously spectacular. You never had a single day where you lost any capital allocated for that day from the time you started trading until close? Even in the last year?

And your annualized return of 28.5% is for how long of a time period? As you know, annualized simply means extrapolated to an average over a yearly window.

I've seen many, many, MANY funds that have had a 48% return one year, and a negative 52% return the next - this is especially true of some tech and high beta 'focus' funds.

Are you returns audited by any credible agency?

bwolinsky, hit me up with this info whenever you get the chance. I'll check this thread later.

Thanks.

 

[Cutten]

The flaw in this study is it's looking at traders without an edge, or traders with a negative edge. For traders with an edge, it's a different story.

From my own numbers, with daytrading I make a higher % return on capital with far lower drawdowns than any other strategy. The only disadvantages are lack of scalability, and having to put in the screen time. If I could scale it more then I wouldn't even bother with investing or position trading.

 

[Pa(b)st Prime]

Quote from Cutten:

The flaw in this study is it's looking at traders without an edge, or traders with a negative edge. For traders with an edge, it's a different story.

Re-read the study. They assigned a 55/45 edge.

 

[mokwit]

When it comes to markets, academics should STFU and find something else with cheap data [and possibility of a Goldman Sachs partnership as the payoff for success}.

I am sick and tired of their meaningless pronouncements.

 

[Cutten]

Quote from ByLoSellHi:


Assume you are a day trader with beginning capital of $10,000. You have brilliantly isolated and quantified a trading scheme that results in a 55 percent probability of a profit on any trade after commissions and taxes. Your chance for loss is therefore 45 percent. Your mathematical advantage on each trade is 10 per cent. Assume that you plan to trade indefinitely rather than aim toward some specific objective, that no change is expected in these presumed probabilities, and that your attitude toward your gains and losses will remain unchanged as your fortunes ebb and flow. You feel ready and willing to embark on a journey destined to bestow wealth beyond the dreams of Midas.

Before placing the first trade, consideration of ruin demands an early decision – perhaps the most critical decision the day trader will ever make. How much of the $10,000 will the trader risk on each trade? Assume the trader decides to use $2,500, or one-fourth, of the $10,000 capital for each trade, and plans to continue making $2,500 commitments indefinitely.

Risking 25% of capital is ridiculous. The 10% he uses later on is also ridiculous. By comparison, since the start of the bear market 18 months ago, my biggest peak-valley drawdown on my daytrading was 1.2% and I typically risk about 0.1% per trade.

In other words, I take about 1/100th of the risk per trade they assume in the study. And during the most volatile market environment since the 1929-32 bear, with numerous government interventions, huge swings, and numerous gap moves, my worst peak-valley loss was 1/8th of what the academics propose risk *on each trade*.

I think the flaw in their study is clear - they are assuming way too much risk, at least 10 times what is prudent, and 100 times what one full-time daytrader risks.

 

[Cutten]

Quote from Pa(b)st Prime:

Re-read the study. They assigned a 55/45 edge.

Yeah I just saw, not sure why I missed that, I think I confused it with another thread I was reading. I addressed the other issue i.e. they assumed way too big a bet size, as in about 10 to 100 times too big a trade size.

 

[Pa(b)st Prime]

Quote from Cutten:

Yeah I just saw, not sure why I missed that. I addressed the other issue i.e. they assumed way too big a bet size.

I recently wrote an article in TM on something related. It's not just risk per trade but risk per campaign that needs to be considered. If a trader took 10 straight shorts during the index rally, even if he only lost 2.5% per trade he'd be down 25% on the move. Not to mention if you were wrong in two or more highly correlated markets.

In some futures markets-soybeans, Bonds, currency futures, gold-it's pretty hard to limit your loss to anything less than $500 a contract. Five bills is only a 5 dollar move in gold. One needs to be pretty darn exact to trade with a 2 dollar stop.

 

[bwolinsky]

Quote from ByLoSellHi:

Wow. If true, that is seriously spectacular. You never had a single day where you lost any capital allocated for that day from the time you started trading until close? Even in the last year?

And your annualized return of 28.5% is for how long of a time period? As you know, annualized simply means extrapolated to an average over a yearly window.

I've seen many, many, MANY funds that have had a 48% return one year, and a negative 52% return the next - this is especially true of some tech and high beta 'focus' funds.

Are you returns audited by any credible agency?

I said I never closed below my starting capital on c2, so I never had an annualized -29% return. And that is verifiable, here www.collective2.com/go/pairsqidqld .

 

[bwolinsky]

Quote from bwolinsky:

I have an annualized 28.5% return, which beats every single mutual fund in the country in that time period, and never had a day where I closed below my starting capital. That means that poster has no clue what he's talking about, and you obviously don't know how to analyze a system. You can look up mutual funds at your broker if you want to verify that claim. There's one long short bond arb fund that had greater than 20% APR in the last 3 years.

Yes this is verified, bylow I never closed below my starting capital. That doesn't mean I never had losing days. Re-read the quote, as the original quote claimed I once had a -29% APR, which is impossible if I never closed below my starting capital.

Quote from ByLoSellHi:

Wow. If true, that is seriously spectacular. You never had a single day where you lost any capital allocated for that day from the time you started trading until close? Even in the last year?

And your annualized return of 28.5% is for how long of a time period? As you know, annualized simply means extrapolated to an average over a yearly window.

Are you returns audited by any credible agency?

Verified by C2 over the past 800 days now.