trend following delusion shattered

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Quote from man:

you would change your stop loss strategy according to recent hit ratio? ... i never considered that. is a little against my convictions ...
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No, you misunderstand...

A given strategy will have a long run win rate%....

The higher the win rate%, generally the more short term the trade and the less favorable the R:R...

The lower the win rate%, generally the more favorable the R:R...

For my longer term account (trades which last days to weeks), my win rate% varies between 30% and 40% (recently much higher than 40%, but I don't expect Mother Market's generosity to last!), dependent on market conditions... therefore I must ensure that when I win, the R:R is highly favorable...

For my short term account, my win rate is 75% plus, but it comes with a cost of a R:R being less favorable i.e. average loss is larger than average profit...

The idea is to get the balance between win rate % and R:R correct... if you don't, you have already lost the game and it's just a matter of time till your capital blows up...

For my trend following approach, I expect to lose most of the time, therefore I must attempt to squeeze every last cent out of any trend trade that I make...
 
Quote from candletrader:

For my trend following approach, I expect to lose most of the time, therefore I must attempt to squeeze every last cent out of any trend trade that I make...
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If this is the case then why not replace or work on fixing the strategy. It has to be psychologically draining to be wrong most of the time.
 
prof
impossible. there is no fat tail trading with hit ratios above 50%. and trend following is fat tail trading. all for sure IMHO ... :).

candle
i see and agree, my utility function is sharpe. i accept the relation between hitratio and payoff, that maximises sharpe.


peace
 
in addition: what traders usually ignore (again IMHO) is, that at the end of the day they are long their sharpe and neither their hitratio, their profit factor, their payoff, their correlation to anyone or the amount of attendance they are able to raise on an internet forum ...
 
Quote from man:

prof
impossible. there is no fat tail trading with hit ratios above 50%. and trend following is fat tail trading. all for sure IMHO ... :).

peace
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Everyone is entitled to his HOs . . . regardless of where they are rooted.

Fat tail trading is a vintage description of an environment that has been replaced with new technology and new proofs. It's totally understandable that you aren't familiar with this new environment. It took 50 years for the world to comfortably embrace horseless carriages and the Amish still think its a fad.
 
Besides 'trend is your friend', there is its corollary, another favorite mantra, 'trade what you see not what you believe'.

This is not obvious, as it could easily seem, and is not true. Why?

People either trade what they believe they see or trade according to what they believe.
:)
 
Quote from Cheese:

Besides 'trend is your friend', there is its corollary, another favorite mantra, 'trade what you see not what you believe'.

This is not obvious, as it could easily seem, and is not true. Why?

People either trade what they believe they see or trade according to what they believe.
:)
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nicely said, mr.cheese. charts can be very deceiving, hence "trading what you see" is actually trading your perception which goes back to trading what you believe, not what you see.

surfer
 
Quote from marketsurfer:

\

nicely said, mr.cheese. charts can be very deceiving, hence "trading what you see" is actually trading your perception which goes back to trading what you believe, not what you see.

surfer
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Agree with you both, as far as the entry point of the trade is concerned. However, I think the "trading what you see" is more relevant for protective stops. In other words, if the price goes to your protective stop, this is where I would trade what I "see" (and terminate the trade) rather than what I believe (that the price will reverse - hope).
 
Quote from Cheese:

Besides 'trend is your friend', there is its corollary, another favorite mantra, 'trade what you see not what you believe'.

This is not obvious, as it could easily seem, and is not true. Why?

People either trade what they believe they see or trade according to what they believe.
:)
More...
Still slightly better:
"Trade with what you know to make money for you".
 
Quote from Cheese:

Besides 'trend is your friend', there is its corollary, another favorite mantra, 'trade what you see not what you believe'.

This is not obvious, as it could easily seem, and is not true. Why?

People either trade what they believe they see or trade according to what they believe.
:)
More...

You're so correct and it's because what they see is never consistent. They never build up confidence in what they see so they manifest trading opportunities. It's never consistent because they watch the Markets in an always varying environment.

Create an environment where price moves without the variables and you create an environment where confidence can be gained by consistency.
 
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