Where I live (Ottawa, Canada), Black Jack is played with 8 decks, automated shuffling machines, and a card set goes back to reshuffling when hit hits 50% drawn.
Trading is much better than that, for sure.
Which system is better?
- Thread starter cornholio
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Where I live (Ottawa, Canada), Black Jack is played with 8 decks, automated shuffling machines, and a card set goes back to reshuffling when hit hits 50% drawn.
Trading is much better than that, for sure.
LN = natural log (http://en.wikipedia.org/wiki/Natural_logarithm)
In Excel, to get the natural log of 5,000 you would enter the formula =LN(5000)
If a trading system has a 60% win rate and you want to know what the expected maximum number of consecutive losses over 5,000 trades is you would enter the following in Excel:
=(LN(5000)/-(LN(1-0.6))
As for the question "How did I derive this formula?" I didn't. That was derived many years ago by someone in the field of probability theory.
Regarding the comment about having an edge, as was stated already, unless you have a 100% win rate you will have consecutive losses and the maximum number of expected consecutive losses is a function of the number of trades and the win rate.
You may want to watch this video of Nick Radge addressing a group of traders (http://www.youtube.com/watch?v=ew1L6SLpHgM). Nick uses the above formula at the 23:00 minute mark but he has a mistake in it which he is aware of.
In Excel, to get the natural log of 5,000 you would enter the formula =LN(5000)
If a trading system has a 60% win rate and you want to know what the expected maximum number of consecutive losses over 5,000 trades is you would enter the following in Excel:
=(LN(5000)/-(LN(1-0.6))
As for the question "How did I derive this formula?" I didn't. That was derived many years ago by someone in the field of probability theory.
Regarding the comment about having an edge, as was stated already, unless you have a 100% win rate you will have consecutive losses and the maximum number of expected consecutive losses is a function of the number of trades and the win rate.
You may want to watch this video of Nick Radge addressing a group of traders (http://www.youtube.com/watch?v=ew1L6SLpHgM). Nick uses the above formula at the 23:00 minute mark but he has a mistake in it which he is aware of.
I think that RN's response was the most sensible of the lot.
Each person has their own comfort level regarding risk and drawdowns and their account capitalization. There is no such thing as certainty in trading, and if your personality demands "certainty" please find another line of work - a government job, perhaps.
You have to come to terms with the idea that every trade you put on will be underwater at some point during its' lifespan. The more appropriate question truly is: "what is your position drawdown tolerance"?
I would suggest that you answer that question first. Based upon your response, the next step in the procedure would be to choose products or instruments with daily trading ranges and vols that mirror your drawdown tolerance. Once you've satisfied those questions, then you design your trading system. I say that because a trading system for Eurodollars is likely to be a bit different than a trading system for 6E for example. Your position holding timeframes and capitalization requirements will dictate how your trading system is designed.
When my clients choose to go live, we typically have an individual "heart-to-heart" about their account capitalization and what sizing and products they should start out with.
Even with large capitalization, I have some clients that just don't need the aggravation or dopamine rush that comes from trading an RBOB Crack Spread. They would just rather lever the piss out of a Eurodollar Condor. In the end, it's all about the bottom line. You have to reconcile some things for yourself in terms of the five inches between your ears.
I think newish traders should pay much more attention to the instruments they choose to trade and their position holding timeframes. It's rarely talked about, but in fact IMHO it's probably just as important as the trade entry signal itself. I say that because from my experience new and even more seasoned traders tend to sabotage
themselves and their trading entries.
And, quite frankly, flat price markets are so turbulent and choppy generally speaking that really tight stops to control risk might be more a part of the problem than good position management.
Just my thoughts born of experience and client work.
Each person has their own comfort level regarding risk and drawdowns and their account capitalization. There is no such thing as certainty in trading, and if your personality demands "certainty" please find another line of work - a government job, perhaps.
You have to come to terms with the idea that every trade you put on will be underwater at some point during its' lifespan. The more appropriate question truly is: "what is your position drawdown tolerance"?
I would suggest that you answer that question first. Based upon your response, the next step in the procedure would be to choose products or instruments with daily trading ranges and vols that mirror your drawdown tolerance. Once you've satisfied those questions, then you design your trading system. I say that because a trading system for Eurodollars is likely to be a bit different than a trading system for 6E for example. Your position holding timeframes and capitalization requirements will dictate how your trading system is designed.
When my clients choose to go live, we typically have an individual "heart-to-heart" about their account capitalization and what sizing and products they should start out with.
Even with large capitalization, I have some clients that just don't need the aggravation or dopamine rush that comes from trading an RBOB Crack Spread. They would just rather lever the piss out of a Eurodollar Condor. In the end, it's all about the bottom line. You have to reconcile some things for yourself in terms of the five inches between your ears.
I think newish traders should pay much more attention to the instruments they choose to trade and their position holding timeframes. It's rarely talked about, but in fact IMHO it's probably just as important as the trade entry signal itself. I say that because from my experience new and even more seasoned traders tend to sabotage
themselves and their trading entries.
And, quite frankly, flat price markets are so turbulent and choppy generally speaking that really tight stops to control risk might be more a part of the problem than good position management.
Just my thoughts born of experience and client work.
I totally agree with this. I only started to make progress in my trading once I decided to use "insanely" large stops for my trades in Crude-Oil (I currently use 120 to 150 ticks for my initial / catastrophic stop, most of my exits are through different exit techniques than this catastrophic stop).
I get my fair share of stops, but they only account for 20 to 35% of my number of losing trades (depending on the trading system).
Just look at CL price-action overnight Sunday to Monday ... 128-ticks down from 23:01pm to 2:55am (EST), the deepest pullback in that move down was 9-ticks at 2:14am (about 1/2 of the move down).
It finally bounce 44-ticks off the 3:25am low, which was 175-ticks from the top.
I'd be much happier to take my 120-tick loss & move on, than average down until I blow my account.
What should we be talking about, some discretionary hocus pocus?
Discretionary systems are also systems, unless one confuses them with the "make it up as I go along" approach.
While I have no doubt that your own personal discretionary system is consistent and repeatable and defined and rules-based - I'm afraid that the majority of those who proclaim themselves to be "discretionary" are, indeed, not cognitively organized or disciplined enough to escape self-sabotage and some very destructive habits. One of the reasons that automated trading systems work is that it eliminates discretion.
While I am absolutely positive that there are successful discretionary traders, including yourself, for the majority of us mere mortals we need structured methodology. And even with that, traders get bored and impulsive or emotional or frightened and sabotage themselves.
Just my own personal opinion based on years of observation and private correspondence with struggling day traders and scalpers.