# How do you guys keep your 'Ego' in check?



## hamli (22 May 2016)

Hi,

Bit of a background, started studying options and futures mid 2014, started with a small account of 8K. Actually trading, as opposed to pure 'theory' or 'paper trading', got me really engaged and accelerated my learning. I was trading 1 lots, and by years end, I was down 2K (3K of it was pure brokerage cost) - only options at this stage. 

Based on my results, I knew I could make it work, if I either searched for a cheaper broker to fit my trade style or upscaled my account to 'minimise the impact of the fixed charges' (in hindsight, I wish I had done both), but I opted for latter. I increased my account size to 20K and by end of 2015, I increased my account size to 26K (and paid 6K in brokerage, made about 600-700 trades FY). 

Which takes me to this year where I've developed a relatively high trading confidence and still eagerly learning as much as I can to improve my success rate, and reduce risk. I finally got rid of the other broker/platform and moved to a significantly cheaper and better platform (about 1/5 of the cost of old one) (but by no means perfect). Up scaled my account to 6 figures and also added futures to my arsenal.

Year to date I've made just over 3000 trades, and sitting at over 40% return since January (50% from futures/50% from options). I've been disciplined until last month, where ego got in the way, and I decided to take 'big bets', which I've never done before. I paid for it, 7% gone within a couple of days because of pure ego. Lesson learned. I'm back to where I was before the mistake was made, but it made the last few weeks feel really unproductive and I'm angry at myself for making it. *How do you guys keep your ego in check and not get too large?* At the moment, I think remembering my recent mistake will keep me in check going forward.


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## cynic (22 May 2016)

As you appear to have already noticed, the market is indeed a great educator in that it is often quick to deliver effective, albeit expensive, lessons. 

Particularly painful experiences are less likely to be forgotten.

The wonderful thing about this, provided the damage taken doesn't prove terminal, is it's likely to contribute to better long term trading performance via the future avoidance of such errors.


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## Triathlete (22 May 2016)

Out of curiosity...what was the % size of the the "big bets" in relation to your account size at the time?


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## hamli (22 May 2016)

Triathlete said:


> Out of curiosity...what was the % size of the the "big bets" in relation to your account size at the time?




Max loss capped at 7% required 14.% capital for short period. These were significantly lower probability trades with no repair strategy. For these trades I should have used 0.75% of capital.

Core positions I use about 6-8% capital, normal positions I use 1.5%, but these are significantly higher probability trades. Looking to get to 1% on latter - will give me more flexibility to scale in or repair.


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## notting (22 May 2016)

Well, after I bag a big one. I go to a crowded place with lots of pretty girls and start smiling at them and dancing.


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## kid hustlr (22 May 2016)

I'm confused by your numbers in the chart compared to you post.


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## Wysiwyg (22 May 2016)

kid hustlr said:


> I'm confused by your numbers in the chart compared to you post.



You mean this ...



> Year to date I've made just over 3000 trades, and sitting at over *40% return* since January




While the chart indicates different.


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## Garpal Gumnut (22 May 2016)

Going back to basics always helps, hamli. 

Many of the responses to your query are trade/technique orientated but your original question was about " Keeping your ego in check"

We are fortunate here at the Ross Island Hotel having a Psychiatrist in residence, in one of the back rooms without a view of the V8's when they come to Townsville. I discussed this with him over some many schooners of Great Northern. 

He explained to me that Freud developed the theory of Ego, Id and Superego.

Ego is you.
Id is greed, sex, down and dirty, profit, risk taking etc.
Superego is conscience, maiden aunt wagging finger, ASIC, Church etc. 

The ego is you, and has two great taskmasters , the id and the superego.  The former telling you to increase your account and take bigger trades, the latter saying hold back, be careful.

So your question re keeping ego in check needs to be reframed. 

How do you keep your id ( greed, increasing your bet, young ladies fantastically beautiful etc etc etc. ) in check

Without being constipated by your superego, so that you are paralysed from trading by those who say I told you so, wife/husband/partner etc. 

So it is a matter of balance. 

And unfortunately my friend, this is the big question of life which has been argued and discussed since the ancient Greeks. 

SO I would suggest you have a break and watch all episodes of Fawlty Towers to get your brain back in sync as you sound very constipated. 

gg


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## hamli (22 May 2016)

kid hustlr said:


> I'm confused by your numbers in the chart compared to you post.




A lot of us trade within a system, but sometimes because of external factors, greed etc we break these proven systems and trade bigger than we should or stay in positions longer than we should.

Was just curious how people dealt with it. Personally, I cleared all my positions that day, and re-established everything in smaller sizes - just something I felt I had to do. Then reduced the hours I traded to bare minimum for next few days, before getting right back into things.

I think most traders feel the same way... giving away even a fraction of our earnings after weeks/months of grinding in a very short time frame is frustrating.


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## Smurf1976 (22 May 2016)

My trading and long term investing are both based on numbers and I've long had a good grasp of the concept of probability so I've always found it pretty easy to not get too excited.

That I'm naturally a fairly calm person who doesn't really do the whole ego thing probably helps a bit here.


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## Triathlete (22 May 2016)

I find the Winning % and probability chart useful in making sure I keep to my correct position sizing and risk management.

How would things look with your trading account if you had a run of losses based on the probabilities as per the chart attached.

View attachment win%.xlsx


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## luutzu (22 May 2016)

I thought the Market have a way of keeping all our ego in check.


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## hamli (22 May 2016)

Triathlete said:


> I find the Winning % and probability chart useful in making sure I keep to my correct position sizing and risk management.
> 
> How would things look with your trading account if you had a run of losses based on the probabilities as per the chart attached.
> 
> View attachment 66786




Cool. I like this table. I'll devise something similar for myself and crunch some numbers and keep it in plain sight .


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## skc (23 May 2016)

Nothing wrong with being a bit aggressive when trading is going when. Afterall perfect luck / market condition don't come all the time.... but there's a difference between aggressive and reckless. 



hamli said:


> Was just curious how people dealt with it. Personally, I cleared all my positions that day, and re-established everything in smaller sizes - just something I felt I had to do. Then reduced the hours I traded to bare minimum for next few days, before getting right back into things.




Next time you want to play a oversized low percentage play, just refer to this thread and see what happened to this poster called "hamli". That should deter you from doing the same again.



hamli said:


> I think most traders feel the same way... giving away even a fraction of our earnings after weeks/months of grinding in a very short time frame is frustrating.




One key lesson I've learned is never extrapolate your equity curve. It will only lead to disappointment that you described.



hamli said:


> A lot of us trade within a system, but sometimes because of external factors, greed etc we break these proven systems and trade bigger than we should or stay in positions longer than we should.




Who's this "a lot of us" you speak of?


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## minwa (23 May 2016)

I know I CANT keep my ego in check - hence I allow for it. 

I trade smaller so when I get pissed and don't follow rules & revenge/overtrade (it happens), the damage is minimal. Ideally my draw down should not be much more than 5% according to trading statistics & probability, but it does get to 10-20% once or twice a year when everything goes to sh*t. I am comfortable with that draw down.

I used to trade with 10-20% EXPECTED (from trading stats/probability on paper) draw down, and it ends up higher when ego gets in the way. Now I just adjust for it by lowering size so normal draw downs are smaller and ego-blowup draw downs are my tolerable maximum draw down.


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## MacDizzle (25 May 2016)

I ended up in an anonymous program which has also been recommended by Alexander Elder, however this was after I blew up my account. But it really makes yo take a good hard look at yourself, who you're being and know there's a speed limit to stick to to remain mentally balanced for the long term. As well as humble acceptance of that real potential to act like a 'loser' I also practice mindfull meditation in the morning for about 20 mins just to get back to the present and live in reality.


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## Tarxien (2 June 2016)

Triathlete said:


> I find the Winning % and probability chart useful in making sure I keep to my correct position sizing and risk management.
> 
> How would things look with your trading account if you had a run of losses based on the probabilities as per the chart attached.
> 
> View attachment 66786




can you please explain how to interpret the chart.
:1zhelp:


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## Gringotts Bank (2 June 2016)

Ego is a bundle of memories which form a very persistent circuit in the mind.  The circuit is always active, except in deep sleep.  It is partly reduced in a 'zone' or meditative state.  The circuit's activity relates to the body, which it thinks it owns and operates (of course the body has no owner, it just seems that way).  It's main emotion is fear - fear of pain, mainly, which can be physical and/or emotional.  People say it developed as a survival mechanism but that's not correct, imo.  

Fear can manifest in all manner of ways.  Since most emotions are often pre- or subconscious, it can be difficult to negotiate and understand its massive influence.  It's like: "I feel x, but I don't really know what it's about".  That's your starting point. 

Best approach is to develop emotional awareness.  Many methods for that.  I work on my own *every *day.


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## Triathlete (2 June 2016)

Tarxien said:


> can you please explain how to interpret the chart.
> :1zhelp:




If you have a sample size of trades let us say 1000 trades and we work out that our win % over those trades was 60% then it is mathematically possible that at some stage in your trading  you are going to have a losing streak of around 12 losing trades in a row.

*This is one reason why position sizing and risk management is so important in trading*.

How long will your trading account last if you had this amount of losses based on your win% if you do not position size correctly.

Of course you also need to know what your profit / loss % is in regards to your own trading.


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## craft (2 June 2016)

Triathlete said:


> If you have a sample size of trades let us say 1000 trades and we work out that our win % over those trades was 60% then it is mathematically possible that at some stage in your trading  you are going to have a losing streak of around 12 losing trades in a row.
> 
> *This is one reason why position sizing and risk management is so important in trading*.
> 
> ...




Its mathematically 'possible' although the probability is infinitely small to have a losing streak of 1000.

What your original spread sheet showed was the 50% probability of losing streak length (rounded) for a population of 50,000.  The 50% probability for a population size of 1000 with a 60% win is 8 (7.539). But its all pretty meaningless information for trading because the numbers are based on random outcomes. Last time I looked market movements weren't random but serially correlated, you might better know that correlation as bull and bear markets.

And what really matters is not what the probable losing streak may be but the likelyhood of a series of losing streaks interspersed by only a few wins here and there and where those streaks occur in the timeline of trades. The amount you win and lose (not the average amount but the absolute numbers) also has a huge impact on your geometric return. Throw in a whole nother set of complexities if you are trading multiple position at the one time.

Most peoples Ego's are way too big when it comes to position sizing especially for total heat.


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## Triathlete (3 June 2016)

craft said:


> And what really matters is not what the probable losing streak may be but* the likely hood of a series of losing streaks interspersed by only a few wins here and there and where those streaks occur in the timeline of trades*. *The amount you win and lose *(not the average amount but the absolute numbers)* also has a huge impact on your geometric return*. Throw in a whole nother set of complexities if you are trading multiple position at the one time.
> 
> *Most peoples Ego's are way too big when it comes to position sizing *especially for total heat.




I agree craft.

Position sizing though is one reason why some traders blow their accounts way  sooner then they need to.


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## Triathlete (3 June 2016)

Triathlete said:


> I agree craft.
> 
> Position sizing though is one reason why some traders blow their accounts way  sooner then they  need to.




And therefore are not in the game long enough to gain the experience to become profitable.

A person who has a profitable strategy can throw it all away and turn it into a losing strategy  with incorrect position sizing.


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## Gringotts Bank (3 June 2016)

This is a good little excerpt for meditation.  It's not poetic fantasy.  He's speaking literally and not a single word is wasted or used incorrectly.  A "Jnani" refers to someone who has complete control over the depths of his mind.

------------------------------------------------------------------------------------------

"Please   remember,  objects   are   really   the   perceiving   of   them.  Conversely,   therefore,   the
perceiving of them is what the objects are.  Try to understand.

When an object is seen as an object,  there would have to be a subject  other than the object. As
the Jnani perceives, there is neither the subject that sees nor the object that is seen; *only the 'seeing'.*
In  other words, the Jnani's perception is prior to any  interpretation by the sensory faculties. Even if
the normal process of objectification has taken place, the Jnani, in his perspective, has taken note of
this fact and seen the false as false. The Jnani in his undivided vision, has perceived that physically
both   the   seer   and   the   seen   are   objects,   and   that   the   functioning   of   consciousness   itself   merely produces   effects   in   consciousness.   Both   the   producing   and   the   perceiving   are   done   by
consciousness, in consciousness".  ~MN


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## rb250660 (3 June 2016)

craft said:


> ...Last time I looked market movements weren't random but serially correlated...
> 
> And what really matters is not what the probable losing streak may be but the likelyhood of a series of losing streaks interspersed by only a few wins here and there and where those streaks occur in the timeline of trades...




I am betting many many people ignore this.


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## Gringotts Bank (3 June 2016)

craft said:


> Its mathematically 'possible' although the probability is infinitely small to have a losing streak of 1000.
> 
> What your original spread sheet showed was the 50% probability of losing streak length (rounded) for a population of 50,000.  The 50% probability for a population size of 1000 with a 60% win is 8 (7.539). But its all pretty meaningless information for trading because the numbers are based on random outcomes. Last time I looked market movements weren't random but serially correlated, you might better know that correlation as bull and bear markets.
> 
> ...




Good points.

I've noticed however that if you have a fairly high win rate, say 70%, that position sizing based on serial correlation is not that useful, even detrimental.  Do you agree?

Or Howard, if you're reading.../?


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## craft (3 June 2016)

Gringotts Bank said:


> Good points.
> 
> I've noticed however that if you have a fairly high win rate, say 70%, that position sizing based on serial correlation is not that useful, even detrimental.  Do you agree?
> 
> Or Howard, if you're reading.../?




No 

Win rate in isolation tells you Sweet FA about how you should position size - Its just one small part of a much bigger picture.


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## Roller_1 (3 June 2016)

Gringotts Bank said:


> Good points.
> 
> I've noticed however that if you have a fairly high win rate, say 70%, that position sizing based on serial correlation is not that useful, even detrimental.  Do you agree?
> 
> Or Howard, if you're reading.../?




So is that as the market falls, position size decreases? or turns on the defensive all together and don't take positions in a falling market?


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## Gringotts Bank (3 June 2016)

Roller_1 said:


> So is that as the market falls, position size decreases? or turns on the defensive all together and don't take positions in a falling market?




Not so much the market, but your running equity.  You can use it both ways - increase or decrease position size.


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## Gringotts Bank (3 June 2016)

craft said:


> No
> 
> Win rate in isolation tells you Sweet FA about how you should position size - Its just one small part of a much bigger picture.




I get the feeling you're not going to say what that is,  ie. the elements of the bigger picture of position sizing.


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## craft (3 June 2016)

Gringotts Bank said:


> I get the feeling you're not going to say what that is,  ie. the elements of the bigger picture of position sizing.




Thought I did



craft said:


> Its mathematically 'possible' although the probability is infinitely small to have a losing streak of 1000.
> 
> What your original spread sheet showed was the 50% probability of losing streak length (rounded) for a population of 50,000.  The 50% probability for a population size of 1000 with a 60% win is 8 (7.539). But its all pretty meaningless information for trading because the numbers are based on random outcomes. Last time I looked market movements weren't random but serially correlated, you might better know that correlation as bull and bear markets.
> 
> ...




Not that I understand you at the best of times but it appears to me that in two consecutive posts you have stated that serial correlation doesn’t matter and next post that you should adjust your position sizing based on outcome – if you are doing that you are either inferring serial correlation does matter or saying the longer your random run gets the more you should bet?????


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## Gringotts Bank (3 June 2016)

craft said:


> Thought I did
> 
> Not that I understand you at the best of times but it appears to me that in two consecutive posts you have stated that serial correlation doesn’t matter and next post that you should adjust your position sizing based on outcome – if you are doing that you are either inferring serial correlation does matter or saying the longer your random run gets the more you should bet?????




Yeh I guess I was doing that to some degree.  

[edit]  just found some old excel files.  Will post.


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## Gringotts Bank (3 June 2016)

These are old files.  I think I gave up at the time because I didn't have the sort of available cash to implement successfully.  But yeh, they're impressive.

Two curves, the first is fixed position sizing, the second is based on the previous trade outcome.  Quite a difference.


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## peter2 (3 June 2016)

I was thinking that this thread was going way off topic, but perhaps it's showing how our ego can prevent us thinking clearly about any aspect that doesn't fit with our view of how things work. 

Win % is such a minor statistic of our trading results, but as it's attached to our "ego's" need to be right, it gets lots of attention. Win% is the tag that all trading spruikers use to get our attention. It's our egos that demand a W% > 50%. We'll sell too early just to get a winning trade and boost our W%. 

If you see anyone focusing on W% then, they just don't get it.


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## Gringotts Bank (3 June 2016)

This is a bit more realistic, since it's a big cap system over a smaller number of trades.  Volaitility of returns looks roughly the same, but end profit 45% greater.

Max number of consecutive losers becomes an important stat, directly linked to win rate.  The importance is obvious in terms of risk of ruin.


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## Quant (4 June 2016)

peter2 said:


> Win % is such a minor statistic of our trading results, but as it's attached to our "ego's" need to be right, it gets lots of attention. Win% is the tag that all trading spruikers use to get our attention. It's our egos that demand a W% > 50%. We'll sell too early just to get a winning trade and boost our W%.
> 
> If you see anyone focusing on W% then, they just don't get it.




I will refrain from questioning peoples thought process but Win % is a huge part of having a smooth sustainable curve , any one who think differently just does'nt get it  ( sound familiar )

Win % has a huge factor in max Drawdown , without getting into it i will just lean on these 2 visuals . Those that believe W% isnt important are naive and need to rethink that belief , Natually R is the otherside of positive expectancy and is just as important and needs to be optomized just as much as W

Probability curves will show the realities of positive expectancy and the pitfalls


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## skyQuake (4 June 2016)

Quant said:


> I will refrain from questioning peoples thought process but Win % is a huge part of having a smooth sustainable curve , any one who think differently just does'nt get it  ( sound familiar )
> 
> Win % has a huge factor in max Drawdown , without getting into it i will just lean on these 2 visuals . Those that believe W% isnt important are naive and need to rethink that belief , Natually R is the otherside of positive expectancy and is just as important and needs to be optomized just as much as W
> 
> ...




+1

Everyone needs to understand Risk of Ruin!


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## Triathlete (4 June 2016)

skyQuake said:


> +1
> 
> Everyone needs to understand Risk of Ruin!




EXACTLY:....xyxthumbs


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## craft (4 June 2016)

Quant said:


> I will refrain from questioning peoples thought process but Win % is a huge part of having a smooth sustainable curve , any one who think differently just does'nt get it  ( sound familiar )
> 
> Win % has a huge factor in max Drawdown , without getting into it i will just lean on these 2 visuals . Those that believe W% isnt important are naive and need to rethink that belief , Natually R is the otherside of positive expectancy and is just as important and needs to be optomized just as much as W
> 
> ...




Maybe you have missed what is being said here. Which is simply that there is much more to position sizing than Win%.

Win% is an average. It's not the average that is important, it's the order of how this win/loss may unfold in conjunction with the distribution of win/lose amount that should dictate position sizing. The calculation of a potential losing streak based solely on average winning % using maths that has an assumption (whether the person realised or not) of randomness is a long way from useful information for position sizing but hey its probably better than most use.

I still contend that most people's Ego's are way too big when it comes to position sizing.


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## craft (4 June 2016)

Triathlete said:


> EXACTLY:....xyxthumbs




So explain it to me.

In another thread today you said you are using 15% stop loss and 5 positions and you have previously said about your low tolerance for draw downs.


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## Triathlete (4 June 2016)

craft said:


> So explain it to me.
> 
> In another thread today you said you are using 15% stop loss and 5 positions and you have previously said about your low tolerance for draw downs.




What is their to explain??? Enough has been said in the previous posts....

Here is a definition....

DEFINITION of 'Risk Of Ruin'
The probability of an individual losing sufficient trading or gambling money (known as capital base) to the point at *which continuing on is no longer considered an option to recover losses. *

Risk of ruin is calculated by taking into account the probability of winning (or making money on a trade), the probability of incurring losses, and the portion of an individual's capital base that is in play or at risk. Also known as the "probability of ruin"

BREAKING DOWN 'Risk Of Ruin' 

Risk of ruin need not result in bankruptcy (although it often does), but rather the point at which continuing on would be unwise. It signifies a risk more relevant in trading and gambling, where there is a high probability of losing an entire bet or trade. 

*The risk becomes even greater for individuals who trade large percentages of their accounts*. For example, say an investor has $3,000 and purchases $3,000 worth of call options. If there is a 40% chance that the options will not be exercised, then the risk of ruin is 40%.


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## Gringotts Bank (5 June 2016)

craft said:


> The calculation of a potential losing streak based solely on average winning % using maths that has an assumption (whether the person realised or not) of randomness is a long way from useful information for position sizing but hey its probably better than most use.




I feel it's an acceptable assumption if the win rate is 70% or higher *and *the number of trades in the backtest is high and frequent *and * the Monte Carlo runs are tightly packed.  

If all of these 3 conditions are satisfied, then the likelihood of say 15 losers in a row is going to be extremely low.  Then adjust position sizing to accomodate that safely.  And if using a Martingale approach to size up after a loser, then this needs particular attention.  

I'm sure it's possible to do this on a more sophisticated level, but this is enough for me, a part time trader.


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## craft (5 June 2016)

Triathlete said:


> What is their to explain??? .




I'm not after a definition, explain to me how you position size to avoid your risk of ruin.


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## craft (5 June 2016)

Gringotts Bank said:


> I feel it's an acceptable assumption if the win rate is 70% or higher *and *the number of trades in the backtest is high and frequent *and * the Monte Carlo runs are tightly packed.
> 
> If all of these 3 conditions are satisfied, then the likelihood of say 15 losers in a row is going to be extremely low.  Then adjust position sizing to accomodate that safely.  And if using a Martingale approach to size up after a loser, then this needs particular attention.
> 
> I'm sure it's possible to do this on a more sophisticated level, but this is enough for me, a part time trader.




2 wins 1 loss 2 wins 1 loss 2 wins 1 loss is vastly different for position sizing purposes than 3 losses 7 wins series even though they re both 70% win rates. Now throw in a wide ranging distribution of win amounts as compared to a to a tight range that could both equal the same average R amount  and you should start to see the issue. And forget about Monte Carlo as it to has an underlying assumption of no serial correlation. If you were using it on inflation data it would tell you that you can have 15% immediately followed by 1% because they are both in the population even though we know that doesn't happen in reality and it doesn't make any more sense to ignore the serial correlation of bull an bear market effects on your trading results.


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## Gringotts Bank (5 June 2016)

craft said:


> And forget about Monte Carlo as it to has an underlying assumption of no serial correlation.




As far as I know, a Monte Carlo is a _test for_ serial correlation bias.  Trade order gets re-arranged to find the best and worst outcomes, and everything in between.  If the runs are tightly packed (as mentioned), this tells me serial correlation is absent or minimal.  Therefore I don't need to worry about getting a run of losers out of the blue - they will be randomly distributed amongst the winners.


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## Quant (5 June 2016)

craft said:


> I'm not after a definition, explain to me how you position size to avoid your risk of ruin.





I certainly dont want to waste too much of my time banging my head against a wall explaining it . Basically put , the lower the win success rate the larger the number of consecutive losses you will have , the larger the sample the bigger the probability of larger runs of consec losses , you need to keep your position size at a level that WHEN one of these high number runs occurs your account is not Drawdown to a level where recovery is unlikely in a reasonable time frame or at all , as my visuals indicate a large enough drawdown will make what was a successful R become redundant . I really cant be bothered tbh 

Low win rates have large runs of losers
large runs of losers create large equity drawdowns
large runs of losers will reduce position size making recovery slow and or totally unlikey
therefore low win rates require smaller position sizing

a low win rate start with same positive expectancy has a higher chance of ruin than a high win rate strategy assuming same position size 

to explain this all properly some probability bell curves are needed , i really cant be bothered putting the time in 4 no reward tbh 

this all im saying and its way more than i planned to  ..... GOOGLE IT  ...  positive expectancy , probability curves


AND ego has nothing to do with it whatsoever , maths and probability are facts , definable and irrefutable although im sure you will find a way


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## Quant (5 June 2016)

Gringotts Bank said:


> As far as I know, a Monte Carlo is a _test for_ serial correlation bias.  Trade order gets re-arranged to find the best and worst outcomes, and everything in between.  If the runs are tightly packed (as mentioned), this tells me serial correlation is absent or minimal.  Therefore I don't need to worry about getting a run of losers out of the blue - they will be randomly distributed amongst the winners.




i was going to post a series of montecarlos with big numbers of low win rate and high win rate success rates with same expectancy but i cant be bothered , id rather work on something rewarding 

I hate jumping through hoops  ,  the train is of the rails


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## craft (5 June 2016)

Quant said:


> i was going to post a series of montecarlos with big numbers of low win rate and high win rate success rates with same expectancy but i cant be bothered , id rather work on something rewarding
> 
> I hate jumping through hoops  ,  the train is of the rails






Quant said:


> I certainly dont want to waste too much of my time banging my head against a wall explaining it . Basically put , the lower the win success rate the larger the number of consecutive losses you will have , the larger the sample the bigger the probability of larger runs of consec losses , you need to keep your position size at a level that WHEN one of these high number runs occurs your account is not Drawdown to a level where recovery is unlikely in a reasonable time frame or at all , as my visuals indicate a large enough drawdown will make what was a successful R become redundant . I really cant be bothered tbh
> 
> Low win rates have large runs of losers
> large runs of losers create large equity drawdowns
> ...






You keep restating the blindingly obvious that low win rates have more losers – Nobody’s arguing except it would seem you against your perceptions.....



craft said:


> Maybe you have missed what is being said here. Which is simply that there is much more to position sizing than Win%.




Or perhaps you think that only win rate matters – which you don’t because you acknowledge in your straw man arguments that the impact of R as part of the expectancy calc.

But beyond even expectancy based on average W and Average R the distribution and sequence is important to position sizing and the sequence is influenced by serial correlation which Monte Carlo doesn’t handle well.

You call yourself Quant surely you know this stuff.......

Peter2 who you laid into with your first post instinctively knows it through his experience and demonstrates it in his trade management displayed in his thread. 

The OP asked how he can keep his Ego in check and not trade too big – He demonstrated one way – learn the hard way with the market handing you the lesson – the other way is to properly understand position sizing – but you try and have a discussion on this site and it always end with people behaving like you have that kills all possibilities of anything beneficial being discussed. 



craft said:


> I'm not after a definition, explain to me how you position size to avoid your risk of ruin.



 Forget I asked.




Gringotts Bank said:


> As far as I know, a Monte Carlo is a _test for_ serial correlation bias.  Trade order gets re-arranged to find the best and worst outcomes, and everything in between.  If the runs are tightly packed (as mentioned), this tells me serial correlation is absent or minimal.  Therefore I don't need to worry about getting a run of losers out of the blue - they will be randomly distributed amongst the winners.




Sorry GB, This discussion could have been good but I've lost enthusiasm. I think its worth challenging your beliefs in this area with a little deeper understanding of the tools you are relying upon. I know your smart so you could easily do this by yourself with out my distractions if you WANT.


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## Quant (5 June 2016)

craft said:


> You keep restating the blindingly obvious that low win rates have more losers – Nobody’s arguing except it would seem you against your perceptions.....
> 
> 
> 
> ...




Its not that low win rates have more losers its the devastating runs of CONSECUTIVE Losses that increase the likelyhood of RUIN , you keep thinking your 30% or whatever trade success rate is elite . Low trade success rates by the very notion of large consecutive loss sequences severely limit practical position sizing  A high win rate v low win rate strategy with the SAME positive expectancy has less chance of RUIN using same position size % , what is so hard to understand here  . I refuse to debate something in which i am so obviously correct , its like debating a scientologist tbh  I know i could give you irrefutable proof but i have no doubt it would not be enough for you ...  good day , enjoy 





PS EGO and position sizing have ZERO to do with each other , and if you are motivated to feed your EGO purely on large sizing you will be an ex trader (gambler) very quickly . You are not a trader unless you have an edge thats exploited systematically


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## minwa (5 June 2016)

Quant said:


> I refuse to debate something in which i am so obviously correct , its like debating a scientologist tbh  I know i could give you irrefutable proof but i have no doubt it would not be enough for you ...  good day , enjoy
> 
> 
> View attachment 66989
> ...




Perhaps its time you go back to your self imposed ban of this forum from few months ago if you just come on here, calling other people morons because they don't agree you and you refuse to present anything ?


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## Quant (5 June 2016)

minwa said:


> Perhaps its time you go back to your self imposed ban of this forum from few months ago if you just come on here, calling other people morons because they don't agree you and you refuse to present anything ?




there is nothing to debate here  , I AM 100% RIGHT , i am not jumping through hoops for anyone . I am only giving back what i got first  . Back to you feeding your EGO champ  , good day and enjoy


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## minwa (5 June 2016)

Quant said:


> there is nothing to debate here  , I AM 100% RIGHT , i am not jumping through hoops for anyone . I am only giving back what i got first  . Back to you feeding your EGO champ  , good day and enjoy




Same crap as last time. Enjoy your stay


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## cynic (5 June 2016)

One of the things that seems to escape the attention of some, is that any strike rate below 100%, can theoretically result in large runs of consecutive losses!

There may exist a correlation between consecutive run lengths and single event's likelihood in theory! The world in which this theory is applied can ofttimes be quite different!

Probability theory is exactly that! A theory! 

Results are these things that happen while traders are theorising other outcomes!


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## Value Hunter (6 June 2016)

I think sometimes the quant guys can get carried away with theories and numbers and forget that investing and trading is not a proper science. As Peter Lynch says its part science, part art and part leg work. 

It is all well and good to use formulas to calculate risk, expectancy, to simulate things, etc but most of the time the inputs are garbage. For example how many investors or traders can even accurately estimate their future win rate? Or their average future win percentage? Or their future expectancy?or the number of bets/investments that will be made in the future? Garbage in = garbage out. They seem to be a bunch of tools which are merely used by some as a means of intellectual masturbation. In reality many of these quantitavie tools/analyses do have some use for professional quant funds but overall they have a very narrow and limited real world application, with many people gravely misusing the tools.


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## Value Hunter (6 June 2016)

Another issue I have is with people discussing geometric returns, etc. The old argument of if you lose 90% of your capital you have to get a 900% return (i.e. ten bagger) to break even again. While this is mathematically true it ignores a few important facts:
-Mean reversion. Studies have shown that stocks at 52 week lows, etc putperform the market.
-Intrinsic value is what will determine the future return over the long term. If a stock has an intrinsic value $10 per share and the share price is $10 per share when you buy and the stock then subsequently falls to $1 per share over the next twelve months due to sentiment, etc meanwhile the intrinsic value stays at $10 per share then assuming you hold for the long term and the value stays the same the stock will rise from $1 to $10 which is a ten bagger. It is not like a coin toss where if you got 5 heads in a row and you flip it again the odds of a heads is still 50% and thus unchanged from before. The probability of the stock being a ten bagger has increased after the share price fell because it is more undervalued. I am not omly talking about this only from a theoretical view point I have viewed it first hand that a stock that a stock I owned rose very strongly after falling sharply because it became more undervalued. Stock prices are obviously proven by both logic and empirical evidence to be at least partially path dependant at least in most circumstances.


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## Value Hunter (6 June 2016)

This whole quant obsession some people have reminds of the kelly formula. When people try to use the Kelly Formula (or half kelly) in the stock market (which it was not designed for). How can you accuretly estimate what probability of winning on any individual investment/stock is? Or for that matter the expected return if you do win? For the formula to work properly you have to be able to do this relatively accurately for each stock in your portfolio. If you stuff up the calculation on even one or two stocks you throw the whole portfolio out of wack. Also you cannot predict how many possible future bets/opportunities will come your way.


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## minwa (6 June 2016)

Value Hunter said:


> share price is *$10 per share when you buy* and the stock then subsequently falls to $1 per share over the next twelve months due to sentiment, etc meanwhile the intrinsic value stays at $10 per share then assuming you hold for the long term and the value stays the same the stock will rise from $1 to $10 which is a *ten bagger*.




Umm if you bought at $10, it went down to $1 and back $10, you've made nothing (maybe dividends which doesn't cover the opportunity cost), all you've done is went through a lot of headache, locking up your capital. OK so you were in a ten bagger..but you made nothing.

If your analysis says $10 is a good buy, and willing to hold it all the way down to $1 is insanity to me.

Ten bagger trades happen every single day in leveraged instruments.


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## Value Hunter (6 June 2016)

Minwa you missed the point. My point was that the past return does affect the future return.


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## minwa (6 June 2016)

Value Hunter said:


> Minwa you missed the point. My point was that the past return does affect the future return.




Ah OK fair enough, yes there are studies for buying 52w lows, but then there are also studies(experiment) like turtle traders, where they SHORT fresh lows and proved to be profitable. It's all contradictory so I don't think a conclusion like that can be made. If it's profitable for you great, but accept there are also people profitable with the opposing belief (shorting beaten down stocks).


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