Defining expectancy: KISS or Rocket Science? Which do you prefer and why?

[cynic]

Recently I happened to derail a thread whilst discussing the topic of positive expectancy.

Given that one of my pet hates is the tendency of experts to overcomplicate the simplest of concepts by impressing the importance of superfluous mathematical operations, thereby causing needless confusion to market newcomers, I decided that this topic warrants a thread of its very own.

Those acquainted with my various posts will probably already be aware that I tend to take a macroscopic/quantitive approach to measurement of overall system performance, and prefer to avoid excessive degrees of analytical dissection.

As such aggregate calculations often amply serve my needs.

I do understand that ,depending upon one's methodology, some additional component measures may indeed be useful.

My concern with trading, like so many of life's endeavours, is that it starts to become a religion where people become so attached to specific rituals and doctrine that they not only lose sight of the original purpose and intent, they also at times become zealous to the point of fanaticism.

I'd be interested to hear others' thoughts on this topic and, should this thread progress,, intend to share a few anecdotes of my encounters with newcomers whom I believe were effectively sabotaged by the religious zealotry of various market gurus.

 

[Gringotts Bank]

Re: Defining expectancy : KISS or Rocket Science? Which do you prefer and why?

I'd be interested to hear others' thoughts on this topic and, should this thread progress,, intend to share a few anecdotes of my encounters with newcomers whom I believe were effectively sabotaged by the religious zealotry of various market gurus.

People love to over-complicate stuff, and not just in trading.

It's an attempt to achieve one or more of the following goals:

1. bamboozle the reader into thinking you're smart/prestigious

2. achieve distance so that those not in the loop don't come to understand that you are making a killing doing something very simple. eg. mechanics, lawyers.

3. create a cool 'inner circle' with heirachical structure, as a way of fulfilling narcissistic supply (eg. Scientology, many religions and corporations/organizations).

 

[cynic]

Re: Defining expectancy : KISS or Rocket Science? Which do you prefer and why?

Yes! I 've certainly observed all those things you mention.

During a recent phone discussion with a friend seeking guidance in developing his personal trading system/method, I was startled when he disclosed that he'd encountered material that impressed the need for achieving a certain minimum RR ratio as though this was some sort of infallible and incontestable truth. I immediately responded by offering some hypothetical counterexamples that highlighted the concept of positive expectancy whilst at the same time alerting him to certain fallacious claims regarding the scope and intent of the RR ratio.

 

[Gringotts Bank]

Re: Defining expectancy : KISS or Rocket Science? Which do you prefer and why?

Yes! I 've certainly observed all those things you mention.

During a recent phone discussion with a friend seeking guidance in developing his personal trading system/method, I was startled when he disclosed that he'd encountered material that impressed the need for achieving a certain minimum RR ratio as though this was some sort of infallible and incontestable truth. I immediately responded by offering some hypothetical counterexamples that highlighted the concept of positive expectancy whilst at the same time alerting him to certain fallacious claims regarding the scope and intent of the RR ratio.

I don't use price stops so RR is something I don't calculate in my systems.

What sort of examples did you use?

 

[fraa]

Re: Defining expectancy : KISS or Rocket Science? Which do you prefer and why?

I am only starting out and still reading atm - but I thought the principles of expectancy was articulated well here

https://www.thechartist.com.au/images/stories/Trish/Successful Stock Trading by Nick Radge.pdf

This is the 1st section of Nick Radge's book Adaptive Analysis which was highlighted here as being an essential read re basics of expectancy and money management.

Does he miss anything ?

 

[cynic]

Re: Defining expectancy : KISS or Rocket Science? Which do you prefer and why? of

I am only starting out and still reading atm - but I thought the principles of expectancy was articulated well here

https://www.thechartist.com.au/images/stories/Trish/Successful Stock Trading by Nick Radge.pdf

This is the 1st section of Nick Radge's book Adaptive Analysis which was highlighted here as being an essential read re basics of expectancy and money management.

Does he miss anything ?

It just so happened that I read the first chapter of that particular book a couple of months ago. I found the content largely agreeable. Point 4 in his summary at the end of chapter 1, pretty much sums it all up for me:

"The amount you win when you win versus the amount you lose when you lose is more important than trying to be right."

 

[cynic]

Re: Defining expectancy : KISS or Rocket Science? Which do you prefer and why?

I don't use price stops so RR is something I don't calculate in my systems.

What sort of examples did you use?

I simply gave two hypothetical extremes, one involving overall profit with a particularly high win rate where profit targets were considerably smaller than stop losses.

The other was pretty much the opposite. Larger profit targets, tighter stops ,and a win rate sufficiently low to ensure the example demonstrated the potential for failure to profit from adherence to the "golden rule"

 

[Quant]

Feel a bit like the Christian entering the colosseum , I feel this is directed at me to a degree and I comment in here with trepidation

I like simplistic but not simple , lets get that out the way

Perry Kaufman a well respected trader / educator was a rocket scientist for NASA

Anecdotes prove nothing , only facts and statistics do . Statistics help uncover facts , well at least probabilities . Which are what a trader needs to define/find his edge .

Now expectancy without the 2 inputs is fine in a crude way 'but' using the 2 inputs of trade success rates and risk/reward we can define the sweet spot in the ratio to get the best results without flying blind and putting ourselves in harms way unwittingly

Firstly I will address trade win %age , unqualified to most traders this stat has bearing on drawdown (referred as DD from her on) potentials , the lower the trade %age the higher the probability of multi consecutive losing trades . Now what is the result of having 10 consecutive losing trades , it will be detrimental to DD , now this DD will be dependant on the risk taken each trade , if you risk 2% you will near a 20% DD , did you know that with a 30% trade win rate the chances of 10 consec losers in 50 trades is 70% in a 50 trade period . Now its a given that with a low % WR ( win rate ) that risk reward will be ( well should be ) better than a system with a 70% win rate .

You know what , I cant be bothered writing an essay ( so will stop now ) to demonstrate a point of view that will be dismissed ( in all likelyhood with one line ) . I will resume this with a copy and paste or link that is parallel to my thinking once I find one ...

probability table vvvvvvvvvvvvv




This is a start but I will find something with a more complete analysis

http://forexiation.blogspot.com.au/2013/02/relationship-between-drawdown-and-risk.html

 

[cynic]

Thanks, for contributing to this thread quant. We are certainly of different philosophies in some respects, (but thankfully not in all). I have no complaint with others using the method that they consider most suited to their chosen market and personal resources.

It just so happened that I'd been stewing on the problem of some newcomers latching onto specific advice regarding minimum RR a week ago and our discourse in the other thread just happened to reignite my concern over "absolute" or "golden" rules.
It is not intended to be a direct attack on anyone on this forum (although I do consider it partially a redress to comments made regarding there being only one correct way to do certain things.)

I apologise for having been unnecessarily abrasive in my response to yourself and your offerings, my friends sometimes tell me that I have aĺl the subtlety of a flying brick!

 

[Gringotts Bank]

Re: Defining expectancy : KISS or Rocket Science? Which do you prefer and why?

I simply gave two hypothetical extremes, one involving overall profit with a particularly high win rate where profit targets were considerably smaller than stop losses.

The other was pretty much the opposite. Larger profit targets, tighter stops ,and a win rate sufficiently low to ensure the example demonstrated the potential for failure to profit from adherence to the "golden rule"

Seems reasonable. Are you saying he dismissed these ideas in favour of his rigid RR rules?

 

[Quant]

Re: Defining expectancy : KISS or Rocket Science? Which do you prefer and why?

People love to over-complicate stuff, and not just in trading.

It's an attempt to achieve one or more of the following goals:

1. bamboozle the reader into thinking you're smart/prestigious

2. achieve distance so that those not in the loop don't come to understand that you are making a killing doing something very simple. eg. mechanics, lawyers.

3. create a cool 'inner circle' with heirachical structure, as a way of fulfilling narcissistic supply (eg. Scientology, many religions and corporations/organizations).

Seriously ????? Take a good hard long look in the mirror , this passes as objective commentary ??

I might be in the wrong place , feels like facebook

 

[Gringotts Bank]

Re: Defining expectancy : KISS or Rocket Science? Which do you prefer and why?

Seriously ????? Take a good hard long look in the mirror , this passes as objective commentary ??

I might be in the wrong place , feels like facebook

Don't take it personally, it wasn't directed at you. But if the shoe fits...

 

[Quant]

Re: Defining expectancy : KISS or Rocket Science? Which do you prefer and why?

Don't take it personally, it wasn't directed at you. But if the shoe fits...

Don't worry I wasn't taking it personally , but maybe you should ....

 

[Gringotts Bank]

Re: Defining expectancy : KISS or Rocket Science? Which do you prefer and why?

Don't worry I wasn't taking it personally , but maybe you should ....

It's obvious you took it personally. The question is why??

I was responding to cynic's post of the same tone and it had nothing to do with you or anyone on ASF.

 

[Joe Blow]

Before this situation gets any worse, can I please request that everyone stick to discussing the topic at hand without making things personal?

I hate to see threads derailed and bad blood between ASF members over a minor disagreement.

 

[Quant]

Before this situation gets any worse, can I please request that everyone stick to discussing the topic at hand without making things personal?

I hate to see threads derailed and bad blood between ASF members over a minor disagreement.

Joe I felt like I was invited into a conversation through a door where I had to walk through a path of protangonists armed with baseball bats , silly thinking by me I went through the door , I might be new but i'm the one that's not feeling welcome and I don think ive gone out of my way to antagonize anyone , quite contrary in fact ... feel free to ban me as I am not the one who has let this standard be the norm , I am here with good will and that certainly cant be said for some of the main players here , I am not trying to make waves but again on the other hand I am not submissive ... your call

 

[Gringotts Bank]

In fact when I read your post quant, my thought was as follows: "Here's an example of complexity without unecessary over-complicating".

I'm sure you've noticed many times (and many professions) where my original post holds true.

Forums are a hard place to communicate, especially if you think others are out to get you. They aren't.

 

[Joe Blow]

Joe I felt like I was invited into a conversation through a door where I had to walk through a path of protangonists armed with baseball bats , silly thinking by me I went through the door , I might be new but i'm the one that's not feeling welcome and I don think ive gone out of my way to antagonize anyone , quite contrary in fact ... feel free to ban me as I am not the one who has let this standard be the norm , I am here with good will and that certainly cant be said for some of the main players here , I am not trying to make waves but again on the other hand I am not submissive ... your call

I always hope that it is possible for forum members to disagree about concepts, ideas and methodologies in a constructive way while still being polite and respectful to others. However, sometimes things can get a little testy, mostly due to misunderstandings or personality clashes.

I think that GB has made some broad generalisations that have not helped the discussion, and has been a little antagonistic. The question is, where do we go from here? I would hope that everyone concerned can de-escalate the situation and we can get the thread back on track.

It is impossible to avoid disagreement. I just hope that when people do disagree it can be done in a constructive rather than a destructive way. In this particular situation I hope that the hatchet can be buried and everyone can move on for the sake of the discussion.

 

[cynic]

Re: Defining expectancy : KISS or Rocket Science? Which do you prefer and why?

Seems reasonable. Are you saying he dismissed these ideas in favour of his rigid RR rules?

Fortunately he was still in the questioning phase of his search and given his acumen, I suspect he would have quickly recognized the logical flaw in the information in his own time.

Others that Ive encountered in the past weren't as fortunate. Some had developed such unshakeable faith in their chosen guru that they were quite simply unable to contemplate any concepts/perspectives to the contrary.

That's not to say that RR and related measures aren't useful when applied within an appropriate context ,with due regard to scope and limitations, it just frustrates me that I have to explain so much more than might otherwise be necessary when attempting to convey one of the most important and simple concepts of trading to others.

P.S. A big thankyou to all contributors to this thread so far. Given that I do not want this thread to become too onesided, I'd like to encourage those, whom like quant, have an appreciation for the application of statistical approaches to formulation and management of their trading to freely contribute their perspective and experience.

 

[cynic]

Joe I felt like I was invited into a conversation through a door where I had to walk through a path of protangonists armed with baseball bats , silly thinking by me I went through the door , I might be new but i'm the one that's not feeling welcome and I don think ive gone out of my way to antagonize anyone , quite contrary in fact ... feel free to ban me as I am not the one who has let this standard be the norm , I am here with good will and that certainly cant be said for some of the main players here , I am not trying to make waves but again on the other hand I am not submissive ... your call

Again my sincere apologies quant. I was both delighted and impressed by your willingness to participate in this thread, particularly given the difference in our trading philosophies. GB and I do happen to share certain controversial perspectives on life in general and although disagreeable views have bèen expressed, I remain hopeful that they were originally intended to be nothing more than general observations drawn largely from life experiences outside of this forum rather than personal attacks on specific members.