Dump it Here

DaveTrade said:

Risk of Ruin is definitely something that new traders should be aware of, I've heard many stories of people that have lost their entire account. There are a number of ways that RofR can be reduced in your trade plan like diversification, balancing your directional exposure and not committing all your funds to the market. Even when your RofR has been reduced by a mix of these methods, it still has not been fully controlled.

The only way I know to fully control your RofR, and when I say 'control it' I mean actually removing your exposure to RofR, is to use options. Options can be used in many complex ways, they are the most flexible trading vehicle that exits and this is a double edged sword causing a lot people to view them as being too complex to make the effort to learn. The reality is that in order to replace the basic functions of buying and selling stock, only a basic options knowledge is required. The additional functionality of being able to go Long or Short and having hard definable stops just comes with the fact that your buying and selling options instead of buying and selling stock.

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Correct. Options can control (manage) risk of ruin.

Options come with the necessity to understand and implement the 'greeks'. A quote from Steve Jobs:



Option greeks are complex. They can be made simple. However that is not an easy undertaking.

Tail risk (fat) are far more common than Gaussian (Bell curve) statistical analysis allows.



If you are long, obviously this is a positive fat tail. The issue is that if you are 100% long then the left hand side fat tails often hit in excess of 5STD, which should never happen in the life of the universe, yet pop up with alarming regularity.

10 Hedge Fund blow-ups: https://www.valuewalk.com/top-10-hedge-fund-blow-ups/

A primer on SD: https://www.nasdaq.com/articles/how-many-sigmas-was-the-flash-correction-plunge-2020-03-04

List of 1 day moves: https://www.forbes.com/sites/baldwin/2022/11/10/wall-street-goes-crazy-the-numbers/?sh=312f8e27681f

And another study on frequency: https://blogs.cfainstitute.org/investor/2012/08/27/fact-file-sp-500s-sigma-events/




A little out of date:






An issue that I have with mechanical systems is that they engender (potentially) a false sense of security that risk is well managed.

jog on
duc

"Trading for Beginners - Skate's Practical Guide to Profitable Trading"
A daily series of posts aimed at those just starting out on their trading journey.

42. Wealth Creation
The first critical step in creating wealth is education. But it's important to understand that obtaining a high level of financial literacy by itself won't guarantee financial success as it's only the starting point for a journey that includes many other elements of personal finance. It calls for self-control, endurance, and a long-term outlook, as well as the readiness to make wise decisions and take measured risks when called for.

The establishment of a sound financial plan is one of the most significant factors to consider when it comes to wealth creation. A financial plan can assist you in identifying your financial goals, assessing your existing financial level, and developing a strategy for accomplishing your objectives. It can also assist you in properly managing your money and avoiding hasty or foolish financial decisions.

While it's tempting to focus on short-term benefits, building long-term wealth requires making sound decisions and taking calculated risks over time. This requires discipline, patience, and a desire to stay within your financial plan even when markets are volatile or economic uncertainty exists. The financial world is continuously changing, so being up to date on the newest trends and Government developments is critical.

Risk management is another crucial aspect of wealth building. Trading or investing in the stock market or other financial instruments can provide substantial profits, but it also carries considerable risk. It is important to analyse your risk tolerance and build a diverse investment portfolio that matches your time horizon. Adopting a long-term perspective is one of the keys to successful wealth creation.

To summarise, wealth creation is a long-term process that requires education, discipline, and a deliberate approach. Creating a strong financial plan, managing risk, taking a long-term view, and committing to continuous learning and growth are all key components of financial success. By adhering to these rules and remaining focused on your objectives, you can improve your financial situation, attain better financial stability, and accumulate long-term wealth.

Skate.

ducati916 said:

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LOVE THIS QUOTE

This thread has excellent points when I have time to do some reading....Dave, Ducati and Skate.

These tales involve a friend and an ex neighbour.

My impulsive friend was into options a long time ago. Spent thousands of dollars buying books and attending Optionetics. They were excellent she said, buy both ways, put and calls at the same time......'so buy all the horses in race and one will surely come home' I said. 'you don't understand' she said, so we left it at that.

Many years down the track, she gave me those Optionetic books (worth over $6,000) to someone I know. I asked what happened. 'No good, I am not disciplined enough to keep an eye on things' I did not want to go back to Babcock and Brown and others she lost heaps on. Told her to get out, but always the same answer 'I have to get my money back' So got a kick in the back instead.........don't ask for more when there isn't more to be had.

The ex neighbour subscribed to system trading. Raved about not having to do any work. Don't worry about studing the fundamentals etc....The system will work it all out he said. Many years down the track, caught up with him.......asked about his system trading. Answer 'not in it anymore, lost money and got out'

eskys said:

This thread has excellent points when I have time to do some reading....Dave, Ducati and Skate.

These tales involve a friend and an ex neighbour.

My impulsive friend was into options a long time ago. Spent thousands of dollars buying books and attending Optionetics. They were excellent she said, buy both ways, put and calls at the same time......'so buy all the horses in race and one will surely come home' I said. 'you don't understand' she said, so we left it at that.

Many years down the track, she gave me those Optionetic books (worth over $6,000) to someone I know. I asked what happened. 'No good, I am not disciplined enough to keep an eye on things' I did not want to go back to Babcock and Brown and others she lost heaps on. Told her to get out, but always the same answer 'I have to get my money back' So got a kick in the back instead.........don't ask for more when there isn't more to be had.

The ex neighbour subscribed to system trading. Raved about not having to do any work. Don't worry about studing the fundamentals etc....The system will work it all out he said. Many years down the track, caught up with him.......asked about his system trading. Answer 'not in it anymore, lost money and got out'

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@eskys there are many stories like these, that's why the things that Skate is talking about in these recent posts is so important for new traders to absorb, and why it's OK if if he repeats a few important points along the way.

eskys said:

This thread has excellent points when I have time to do some reading....Dave, Ducati and Skate.

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@eskys, I want to build on @DaveTrade's previous excellent response and emphasise that my aim in posting is merely to help others understand the potential risks and perils of trading. We can create a helpful and educational community in the "Dump it here" thread by sharing our experiences and inner thoughts, empowering folks to make informed decisions, and avoiding frequent trading traps.

The collaborative approach of other thread members distinguishes this thread from others as it emphasises the value of knowledge-sharing and caring for one another.

Finally, my goal, and I believe the "Dump it here" community's goal, is to assist others in achieving financial stability and prosperity by learning from both the achievements and errors of others. We can create a better informed and empowered trading community by working together and sharing our expertise and experiences.

Skate.

Skate said:

@eskys, I want to build on @DaveTrade's previous excellent response and emphasise that my aim in posting is merely to help others understand the potential risks and perils of trading. We can create a helpful and educational community in the "Dump it here" thread by sharing our experiences and inner thoughts, empowering folks to make informed decisions, and avoiding frequent trading traps.

The collaborative approach of other thread members distinguishes this thread from others as it emphasises the value of knowledge-sharing and caring for one another.

Finally, my goal, and I believe the "Dump it here" community's goal, is to assist others in achieving financial stability and prosperity by learning from both the achievements and errors of others. We can create a better informed and empowered trading community by working together and sharing our expertise and experiences.

Skate.

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Morning Skate, this is why this thread is so good. So many wise owls...trading involves so many dynamics, dynamis

eskys said:

Morning Skate, this is why this thread is so good. So many wise owls...trading involves so many dynamics,

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@eskys, it's great to hear that you appreciate the diverse perspectives and insights shared by members in this thread. Trading is indeed a complex and dynamic activity that involves many different factors, from technical analysis and risk management to emotional control and market trends.

By learning from the experiences and insights of others, we can develop a more comprehensive understanding of these dynamics and improve our own trading strategies and outcomes. The collaborative approach of our small community can be a valuable resource for traders at all levels of experience and expertise.

Skate.

Skate said:

wealth creation is a long-term process that requires

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... yes ,requires all of the above, especially if you had to start from zero which is probably the case for nearly every one of the contributors to this wonderful forum.
I can only add : start young , too. From the first pay day.
( There really is a thing called : " left it too late " particularly in regard to superannuation )

dyna said:

... yes ,requires all of the above, especially if you had to start from zero which is probably the case for nearly every one of the contributors to this wonderful forum.
I can only add : start young , too. From the first pay day.
( There really is a thing called : " left it too late " particularly in regard to superannuation )

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@dyna, I completely agree with your response. Wealth creation is indeed a long-term process that requires a combination of strategies and efforts, including saving, investing, and trading wisely, while at the same time making smart financial decisions. Starting early is also crucial as it allows for more time to compound investments and build wealth over time. And, as you rightly mentioned, "left it too late" is a real concern, particularly in regard to retirement planning and superannuation.

Thank you for sharing your insights on this important topic, as member involvement is at the very heart that distinguishes this thread from others as it emphasises the value of knowledge-sharing and caring for one another.

The graph reinforces the importance of three key principles for wealth creation: starting early, spending less than you earn, and investing/trading wisely. While the power of compounding is well-known, it's easy to forget its significance in building wealth over time.



Skate.

@dyna, after reading your post and @DaveTrade post earlier this morning I've been inspired to explore the topic of making decisions based on self-preservation.

Tomorrows Topic
"Our choices and thinking shapes our financial future"

Skate.

So just building a little further on the risk of ruin concept.

There is group probability: 100 gamblers enter the casino and each bet $1000 on red or black, but they bet in sequence, one after the other after each spin. Even if gambler #29 goes bust, gambler #30 still has that 50/50 shot.

Individual probability: a single gambler makes a series of 100 bets, betting on red alone. He will never make it to 100. This is time probability, which is path dependent with time. The first loss is the last loss.

Finance theory (which I wonder is at the heart of these mechanical back-tests) takes the average of all bettors, using that number as a proxy for individual risk or time risk.

According to this view, surviving a round of Russian roulette is 83%. Not bad odds.

But of course measuring risk in this manner hides the risk of ruin. If 17% comes up you are dead.

You have a system. 100% long. 100% of capital in positions. Hard stops sitting in the market. Market drops 9% in a day. Happens frequently. Individual stocks will drop multiples of that. Add in zero liquidity, there is never liquidity in a crash. Each position could easily be down 50%. Margin loan? You are sitting at zero.

Same scenario as above but no hard stops. Mental stops. What now?

jog on
duc

Home economics and common sense.........unfortunately aren't always common (not aimed at anyone, so please, no offense)

"Trading for Beginners - Skate's Practical Guide to Profitable Trading"
A daily series of posts aimed at those just starting out on their trading journey.

43. Our choices and thinking shapes our financial future
When it comes to establishing financial security and building wealth, the decisions we make and the way we think can have a tremendous impact on our financial security. It's essential to understand that every financial decision we make, no matter how small, can have significant long-term consequences on our financial situation.

For example, boosting your savings by a few percent can result in significant increase in savings over time. Similarly, trading smartly has the potential to build wealth over time, but it requires taking calculated risks along the way that matches your risk tolerance to achieve your long-term financial objectives.

Our thinking has a major impact on our decision-making process, which in turn has a massive impact on wealth creation. Having a negative mindset and feeling that wealth creation is impossible, may inhibit us from taking chances and following opportunities that could lead to financial success.

A positive, growth-oriented attitude, on the other hand, can assist us in making educated and logical decisions, overcoming hurdles, and seizing opportunities that can lead to financial success with increased wealth. As a result, creating a happy mindset as well as growing our emotional intelligence and self-awareness is critical to long-term wealth creation.

In conclusion, the decisions we make and the way we think can have a significant impact on our financial future. By making informed, calculated financial decisions that align with our long-term financial objectives, cultivating a positive, growth-oriented mindset, and continually improving our financial literacy and emotional intelligence, we can increase our chances of achieving financial security and building lasting wealth.

Skate.

Not long now
After reading @ducati916's series of posts highlighting the added risk of trading a long-only trend strategy, the SAP Strategy project becomes even more exciting. Despite the considerations raised by Duc, I remain convinced that trend trading is a proven and effective trading strategy.

One of the benefits of trend trading is that it seeks to capture upward fluctuations in a stock's price trends. As @Captain_Chaza noted, "follow the money" is the basis of this style of trading. Trend trading based on a set of rules can also simplify decision-making and help traders avoid emotional decisions that often lead to poor trading outcomes.

Trend traders follow established patterns instead of attempting to forecast market moves, which can help limit risk exposure. Multiple exit strategies can also reduce drawdowns, providing traders with an additional layer of risk management.

Moreover, focusing on trading one index, such as the All Ordinaries, while staying within a lower price band range can increase returns without limiting trading opportunities. Trend traders who can accurately analyse long-term price trends can find price movements with greater accuracy.

However, it's important to keep in mind that trend trading is not without risks. As trends can shift unexpectedly, discipline, patience, and a solid understanding of market dynamics are crucial to avoid unexpected losses. Before considering trend trading, it's essential to assess your trading goals and personal risk tolerance carefully.

In summary, while there are risks involved, trend trading remains a viable and effective trading strategy. The SAP Strategy with its multiple exit strategies and focus on long-term price trends is an exciting example of trend trading that offers potential benefits for traders.

Skate.

The SAP Strategy uses a combination of technical indicators, filters, and trading rules to generate the buy and sell signals. The strategy uses a mix of trend-following and momentum-based indicators, such as ATR, ADX, and ROC, to identify potential trading opportunities.

The SAP Strategy also includes several filters, such as the Index Filter, PercentageUp filter of "All Ordinaries" for a "buy conditional filter", and an Ulcer Index Indicator, to further narrow down the list of potential trades. These filters I believe will help improve the overall accuracy and reliability of the trading signals.

Additionally, the code sets some trading constraints, such as the maximum number of open positions, capital allocation per trade, and commission fees, to manage risk and optimise returns.

However, it's important to note that the effectiveness of the strategy will depend on the specific parameters used in relation to market conditions but its effectiveness and profitability will depend on several factors that require careful ongoing consideration and evaluation.

Skate.

Skate said:

I LOVE your new New LOGO

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It's Brilliant how you display the DOLDRUMS ,Our Magnetic NORTH and Magnificent OCEANS
SIMPLY BRILLIANT!

Salute and Gods' Speed

Skate.

@Captain_Chaza, I understand and agree with your idea about not putting all of your money in the market and maintaining 20% in cash for Black Swan events. As a trader of multiple strategies, I prefer to have the 100% of the funds set aside for each strategy fully dispersed when it is appropriate to do so.

Simplifying system trading
To complement the series of daily posts the SAP Strategy has been designed for those who may find trading intimidating by prioritising optimal market conditions and utilising a multi-stage exit strategy to lower the risk of excessive drawdowns.

Overall, the SAP Strategy is not the most interesting trading strategy, but it’s excellent for anyone interested in exploring system trading and wishing to improve their trading skills and attain long-term market success.

While some will perceive the strategy's cautious pace to be too slow, it's an alternative approach that is intended to offer traders a firm basis upon which to grow and improve their success rates over time.

Skate.

The SAP Strategy for me is a new approach to trading that incorporates multiple exit strategies to optimize profits and minimise losses. The strategy uses a combination of technical indicators, such as moving averages, stochastic oscillators, and the MACD, to generate signals.

The "Stale Stop" exit being part of a larger multi-stage exit strategy is also a crucial component, ensuring positions are cut loose that fail to follow through.

The "Take Profit Stop" parameter is another important feature of the SAP strategy, which locks in profits once a target is reached. The Max Profit parameter sets the take-profit target as a multiple of the Average True Range (ATR), which adjusts the target to market volatility.

It's important to note that the effectiveness of the SAP strategy will depend on the specific parameters and filters I've elected to use. But on a cautionary note, traders trying anything new should first thoroughly backtest the strategy and evaluate its performance over various market conditions to optimize profitability and minimise risks before committing real money.

Skate.