RISK

[wayneL]

Duc is spot on here.

Regardless of whether you use a 10% initial stop loss and/or a 2% trailing stop loss, it is a certainty that you are going to lose that percentage. Especially, if you are using an approach where you are waiting for the market to prove you wrong (i.e. your stop loss is hit before you exit the market/trade). This is what you see in a lot of trading systems.

The only variance is the actual realised $ value that the % stop loss equates to.

If you exit the market when a target profit (whether it is $ or % terms) is hit then the loss will not be realised, as the stop loss has not been triggered, hence no loss incurred.

cheers.

Les,

Isn't that a bit of a psychological construct?

What matters is the bottom line... The discussion on risk is great, but without context when potential reward is ignored. I think trend following systems such as t/t illustrate that perfectly.

Yes, you make assured losses, and most assuredly give back a piece of profit on exit, but in the context of profits generated by the system, these risks are accounted for and overwhelmed by the reward aspect of the equation.

Bull markets illustrate another point... targets can be exceeded by a long long way! The punters are pushing stocks WAY past fair valuation IMO.

Is it better to take a fair profit? Or better to give back a small piece of a ludicrous profit? The answer is probably what is most psychologically appealling....and the effectiveness of the individual within their chosen disipline.



Cheers

 

[ducati916]

tech/a

If I set an allocation of a 5% ( of purchase price) As an initial stop where is and how would you quantify uncontrolled risk?

You misunderstand.
I am actually saying by setting a stoploss, you control risk.
Definition of Risk = uncertainity.
Stoploss = 100% certainity of a loss, therefore risk becomes a certain quantity. (assuming of course you don't ignore it)

Not withstanding the above you still have uncertainty in any one event you are exposed to unlimited risk,with an average of 25% loss a string of even 2 losses at the high end of the "Averaging" could render your initial capital in effective if you were to liquidate the loss and highly unlikely to recover as my example above shows if you hold it.
Purchasing 10 stock with this sort of uncertainty could be catastrophic.

In theory you are correct, therefore I must place further risk management in place, to mitigate the uncertainity (risk)

Returning back to my diversification or asset allocation model of 25% exposure to common stocks, 25% exposure to Bonds, 25% to Arbitrage, and 25% to real estate.

I utilize a legal structure, a Corporation, whose business is investing.
Now, lets assume I lose 100% of my investment within the common stock strategy, this can be written off as a tax loss against the income generated via the remaining investments. Therefore I have an additional layer of risk management in place to potentially offset the risk that I have assumed

In contrast T/T has 10 stocks and everyone of them is a winner.
Simply I cut losers and hold winners.

Indeed, but I don't want to lose any money..............not a single penny

Duc hasnt answered string of losses and average number of consecutive losses V average consecutive winners.
I can bring these important aspects into the discussion when we have 2 benchmarks--duc's and mine.

Well, indirectly I have intimated, that of my posted trades on this board, I expect to have no single trade generate a loss of any description, much less a catastrophic 100% wipeout. However, talk is cheap, action baby!

On lagging.
The point of a buy trigger is anything but lagging.
The makeup of the analysis maybe lagging but the trigger itself is a point in time---infact its a NOW point.

Disagree.
The higher the price, the greater the risk, the lower the price, the lower the risk. Therefore, by definition, buying *new highs* is riskier, than buying at a lower price, additionally, it lowers your ultimate return.
The *NOW* point, is better analyzed via fundamentals, than technicals, hence, technicals are lagging.

lesm

Regardless of whether you use a 10% initial stop loss and/or a 2% trailing stop loss, it is a certainty that you are going to lose that percentage. Especially, if you are using an approach where you are waiting for the market to prove you wrong (i.e. your stop loss is hit before you exit the market/trade). This is what you see in a lot of trading systems.

Just so.

jog on
d998

 

[ducati916]

enzo

Yes, you make assured losses, and most assuredly give back a piece of profit on exit, but in the context of profits generated by the system, these risks are accounted for and overwhelmed by the reward aspect of the equation.

No they are not.
TT on closed trades, returned 9% compounded over 3yrs.
This may well change as more trades are closed. However it remains to be seen how material a difference is generated. This is in a strong bullmarket, which should provide optimal conditions for the strategy.

The large $ return on capital was provided by 3.5 times leverage.
That is adding a layer of risk, to increase return.
Market conditions are a further risk factor that requires consideration, as of course market risk, is the risk that you are assuming.

Returns will always = Wins% - Loss%
The higher the number of losing trades, even if all fall inside 10%, will provide a drag on the aggregate wins% when annualised and compounded. It is astounding as to just how much of a drag.
Thus a methodology, that utilizes a low Win% or a high Loss%, becomes reliant on leverage to generate the positive returns that make it an attractive proposition.

Bull markets illustrate another point... targets can be exceeded by a long long way! The punters are pushing stocks WAY past fair valuation IMO.

Yes they are.
So simply add a trailing stoploss, once you have reached fair value, or your profit target (in respect to a fundamentally driven methodology).
Therefore you can eliminate the weakpoints of stoploss based strategies, but maximise their advantages if you so choose.

jog on
d998

 

[wayneL]

T/T is but one example of a technical system. Granted it is the only one with public results with which to refer to, but we don't really have a publically traded fundamental system at this stage with which to compare with either. Yours has not had enough time.

I agree with your points re T/T .. leverage.. bull market.. etc.. even recall bringing those selfsame points up myself

No they are not.

But......That said, yes they are! As pointed out by yourself, the runs are on the board. Risk has been completely overwhelmed by expectancy, as expected

Cheers

 

[It's Snake Pliskin]

Duc,

if risk = uncertainity, then uncertainity must be converted to certainity. This is the purpose of a stoploss,......a stoploss = 100% loss, therefore, there is no uncertainity, there is no risk.

What is simple needs to be kept simple.

Risk = uncertainty and exposure.
Is there a guarantee the stoploss will be hit? No. So that is your risk, because it is uncertain, and it is exposed to the market.
If there was a guarantee, you wouldn`t take the trade.

 

[It's Snake Pliskin]

lesm,

Regardless of whether you use a 10% initial stop loss and/or a 2% trailing stop loss, it is a certainty that you are going to lose that percentage.

There is no certainty that it will be hit though. Therefore it is risk.

 

[tech/a]

I agree with your points re T/T .. leverage.. bull market.. etc.. even recall bringing those selfsame points up myself

Well there are some aspects which are in accurate and there are some aspects which I think are not understood or equated correctly.

There is a lot I will add using T/T as the example when I have enough time.
The points raised need a fair amount of explaination/clarification/comment.

Just quickly
Leverage is about 2.3 X and maximum initial drawdown is around 6% unleveraged so leveraged 15% of initial capital that was never hit and as the method is well underway never will be.
As for return even if every open trade was stopped at its exit of the low of the 180 day EMA drawdown on todays total capital would only be around 20% or $60k still giving the then closed % return well over that as the mean in testing.

Anyway more later.

 

[wayneL]

Tech,

It's not meant as a criticism of techtrader at all. As I've said before, under different circumstances than what I'm currently in, I would most certainly consider using T/T or similar.

Cheers

 

[ducati916]

tech/a

There has been previous mention of the tested parametres........and should TT approach, or exceed drawdown, then it would be closed as the methodology has failed.

Now, by *outperforming* as apparently it has;
Does this constitute *failure* of the methodology?
Is outperformance considered a risk, viz. failure of methodology as tested?

Leverage is about 2.3 X and maximum initial drawdown is around 6% unleveraged so leveraged 15% of initial capital that was never hit and as the method is well underway never will be.

Initial risk could well have been higher than 15% (unless utilizing the guaranteed stops)
Now, you are safe, agreed.

Without having access to all the trades taken, both open and closed, no accurate assessment can be made as to the true profitability.
Just a dollar return means nothing, apart from it tells me you might be able to afford to feed me.

jog on
d998

 

[tech/a]

Tech,

It's not meant as a criticism of techtrader at all. As I've said before, under different circumstances than what I'm currently in, I would most certainly consider using T/T or similar.

Cheers

Wayne

Its not taken as critisism.Dont mind if it was as long as its constructive which is what duc has said.

I actually like the method under the microscope 100s of people looking at it are bound to identify the odd thing I havent considered.
I trade it so I want to be damned sure that it does as I expect.

 

[tech/a]

You misunderstand

yes I did.Pologies

Therefore I have an additional layer of risk management in place to potentially offset the risk that I have assumed

Indeed, but I don't want to lose any money..............not a single penny

A contradiction in terms. Reality is that we will lose some money at times but overall we wish to be nett profitable---very profitable. Losing money in small amounts to open opportunity for larger profits is to me a wise way of managing money.The other option of locking into an investment and waiting patiently for that time to come where demand exceeds supply isnt attractive,particularly at 50+. My goal is capital gain and I cant understand people who invest purely for passive income,particularly as the value of our dollar deminishes year after year ( In 10 yrs time what will $500,000 buy you?) So If I retire at 55 and live till 85 thats a long time to support yourself as things get dearer.

Duc hasnt answered string of losses and average number of consecutive losses V average consecutive winners.
I can bring these important aspects into the discussion when we have 2 benchmarks--duc's and mine.

So I take it you dont have these figures.
So without them I will explain importance to those who are wondering.
If I know that my loss will be capped at 2% (as an example) and that my longest string of losses over x period of testing is say 6 then my initial worst case drawdown would be expected to be 12%.
Now if I was to trade on Margin at 2.5 leverage then thats 30% of initial capital---that would be pretty well a maximum for me with any system.
If trading CFD's then there is a potential at 10x leverage to lose 120% so from a risk veiw--I'm not going to leverage anywhere near that!

Average winners to average losers is important in that I can expect if I have say a win of 1 to every 3 losses to take around 30 losing trades to complete a fully functional portfolio of 10 stocks.So would it be wise to buy 10 stocks on day 1?---cashflow may become an issue and if trading margin a huge issue.

Disagree.
The higher the price, the greater the risk, the lower the price, the lower the risk. Therefore, by definition, buying *new highs* is riskier, than buying at a lower price, additionally, it lowers your ultimate return.
The *NOW* point, is better analyzed via fundamentals, than technicals, hence, technicals are lagging.

Im afraid I have to disagree with your disagreement.Todays high could be tommorows low from the point of veiw of today.Now take a look at the chart below.Remember that the maximum risk I allowed myself on this and any other trade is actually 1% in this case on buying.That was around 36c.
Profit on the trade was $8.10 per share.In a shorter timeframe yes true.

TT on closed trades, returned 9% compounded over 3yrs.

Duc been through this before.The Average hold for this longterm system is over 1 yr so having open trades for longer is commonplace.Infact we have 1 over 3 yrs now and a few other over 2 yrs. Initial trades were expected to have some stop outs as the portfolio took time to do its thing ( find strong trends) so over the last 3 yrs only stops and 1 long term closed trade and a few that lasted a few months are recorded---about 9 from memory.
Open equity is massive and as I have pointed out above if all crashed to their exit around $60K of the $305K current would be lost so Say loss of $60K then payback the margin loan $70K leaves $175K on the initial $30K over 3.5 yrs.
Wouldnt be unhappy even with that!

Returns will always = Wins% - Loss%
The higher the number of losing trades, even if all fall inside 10%, will provide a drag on the aggregate wins% when annualised and compounded. It is astounding as to just how much of a drag.
Thus a methodology, that utilizes a low Win% or a high Loss%, becomes reliant on leverage to generate the positive returns that make it an attractive proposition

Well thats not true either Very high profit can be generated from (and T/T does),a very high reward to risk ratio.Its actually around 12 x risk.Its not reliant on leverage we selected Margin as a method to trade back 3.5 yrs ago as most people are undercapitalised so felt this would be a good example for those with average funds looking for better return. I know of one trader using T/T who trades $700k of Super--no leverage and he seems happy!

There has been previous mention of the tested parametres........and should TT approach, or exceed drawdown, then it would be closed as the methodology has failed.

Now, by *outperforming* as apparently it has;
Does this constitute *failure* of the methodology?
Is outperformance considered a risk, viz. failure of methodology as tested?

Firstly it may not have failed,it would however no longer have a blueprint that matched actual trading. Back to this in a minute.

Ive covered this before but the outperformance is the outperformance of the mean average return of 20000 portfolio's traded in Montecarlo simulation.
To explain.The highest return was say 45% and the lowest 22% un leveraged,(Just using figures to illustrate cant remember the exact ones) The results of the one I'm trading and the portfolio on the net are toward the top of the scale.
But back to the above. Thats an interesting question I have had a chance to think about since you last bought it up.
See the results are an average or all trades (Each individual portfolio) so at times then the return even for years could well be way above the highest average,yet when averaged over say 8 yrs this is not seen.
Same is true of drawdown and is defined in Maximum Peak to Valley Drawdown.This makes sence to me that if the P/V drawdown is exceeded then you stop!! However if the performance is greater than the AVERAGE you couldnt say its failed as you dont know the maximum growth with in the average. Even so why stop trading something that is doing better.

It could also be argued that you could and perhaps should reset the systems test x years down the track and get a "NEW BLUEPRINT" which would be different to the old.

 

[lesm]

Les,

Isn't that a bit of a psychological construct?

What matters is the bottom line... The discussion on risk is great, but without context when potential reward is ignored. I think trend following systems such as t/t illustrate that perfectly.
Yes, you make assured losses, and most assuredly give back a piece of profit on exit, but in the context of profits generated by the system, these risks are accounted for and overwhelmed by the reward aspect of the equation.

Bull markets illustrate another point... targets can be exceeded by a long long way! The punters are pushing stocks WAY past fair valuation IMO.

Is it better to take a fair profit? Or better to give back a small piece of a ludicrous profit? The answer is probably what is most psychologically appealling....and the effectiveness of the individual within their chosen disipline.




Cheers

Hi Wayne,

You have raised an interesting point.

If we are looking at it from a psychological view point then we could consider it as a form of positive reinforcement or building trader confidence.

If we are fortunate enough to land a major windfall, then shouldn't we take advantage of it?

Why we are trading? Is it to create wealth, generate an income, both or more fundamentally make a profit?

If we are concerned with the bottom line, isn't realistic/pragmatic profit maximisation an aim?

To achieve any of these we can look at in terms of maximising profit. In this regard, why do we need to take an approach that fundamentally relies on the market proving us wrong?

We can use more than one strategy (exit) that enables us to protect ourselves from untoward or a sudden reversal in market direction and puts us in a position to potentially maximise the profit.

If we consider why we are using a stop loss from a risk management perspective, isn't it to reduce the consequence or impact of the market going against us. Effectively managing the downside risk.

Cheers.

 

[stevo]

I don't think too much about single trade risk. What is more relevant is portfolio performance over time. Many really get upset over individual trade losses but it's much better too look at performance over time. Taking a loss can be quite satisfying if it's put into the right perspective.

A 95% probability of success for a portfolio over time isn't going to make the grade. But a 50:50 chance of the next trade being a winner isn't a problem.

The only way I can test a system before I trade it is through testing. Duc - what software or method do you use for backtesting? Or are your numbers from actual trading? I am sorry if I missed this in previous posts.

stevo

 

[lesm]

lesm,



There is no certainty that it will be hit though. Therefore it is risk.

Snake,

Good pickup above, but the contextual emphasis is actually on the bolded sentence below.

Regardless of whether you use a 10% initial stop loss and/or a 2% trailing stop loss, it is a certainty that you are going to lose that percentage. Especially, if you are using an approach where you are waiting for the market to prove you wrong (i.e. your stop loss is hit before you exit the market/trade). This is what you see in a lot of trading systems.

It is not unusual to see systems, where the exit is based solely on a stop loss being used (hit).

It's interesting that the The Phantom of the Pits identified and questioned the rationale of this approach. He also questioned why so many traders placed an emphasis on being proven wrong, by the market, as part of their trading strategy.

My mistake, I should have been clearer in the example used, what happens when you write things quickly.

Cheers.

 

[tech/a]

It is not unusual to see systems, where the exit is based solely on a stop loss being used (hit).

Dont understand.
When do you exit?

If that was the case then you either take the loss from the stop ---whatever that is or your perminently in a trade which is trading above its stop?

Do you mean Trailing stop?
If so there is a danger in this.

We can use more than one strategy (exit) that enables us to protect ourselves from untoward or a sudden reversal in market direction and puts us in a position to potentially maximise the profit.

If we consider why we are using a stop loss from a risk management perspective, isn't it to reduce the consequence or impact of the market going against us. Effectively managing the downside risk.

Its human nature to protect initial capital and open profit.
The trailing stop and certainly the target price exit can be a two edged sword.While eliminating downside (Target) and minimising (Trailing stop) both can take you out of a trade like the one above. Leaving 100s of % without possibility of realisation.

Its not possible to let profits run employing risk management to the up side.

 

[ducati916]

tech/a

A contradiction in terms. Reality is that we will lose some money at times but overall we wish to be nett profitable---very profitable. Losing money in small amounts to open opportunity for larger profits is to me a wise way of managing money.

No not really, just a different philosophical paradigm.
Your paradigm states; to make money, I need to lose money.
My paradigm states; to make money, don't lose money.

The other option of locking into an investment and waiting patiently for that time to come where demand exceeds supply isnt attractive,particularly at 50+.

The volatility of financial markets is still so high relative to other asset classes that if your *risk* is correctly calculated, the issue of time is marginalised. (you old b*****d)

( In 10 yrs time what will $500,000 buy you?) So If I retire at 55 and live till 85 thats a long time to support yourself as things get dearer.

It should pay for dinner.

So I take it you dont have these figures.

No.
These do not have a material impact on my results.
Reason one; the win% is so high
Reason two; I do not leverage common stocks.

If I know that my loss will be capped at 2% (as an example) and that my longest string of losses over x period of testing is say 6 then my initial worst case drawdown would be expected to be 12%.
Now if I was to trade on Margin at 2.5 leverage then thats 30% of initial capital---that would be pretty well a maximum for me with any system.
If trading CFD's then there is a potential at 10x leverage to lose 120% so from a risk veiw--I'm not going to leverage anywhere near that!

And as you have illustrated, these are the reasons I do not leverage.
For myself, any or all positions may show a paper loss of up to 99%
If leveraged, and unable to make margin calls..............curtains.

Im afraid I have to disagree with your disagreement.Todays high could be tommorows low from the point of veiw of today.Now take a look at the chart below.Remember that the maximum risk I allowed myself on this and any other trade is actually 1% in this case on buying.That was around 36c.
Profit on the trade was $8.10 per share.In a shorter timeframe yes true.

Call your disagreement, and raise it by $60000;
If we use an example of a fixed sum, $100
Our gross risk = 100% or $0.00 (with no risk management applied)
Therefore if you pay $10 per share, you have 10 shares, with unlimited reward (in theory)

I buy the same shares at $5, I have I have 20 shares, or twice the reward potential that you do. By paying less, I have skewed the Reward/Risk ratio in my favour. By doing so, I change the risk profile.

I could also give you a breakdown of why buying a *high* price, without regard to the *value* increases your risk, but that involves a lengthy discussion into finance.

Lastly, if your new *high price* was truely a low risk proposition as you suggest, then aggressive money management techniques would not be required, viz. a stoploss Therefore, as I buy the undervaluation, or low price, have no need of a stoploss, and have a high success rate, low price carries less risk.

Clarification of low price being low value.
You can have a low price, that represents a gross overvaluation, and a high price that represents an undervaluation.

Technical systems do not really distinguish between the two variants.

Duc been through this before.The Average hold for this longterm system is over 1 yr so having open trades for longer is commonplace.Infact we have 1 over 3 yrs now and a few other over 2 yrs. Initial trades were expected to have some stop outs as the portfolio took time to do its thing ( find strong trends) so over the last 3 yrs only stops and 1 long term closed trade and a few that lasted a few months are recorded---about 9 from memory.

The results of any methodology have to be measured on actualised profit as open profits/losses are subject to change.
The total profitability of the methodology is measured on all the trades taken.
This is why diversification lowers returns. You are diluting all positions.
TT diversifies by exiting non-productive trades as defined by initial stoploss, and remains in trades that produce. The actualised results generate the return with the timeframe accounted for as an accrural.

This is why TT on last update that I saw of closed trades had returned an actualised 9% compounded per annum. Leverage, when applied results in an actualised return of 9% * 2.5 = 22.5%/annum

Thus a methodology, that utilizes a low Win% or a high Loss%, becomes reliant on leverage to generate the positive returns that make it an attractive proposition

But to my mind still, that is exactly what it does.
I wouldn't look twice at 9% (well actually I would)
But I most certainly would look closely at 22.5%
Which from my endless use of TT as a methodology you can see to be true.

But back to the above. Thats an interesting question I have had a chance to think about since you last bought it up.
See the results are an average or all trades (Each individual portfolio) so at times then the return even for years could well be way above the highest average,yet when averaged over say 8 yrs this is not seen.

And thats fine, however, could not the same reasoning be applied in reverse?
If it under performs, then over 8yrs it may come back on line?

Same is true of drawdown and is defined in Maximum Peak to Valley Drawdown.This makes sence to me that if the P/V drawdown is exceeded then you stop!! However if the performance is greater than the AVERAGE you couldnt say its failed as you dont know the maximum growth with in the average.

Which really begs the question, if you classify failure as exceeding an arbitrary point, consistency would demand the same metric to be applied at the other end, viz. over performance. If you have this inconsistency, then the whole basis of testing is fallacious, and you might as well toss it, unless you can justify outperformance and account for the results.

Even so why stop trading something that is doing better.

Of course, human nature being what it is, many will only question and search for weakness when adversity strikes.........if it works, don't fiddle.
This however highlights my previous concerns as to finding a methodology that works in all market conditions.

TT may be vulnerable to market conditions, it may not be. The point is do you know?

It could also be argued that you could and perhaps should reset the systems test x years down the track and get a "NEW BLUEPRINT" which would be different to the old.

Quite possibly.

jog on
d998

 

[lesm]

Its human nature to protect initial capital and open profit.
The trailing stop and certainly the target price exit can be a two edged sword.While eliminating downside (Target) and minimising (Trailing stop) both can take you out of a trade like the one above. Leaving 100s of % without possibility of realisation.

Of course it is and that's what we need to do.

Stops that are too tight can also have the same affect, but there is nothing to stop us re-entering the trade. As you are well aware a trending stock can periodically go into a short-term ranging pattern or retracement phase. Consequently this ranging or retracement this activity may trigger the stop.

Your backtesting of T/T would have demonstrated this, as there would have been multiple entries and exits on different stocks during the backtesting period. Reduction of this behaviour would require considering the use of wider stops that would decrease the entry aand exit activity, but aware that you have tested this aspect and shown that it has no real affect on potential profitability.

Its not possible to let profits run employing risk management to the up side.

There is no reference below to applying risk management to the upside, neither has it been alluded to. The focus is actually on managing downside risk and protecting profits.

Profit maximisation is possibly a poor term to use as it implies greed, but couldnt think of another way to express it at the time of writing.

I haven't ignore the first part of your post, but will consider it during the day, and provide a response later. I have been trying to be careful in using the term 'stop loss' and possibly confused terminology to a degree in doing so.

But, I would still ask the question, why do we need to wait for the market to prove us wrong in any manner or form, before exiting a trade?

If we plan our exits appropriately using the information in the chart, from both a price and volume perspective, that enables us to determine that the trend is starting to fail or lose strength exit the trade and subsequently re-enter when conditions change.

This is similar to using chart pattern setups for identifying potential trading candidates, we can also use chart pattern analysis for identifying potential exit setups. The tools we use today are far more advanced than those of a number of years ago and it is not that difficult to include more advanced methods, as part of of our trading methodology.

cheers,

 

[tech/a]

Your backtesting of T/T would have demonstrated this, as there would have been multiple entries and exits on different stocks during the backtesting period. Reduction of this behaviour would require considering the use of wider stops that would decrease the entry aand exit activity, but aware that you have tested this aspect and shown that it has no real affect on potential profitability.

Yes and the resounding result was do not set a profit target or trailing stop (of course you could and results were positive however far below the finally accepted methods results) and give the exit plenty of room. The balance comes in the length of the EMA,and thats only to smooth the curve.

If we plan our exits appropriately using the information in the chart, from both a price and volume perspective, that enables us to determine that the trend is starting to fail or lose strength exit the trade and subsequently re-enter when conditions change.

Maybe so with a shorter term methodology such as Radges.However longer term your resultant execution will only at best have a 50/50 result,in correctness. One wrong could mean the opportunity of 300% or more is missed.
The question of available capital then comes into play.
Say I sell CTX as it looked weak at $8 and I bought Something else.
Next thing at $9.15 CTX is triggered again and there is no available funds to trade,Im fully committed.
I'm sure you see my point,diving in and out of stocks is a habit of discretionary traders who bleed to death and suffer more emotional swings than Melanie Griffiths.

This is similar to using chart pattern setups for identifying potential trading candidates, we can also use chart pattern analysis for identifying potential exit setups. The tools we use today are far more advanced than those of a number of years ago and it is not that difficult to include more advanced methods, as part of of our trading methodology.

Sure you can have a number of exit triggers simply by having "OR" conditions or "IF" and if part of a tested methodology with its set of numbers then fine.
If your talking of multiple chart based discretionary exits then consistant profit will be very difficult,as psychological factors will come into play.

 

[It's Snake Pliskin]

It's interesting that the The Phantom of the Pits identified and questioned the rationale of this approach. He also questioned why so many traders placed an emphasis on being proven wrong, by the market, as part of their trading strategy.

Shouldn`t being proven right by the markets be a good reason to exit? At times I think so.

 

[tech/a]

Sorry Duc been flat out.

No not really, just a different philosophical paradigm.
Your paradigm states; to make money, I need to lose money.
My paradigm states; to make money, don't lose money.

Actually more accurately from me is make more money than you lose,where as I accept I have to take some small losses to make the big wins.
We are different and thats a good thing I dont cost as much to feed!

The volatility of financial markets is still so high relative to other asset classes that if your *risk* is correctly calculated, the issue of time is marginalised. (you old b*****d)

Can be.

It should pay for dinner.

Hmm for 35 yrs--touch and go.

No.
These do not have a material impact on my results.
Reason one; the win% is so high
Reason two; I do not leverage common stocks.

Well they do if you find yourself stuck in x no of negative trades then although a loss may not be realised it certainly is there.I would rather have my un realised equity than your un realised losses.
Time could kill you.

And as you have illustrated, these are the reasons I do not leverage.
For myself, any or all positions may show a paper loss of up to 99%
If leveraged, and unable to make margin calls..............curtains.

Ive never been margin called. You are removing the opportunity of making fantastic returns from other peoples money and then in turn not being in a position to compound your profits exponentially.Thats why managing RISK is so important so you/we can evail ourself to this wonderful opportunity.

Call your disagreement, and raise it by $60000;
If we use an example of a fixed sum, $100
Our gross risk = 100% or $0.00 (with no risk management applied)
Therefore if you pay $10 per share, you have 10 shares, with unlimited reward (in theory)

I buy the same shares at $5, I have I have 20 shares, or twice the reward potential that you do. By paying less, I have skewed the Reward/Risk ratio in my favour. By doing so, I change the risk profile.

Its no different if you use the same methodology (well similar) Testing of 20000 portfolios tells me that the deviation on return is from 26% to 43%.
Trading more trades dilutes return only slightly but returns similar R/R ratios,Ive tested it with more trades and same capital and same trades with more capital and more trades with more capital---still around the same results with Montecarlo analysis.----if trading the same method.

I could also give you a breakdown of why buying a *high* price, without regard to the *value* increases your risk, but that involves a lengthy discussion into finance.

I dont doubt that Duc.But if it was percieved by the market as overvalued then I would either be stopped out or the stock would go no where.Often stocks well outperform expert analysis on value.CTX was one.

Lastly, if your new *high price* was truely a low risk proposition as you suggest, then aggressive money management techniques would not be required, viz. a stoploss Therefore, as I buy the undervaluation, or low price, have no need of a stoploss, and have a high success rate, low price carries less risk.

The entry isnt the low risk the method that is designed around the entry/exit/stop/position size/leverage is low risk---distinctly different.

Clarification of low price being low value.
You can have a low price, that represents a gross overvaluation, and a high price that represents an undervaluation.

Technical systems do not really distinguish between the two variants.

Absolutely correct and here in lies where most get it wrong----your not trading the technicals OR if your method and numbers were designed around Fundamentals--then the Fundamental analysis---your trading a methodology PACKAGE (Or if you can associate with it better---a Business Model) which has a positive expectancy.----distinctly different again!!!

The results of any methodology have to be measured on actualised profit as open profits/losses are subject to change.
The total profitability of the methodology is measured on all the trades taken.
This is why diversification lowers returns. You are diluting all positions.
TT diversifies by exiting non-productive trades as defined by initial stoploss, and remains in trades that produce. The actualised results generate the return with the timeframe accounted for as an accrural.

This is why TT on last update that I saw of closed trades had returned an actualised 9% compounded per annum. Leverage, when applied results in an actualised return of 9% * 2.5 = 22.5%/annum

I see this as a fundamental attempt to varify your arguement.
Its a veiw held by yourself and if thats what you wish to set as YOUR standard then OK. BT dont as when I have increased equity I can use it they see it as good as $$s. I have drawdown yes but as long as I stay within the limits of funds used and funds available at liquidation then no Margin call.

Lets say all dropped 25% tommorow and I was called---then I would just sell however much stock was necessary to get back to with in their terms.No pain.

If I liquidated last week then I certainly would walk away with $274,000 after paying off the loan.But if you still measure it as a 9% return---OK.

And thats fine, however, could not the same reasoning be applied in reverse?
If it under performs, then over 8yrs it may come back on line?

Sure but if I was trading I dont have to guess it as Im out.If it then sets new parameters than if I trade it again it would be included.

If I bought a house and I thought it could go up $100K and then it goes over to $150K,Id go out and buy more houses--which I did.
Same with stocks---which I didnt it was/is mostly in houses which take months to liquidate!!,plus CGT so I have to hold for 12 mths then wait months for a sale.Some opportunities maybe recognised but cannot be taken full advantage of!!---bugga

Which really begs the question, if you classify failure as exceeding an arbitrary point, consistency would demand the same metric to be applied at the other end, viz. over performance. If you have this inconsistency, then the whole basis of testing is fallacious, and you might as well toss it, unless you can justify outperformance and account for the results.

Your reasoning not mine.I could only be proven wrong by stopping trading and losing profit at the exit end.So I'll accept being wrong (If it ever happens) and worry about it with profit in hand.

Of course, human nature being what it is, many will only question and search for weakness when adversity strikes.........if it works, don't fiddle.
This however highlights my previous concerns as to finding a methodology that works in all market conditions.

TT may be vulnerable to market conditions, it may not be. The point is do you know?

T/T is very valnerable to adverse bullish conditions,its not designed for that.
So there is a good chance that at some future time it will perform poorly.
I'm looking and have been for sometime at a way of minimising the impact of a prologed down turn. Havent found anything yet that I would use but very interesting some of the ideas I'm working with.