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