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tech/a · 7 June 2017

ducati916 said:
For tech/a

“But everything was not fine. Long-Term, which had calculated with such mathematical certainty that it was unlikely to lose more than $35 million on any single day, had just dropped $553 million — 15 percent of its capital — on that one Friday in August 1998. It had started the year with $4.67 billion. Suddenly, it was down to $2.9 billion. Since April, it had lost more than a third of its equity.”

This where the calculation came from.

jog on
duc

If the stock had lost a third since April there is a high chance you wouldn't have been in the trade at the time it dropped 15 %.

Duc your concentrating on outliers
Your making generalisations
Well designed systems will survive outliers.

TechTrader missed the 2008 melt down although not at
It's highest open profit I closed out completely with enough
To buy a house 3 mths before it crashed
90 % of positions closed out on rules in the system. With only one open
And 7 yrs of live trading on the Chartist I decided I'd had enough.

On diversification
I now mainly trade DAX and FTSE Futures
I can control $100's of 1000s of Stock in one contract
I can trade long and short.

This what I was alluding to in the thread.

Much more coming on the topic of Systems development.
But not here.

skyQuake · 7 June 2017

ducati916 said:
Which is the response that I would expect to see, particularly on a single position basis. Would the same response apply if your entire portfolio contemporaneously, followed suit?

Also, I'm interested, with regard to an alternate thread that discusses 'diversification': is diversification, or concentration, your preferred methodology?

For tech/a

“But everything was not fine. Long-Term, which had calculated with such mathematical certainty that it was unlikely to lose more than $35 million on any single day, had just dropped $553 million — 15 percent of its capital — on that one Friday in August 1998. It had started the year with $4.67 billion. Suddenly, it was down to $2.9 billion. Since April, it had lost more than a third of its equity.”

This where the calculation came from.

jog on
duc

The beauty here is that most retail traders can cut a 15% loss with minimal slippage. LTCM had positions that were insane multiples of ADV, made worse by the copycat funds that were levered in the same trade.

ducati916 · 7 June 2017

tech/a said:
Duc your concentrating on outliers
Your making generalisations
Well designed systems will survive outliers.

Yes, I am concerned by 'outliers' exactly because in the financial markets they are not outliers.

tech/a said:
Duc your concentrating on outliers
Your making generalisations
Well designed systems will survive outliers.

Yes, I am concentrating on 'outliers' as many [most] believe that their risk management is up to snuff.

I am currently talking in the abstract, but that is because in the abstract you can make normative universal statements.

Some might. Many will not.

jog on
duc

ducati916 · 7 June 2017

tech/a said:
TechTrader missed the 2008 melt down although not at
It's highest open profit I closed out completely with enough
To buy a house 3 mths before it crashed
90 % of positions closed out on rules in the system. With only one open
And 7 yrs of live trading on the Chartist I decided I'd had enough.

Which is my point, the past does not predict the future.

jog on
duc

ducati916 · 7 June 2017

tech/a said:
On diversification
I now mainly trade DAX and FTSE Futures
I can control $100's of 1000s of Stock in one contract
I can trade long and short.

Lots of leverage. Lots of risk.

jog on
duc

ducati916 · 7 June 2017

skyQuake said:
The beauty here is that most retail traders can cut a 15% loss with minimal slippage. LTCM had positions that were insane multiples of ADV, made worse by the copycat funds that were levered in the same trade.

All true. All historical.

As to 'retail traders' are you sure about that?

jog on
duc

skyQuake · 7 June 2017

ducati916 said:
All true. All historical.

As to 'retail traders' are you sure about that?

jog on
duc

Reasonably - if you get long in a day, you should also be able to reasonably get out in a day. On a bad day you'll pay some slippage but nothing ruinous!
Accumulating a large position in illiq small caps over weeks/months can change that obviously

skc · 7 June 2017

Interesting discussion... I find this to be a good link for some background on statistics in finance.

https://sixfigureinvesting.com/2016/07/understanding-interpreting-high-sigma-events-black-swans/

Quant · 7 June 2017

Outliers certainly can catch you out , but they work both ways as long as you trade markets in both directions , the 15% gap down can be a winner . I don't worry about outliers too much because over time they will even out if you are a proactive bi directional trader . Trading indice limits the max slippage/gaps compared to stocks , indice is diversification . I have older systems tested over decades that got huge drawdown in 1987 crash , difficult to filter a crash from all time high , Things have changed with curbs to prevent these huge moves so not such a massive concern . Outliers are a risk for " EVERYONE " not just systems traders and id go as far to say a systems trader is " LESS " likely to have the debilitating drawdowns that most market participants go through . If a 10% drawdown concerns you go invest in govt bonds and sleep well at night . This thread is dead ..

multiple systems running concurrently is a form of diversification as well and likely the ultimate form of it . smooth curve is the realm of systems traders . measure it and you can improve it . " SOLUTIONS " it is what I do ... systems traders can beat the market with way less portfolio risk with only 20% of the time in the market . YES that's right

Worse case scenario is something we need to be aware of but it doesn't stop you driving to work / crossing the road / insert any daily task ...

tech/a · 7 June 2017

ducati916 said:
Lots of leverage. Lots of risk.

jog on
duc

No more risk than trading 100s of 1000s of stock.
But unlike stock I'm in and out generally in under 30 min.
May do up to 3 trades a session and 3 sessions a week

Agree with Quant.

ducati916 · 7 June 2017

skyQuake said:
Reasonably - if you get long in a day, you should also be able to reasonably get out in a day. On a bad day you'll pay some slippage but nothing ruinous!
Accumulating a large position in illiq small caps over weeks/months can change that obviously

I have already discussed day-trading. Most will day-trade either:
(a) stocks; or
(b) futures; or
(c) both.

If day-trading futures or stocks, what is you response to the risk of
(a) lock limit; and/or
(b) trading halt?

jog on
duc

ducati916 · 7 June 2017

skc said:
Interesting discussion... I find this to be a good link for some background on statistics in finance.

https://sixfigureinvesting.com/2016/07/understanding-interpreting-high-sigma-events-black-swans/

Yes it is. There are some issues where the author commits common errors. I'll address these directly later.

Ta.

jog on
duc

ducati916 · 7 June 2017

tech/a said:
No more risk than trading 100s of 1000s of stock.
But unlike stock I'm in and out generally in under 30 min.
May do up to 3 trades a session and 3 sessions a week

Same question:

If day-trading futures or stocks, what is you response to the risk of
(a) lock limit; and/or
(b) trading halt?

jog on
duc

ducati916 · 7 June 2017

Quant said:
Outliers certainly can catch you out , but they work both ways as long as you trade markets in both directions , the 15% gap down can be a winner . I don't worry about outliers too much because over time they will even out if you are a proactive bi directional trader .

Yes, they can, but a 'good' outlier is not an outlier that could deplete/destroy your trading capital.

Even if outliers did 'even out', this totally misses the point which is an outlier could wipe you out. If you are no longer playing the game, or playing with significantly reduced capital, exposure to a positive outlier may not rectify the initial damage from the negative event.

jog on
duc

ducati916 · 7 June 2017

Quant said:
Outliers are a risk for " EVERYONE " not just systems traders and id go as far to say a systems trader is " LESS " likely to have the debilitating drawdowns that most market participants go through .

Yes they are. It is just that systems traders seem less aware that they are still at risk, which is bourne out in your answer.

jog on
duc

ducati916 · 7 June 2017

Quant said:
multiple systems running concurrently is a form of diversification as well and likely the ultimate form of it . smooth curve is the realm of systems traders . measure it and you can improve it

The reliance on mathematics, or rather the overconfidence in mathematics, is a risk in of itself.

jog on
duc

ducati916 · 7 June 2017

Quant said:
Worse case scenario is something we need to be aware of but it doesn't stop you driving to work / crossing the road / insert any daily task ...

Which is my point.

jog on
duc

skyQuake · 7 June 2017

ducati916 said:
I have already discussed day-trading. Most will day-trade either:
(a) stocks; or
(b) futures; or
(c) both.

If day-trading futures or stocks, what is you response to the risk of
(a) lock limit; and/or
(b) trading halt?

jog on
duc

Stock Halt - Good risk management helps a lot here... eg ACO went to new highs then 0. Concentration will clearly hurt in this case
Futs Halt - pretty rare, but you can always hedge with other correlated futs or even CFDs

tech/a · 7 June 2017

FUTs Locked limit.

Never seen it on an Index.
Id be on the right side of it anyway and would
just call you up and P-a-r-t-a-y.

Stock Halt
Happens often when trading Smalls
But Has never been an issue relative to
capital at risk and net worth.

Quant · 7 June 2017

ducati916 said:
Yes they are. It is just that systems traders seem less aware that they are still at risk, which is bourne out in your answer.

jog on
duc

You are clueless on what I or anything else is aware of . good bye from me . If you ever wanted clues about how to correct " your " failings on system trading you aren't going to get **** from me or anyone else . YOU cant do it and YOU are so clever it must be impossible because it cant be ME . sorry I wasted a couple minutes on you ... wont happen again

I know risk of ruin and probability curves/matrixes , position size , trade risk ( I document and measure all aspects ) . Trading carries risk and you can only manage it so far . like I said go get some bonds and be risk free and sod of . You've made your point , you R a pussy

The skinny part of the curve is your worst case scenario and as a competent systems trader I probably will never see that , bit like me winning lotto div 1 , possible but extremely unlikely , WE ALL KNOW THERE ARE NO ABSOLUTES

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tech/a

No Ordinary Duck

skyQuake

ducati916

ducati916

ducati916

ducati916

skyQuake

skc

Goldmember

Quant

tech/a

No Ordinary Duck

ducati916

ducati916

ducati916

ducati916

ducati916

ducati916

ducati916

skyQuake

tech/a

No Ordinary Duck

Quant

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