Trading/Daytrading for a living

[Porper]

Re: Trading / Daytrading for a living

If you've lost more than you've won, then you've lost.

"cut your losses small and let your wins ride" -- a worthless cliche. How do you know you were cutting a loss and not a win until after the event? how do you know your win is riding not about to crash, until after the event?

You should attend to reality, not cliches.

cheers,
Chemist

Ok, let's turn this around then.You say how do you know you were cutting a loss and not a win.If the stock is going down and you don't take a loss how do you know it won't keep going down ?

Your next comment you say how do you know your win is not going to crash.You don't but if it's rising why not let it ride ?

I don't think it is reality to have a fantastic win percentage and make great profits unless you are the worlds best trader.

Also, losing more often than winning does not make you a loser as you state.The worlds great traders often lose more often than they win.Difference is their average win is a lot higher than their average loss.

All this "must win" attitude will kill you mentally and will not allow you to be profitable.In my opinion of course.

 

[professor_frink]

Re: Trading / Daytrading for a living

If you've lost more than you've won, then you've lost.

"cut your losses small and let your wins ride" -- a worthless cliche. How do you know you were cutting a loss and not a win until after the event? how do you know your win is riding not about to crash, until after the event?

You should attend to reality, not cliches.

cheers,
Chemist

hey chemist, have a look at tech/a's system. It wins less than 40% of the time and is very profitable.

 

[nizar]

Re: Trading / Daytrading for a living

Exactly

Well said Porper

Remember that maximum loss is 100%... maximum win can be much higher than that...

 

[Ageo]

Re: Trading / Daytrading for a living

and i thought i was the only 1 seeing things hehe.

Good to see most people have the mentality that losing more than winning can actually be good (just as long as your wins outweigh the losses). Its also fantastic with your psychology because if you think that by getting ahead you need to win all the time, then what happens when you lose 1, or 2, 3, 5.......

You start to panic, your brain reacts different - and then thats when you start to become emotional and dont stick to your plan or stay disciplined.

Eventually you wont be able to hack it and you will either lose all of your capital or back out and that my friend is called Gambling, not Investing.

Teaching your brain that losing more trades than winning will allow you to go onto great wealth, i mean wether its 1, 10, 100, 1000 or even 10000 contracts and above your brain knows that its part of the process to lose but that 1 win will put you into profit. And the reason why alot of people that hope for more wins than losses dont outlay large capital is simply because there gambling and not investing. This is where leverage can be used at great advantage if used carefully (like a loaded gun )


Adrian

 

[wayneL]

Re: Trading / Daytrading for a living

"cut your losses small and let your wins ride" -- a worthless cliche. How do you know you were cutting a loss and not a win until after the event? how do you know your win is riding not about to crash, until after the event?

Chemist

Chemist,

cliche'? Nope!

Truism? Yep! for the technical trader it is.

The expectancy equation confirms this.

Expectancy = (( 1 + risk/reward ratio) x win/loss ratio) - 1

Cheers

 

[Ageo]

Re: Trading / Daytrading for a living

Wayne could you break down your win expectancy?

sorry mate i didnt excel too good in maths

cheers

 

[professor_frink]

Re: Trading / Daytrading for a living

he's done an article on it before. check these two threads out.

https://www.aussiestockforums.com/forums/showthread.php?t=2398&highlight=expectancy


https://www.aussiestockforums.com/forums/showpost.php?p=4858&postcount=25

 

[Ageo]

Re: Trading / Daytrading for a living

Thanks Frink
Ill check it out

 

[chemist]

Re: Trading / Daytrading for a living

Chemist,

cliche'? Nope!

Truism? Yep! for the technical trader it is.

The expectancy equation confirms this.

Expectancy = (( 1 + risk/reward ratio) x win/loss ratio) - 1

Cheers

Your equation means nothing to me because you have not defined the terms.

That is by the by because no arithmetic recasting of the profit-loss calculation alters the facts I raised. No "staking plan" turns a negative expectation system into a positive expectation system. Trading rules that initiate transactions for reasons unrelated to future market direction (e.g. stop loss) decrease your expectation because every transaction costs you money.

I'd be happy to see references to published research which shows otherwise.

cheers,
Chemist

 

[chemist]

Re: Trading / Daytrading for a living

Ok, let's turn this around then.You say how do you know you were cutting a loss and not a win.If the stock is going down and you don't take a loss how do you know it won't keep going down ?

On the basis of the price action you described, you don't have any way to know. You're exiting because your exposure is making you worried. A stop-loss is trading in ignorance out of fear.

Does the fact that you're losing money on a trade make the market more likely to move against you? If you need to beat a retreat so quickly, perhaps your position size is too large relative to your capital.

Your next comment you say how do you know your win is not going to crash.You don't but if it's rising why not let it ride ?

Its "rising" is something it did in the past. You can't ride the past. Choosing not to exit is just another gamble on what it is going to do based on the assumption that whatever just happened is going to happen again. It does at least have the merit of not costing commission.

I don't think it is reality to have a fantastic win percentage and make great profits unless you are the worlds best trader.

That would be impossible. If you have a 53% win percentage and equal profits and losses, you are a great trader already.

Also, losing more often than winning does not make you a loser as you state.The worlds great traders often lose more often than they win.Difference is their average win is a lot higher than their average loss.

All this "must win" attitude will kill you mentally and will not allow you to be profitable.In my opinion of course.

What the text I replied to was I expect to lose more than i actually win which to me implies losing more money than winning money, which implies losing overall. If the author intended to refer to numbers he should have put the word "often" in there.

Of course you can lose more often than you win and still win overall, but it is unlikely. Every stop-loss that hits is a tax on your trading (commission + bid/ask spread, at least). If your system gets stopped out a lot, then you have extra work to do to achieve profitability.

cheers,
Chemist

 

[wayneL]

Re: Trading / Daytrading for a living

Your equation means nothing to me because you have not defined the terms.

That is by the by because no arithmetic recasting of the profit-loss calculation alters the facts I raised. No "staking plan" turns a negative expectation system into a positive expectation system. Trading rules that initiate transactions for reasons unrelated to future market direction (e.g. stop loss) decrease your expectation because every transaction costs you money.

I'd be happy to see references to published research which shows otherwise.

cheers,
Chemist

I agree no staking plan will overcome negative expectancy. But you seem to be confused between expectancy and money management. Expectancy has nothing whatever to do with staking plans. That is a separate issue. The expectancy equation is about creating positive expectancy. You should perhaps do some reading in this area... with an open mind of course.

Also, you might like to enlighten us with "the world according to chemist" instead of carping negativity from the sidelines.

How would you suggest folks trade profitably?

 

[professor_frink]

Re: Trading / Daytrading for a living

I'd like to know the answer to that as well. I use stop losses, I let my profits run for as long as I can, and I have positive expectancy in my trading. If these are all rubbish, what do you suggest I do?

 

[Ageo]

Re: Trading / Daytrading for a living

Also, you might like to enlighten us with "the world according to chemist" instead of carping negativity from the sidelines.

How would you suggest folks trade
profitably?

Been waiting for this all week

Apparently any idea we have is no good, yet i havent seen any good ideas come from him.

Like i said he would make a great financial advisor

 

[chemist]

Re: Trading / Daytrading for a living

I agree no staking plan will overcome negative expectancy. But you seem to be confused between expectancy and money management. Expectancy has nothing whatever to do with staking plans. That is a separate issue. The expectancy equation is about creating positive expectancy. You should perhaps do some reading in this area... with an open mind of course.

Also, you might like to enlighten us with "the world according to chemist" instead of carping negativity from the sidelines.

How would you suggest folks trade profitably?

I'm sorry if my posts have been too direct for some forum participants. So far I have not held back in saying what I think I have good reason to believe when I post. Perhaps I shall modify that approach.

I will tell you about my background. I am a computer programmer with a degree in mathematics. I have been trading sports wagering markets since late 2003. In that time I have made roughly $xxx,xxx from a starting capital about 1% of that. I am looking to expand my operations into the financial markets. With that in mind I have been researching futures, CFD's, etc, partly through books and journal papers, but also by observation. When I think I have good reason to believe I have a profitable trading method I will trade. I am not there yet.

I joined this forum to see what trading ideas were floating around. Like in gambling forums I find many people who seem to be under the illusion that trading (gambling) is the easy path to riches. It is not. If you failed at all other useful endeavours, don't turn to trading. Try driving a taxi instead.

There is no secret to success at professional gambling, unless hard work, clear headedness, and a commitment to doing what works is a secret. I think trading is similar.

Stop-losses are like staking plans. They are not the same. Like a staking plan, a stop loss adds an element to your system which is unrelated to market direction or your expectation. As with staking plans, many gamblers, uh traders, think that adopting some arbitrary policy towards terminating their positions will make their losing system profitable. It almost certainly will not.

If your trading method has value then it has a component that is telling you something non-trivial about the market. This is your edge over the market. The stop-loss rule tells you to ignore your edge and get out of the market. Therefore a stop-loss can only reduce your expectation, per dollar position size, because it reduces the amount of time you are trading your edge over the market and increases the number of fear trades (and commission and bid-ask spreads you have to cover).

It might be optimal to include a stop-loss because doing so may allow you to better exploit your edge by trading larger positions, compensating for the extra transactions. You can discover the maths yourself. However, stop-losses are not some magic that turns a losing system into a winning one. If you have no edge, you lose.

There are other important aspects such as minimizing costs. I was surprised to read that some of the (would be) traders here are unconcerned about costs because they are sure their trades will be so profitable as to render costs irrelevant. If your average profit before costs is 1% and your costs are 0.5%, you are happy; if your costs are 1% then you are not.

cheers,
Chemist

 

[tech/a]

Re: Trading / Daytrading for a living

Chemist.
I look forward to discussing your perception of profitable trading and how to be profitable soon.
I would tonight but need to see a Chemist to get rid of this headache.
I'll just go to bed.

I dont have a degree in maths but Son has he is finishing his Doctorate in photonics at Adelaide Uni.

Wish I had the knowledge Kris has and the experience I have amassed.
Once he has finished his doctorate we intend getting together,should be rewarding.

Thanks for your post----many pieces to discuss.

Hopefully tommorow will be a new and pain free day.

 

[professor_frink]

Re: Trading / Daytrading for a living

that's a better post chemist!
I see where you are coming from in regards to stop losses, but I disagree, especially when it comes to technical analysis. When a trader enters a trade based on a chart pattern or indicator, it won't work all the time. Nothing does.
For example, if you're basing your trading around buying areas of support, and that support fails to hold, then you sell,as the reason for entering the trade is no longer valid. You take a small loss and move on to the next one .Or if you base your buy signal around a moving average crossover, and after it happens, the stock turns down and the averages cross back, you sell. Nothing can be done to stop this type of thing happening whilst trading.

This is completely different to setting a random stop loss point to attempt to preserve capital whilst waiting for the big win to come along.

Onto the next question- what is wrong with positive expectancy?

edit: What are the names of some gambling forums I could look at? I think it would be an interesting read

 

[Lachlan6]

Re: Trading / Daytrading for a living

Stop losses, stop losses, stop losses! Definently the most important thing when trading, especially cfd's. i think it is important to only take small losses cause the one compounded win will cancel out these losses. soo important to trade smart when trading cfds. especially with the current market.

 

[It's Snake Pliskin]

Re: Trading / Daytrading for a living

As with staking plans, many gamblers, uh traders, think that adopting some arbitrary policy towards terminating their positions will make their losing system profitable. It almost certainly will not.

If your trading method has value then it has a component that is telling you something non-trivial about the market. This is your edge over the market. The stop-loss rule tells you to ignore your edge and get out of the market. Therefore a stop-loss can only reduce your expectation, per dollar position size, because it reduces the amount of time you are trading your edge over the market and increases the number of fear trades (and commission and bid-ask spreads you have to cover).

Maybe you could elaborate on the opposite side of the equation that you didn't mention.

If you don't cut losses, do you cut winners? Or would that be inverted?

 

[tech/a]

Re: Trading / Daytrading for a living

Chemist.

It is not possible to calculate R/R without enough data to give a meaningful result.
As you say simply setting a stop with a percieved target price in itself has absolutley no meaning with regard to Positive expectancy---although many delude themselves into thinking that setting a tight stop and targetting a sale price of 5x stop is a positive expectancy trading methodology

Expectancy can and is calculated from a set of trades over a period of time given inputs and variables,when traded return results that can then be formulated into expectancy and a whole host of other results.

 

[chemist]

Re: Trading / Daytrading for a living

that's a better post chemist!
I see where you are coming from in regards to stop losses, but I disagree, especially when it comes to technical analysis. When a trader enters a trade based on a chart pattern or indicator, it won't work all the time. Nothing does.
For example, if you're basing your trading around buying areas of support, and that support fails to hold, then you sell,as the reason for entering the trade is no longer valid. You take a small loss and move on to the next one .Or if you base your buy signal around a moving average crossover, and after it happens, the stock turns down and the averages cross back, you sell. Nothing can be done to stop this type of thing happening whilst trading.

I agree. Yesterday your indicator said sell. What does it say today? If it now says buy (or hold), then closing or reversing your position is not being stopped out, it's a (rational) change of mind. OTOH if still says sell why close the position just because yesterday's trade has so far failed to show a profit? if we're trading our indicator we trust it. One random wrong day shouldn't change our minds.

This is completely different to setting a random stop loss point to attempt to preserve capital whilst waiting for the big win to come along.

Sure. Some people think that fiddling around with stops and targets can make them profitable. If a no-brainer strategy like "set your stops tight and wait for the big one" really was profitable, wouldn't any number of billion dollar hedge funds have arbed the inefficiency away by now?

Onto the next question- what is wrong with positive expectancy?

I don't get this bit. I like positive expectation.

edit: What are the names of some gambling forums I could look at? I think it would be an interesting read

http://www.bettingforum.co.uk is the best for golf. Unfortunately gold membership is invitational only.

Others that aren't complete rubbish:

http://www.arbforum.co.uk
http://forum.therx.com/index.php
http://www.punterslounge.com/forum
http://mb.winneronline.com/index.html

cheers,
Chemist