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Webinar: FuturesTrader71 (FT71) on Risk, Sizing, Scaling and Trade Management
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Webinar: FuturesTrader71 (FT71) on Risk, Sizing, Scaling and Trade Management

  #51 (permalink)
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Hotch View Post
Not noticed this myself, any papers on it?

It's obvious that the market isn't fixed odds like a roulette wheel, but it doesn't mean the analogies aren't useful for explaining things, nor does it mean that statistics aren't useful to traders. There'd be a lot less people employed in statistics if we only used it for fixed odds propositions!


I agree completely that they're useful; we wouldn't be able to think without analogy, metaphor, simile. But people often get caught up in the analogy and forget about its limitations.

Similarly with statistics - they're very useful, but ever since I started looking into various statistics in medicine, I've become extremely suspicious of anything that's bandied about.

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  #52 (permalink)
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your win rate = 65%

The probability that your next trade will fall within the 65% group is either 0 or 1. However, over a series of trades, you should get more 1 than 0. Maybe expressed this way it will be easier to accept the binary nature of this single isolated trade.

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  #53 (permalink)
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liquidcci View Post
A well designed mechanical AT that takes the right factors into consideration does not have to be tweaked constantly nor replaced abruptly. Market conditions do change but a good AT will stay out of the market when conditions are not favorable to the setups of the AT. Meaning equity curve will stay flat until conditions come back that are favorable. Nothing wrong with flat for awhile just don't want to lose big while waiting for right conditions to return. This can be designed into a system.

As mentioned above while market conditions do change in most cases they return and have cyclical nature about them to a large degree. Key is not to design a system that only works well when market is trading in some outlying fringe condition. But design for the way a market typically trades. That way can have reasonable assurance of system performance over time. The market typically will come back to it's normal ways when it does trade fringe. Of course it is possible a market will never come back to the "way it traded" but is not usually the norm in my experience although I have seen it happen.

I also think the presenter used his examples more to demonstrate concepts than present perfect math. We all know the market has a dynamic element to it.

I enjoyed this webinar can't talk enough about managing risk. I may manage different but key is manage it and always be open to how others do it as can make us all better at what we do.

Yes, I basically agree with you. In January 2008 I had 2 very good, dependable and completely uncorrelated equities systems suddenly stop working - thankfully they didn't lose money, but they sure generated lots of pointless commissions. Things do happen.

And yes, I think he is more interesting in emphasizing a concept that will help with the psychology of discretionary trading than anything to do with math.

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  #54 (permalink)
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trendisyourfriend View Post
your win rate = 65%

The probability that your next trade will fall within the 65% group is either 0 or 1. However, over a series of trades, you should get more 1 than 0. Maybe expressed this way it will be easier to accept the binary nature of this single isolated trade.

That is the way I approach. I have no idea if my next trade will be a win or a loss. It will be one or the other and I don't even care on a trade by trade basis. But based on my stats over a series of trades I expect my system will produce a certain result based on probabilities. I don't apply my probabilities to my next trade but to my overall system.

I just can't see how anyone can survive much less profit over a long period of time without using probabilities.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
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  #55 (permalink)
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trendisyourfriend View Post
your win rate = 65%

The probability that your next trade will fall within the 65% group is either 0 or 1. However, over a series of trades, you should get more 1 than 0. Maybe expressed this way it will be easier to accept the binary nature of this single isolated trade.

Sadly the mathematical correct way to say that is that this trade has a 65% probability to be a profitable one. For those taht know statistics and can think statistically this is not a prediction it will win - it just means that this trade setup has a higher win chance.

Now, you can say "that next trade" but statistics is neer about that next trade.

> over a series of trades, you should get more 1 than 0.
(65% actually) -> then that means that the next trade has a 65% chance to be a 1.

NOTHING implies that the next trade is a winner in there. This is statistics - and sadly, and here i really agree withteh sense - can not think in statistics.

This is not that bad actually - there is something worse people do. Let's say the next trade is a looser. Then they think the next trade after has a highr chance of winning ("to make up for the 65% chance"), and that is TOTALLY untrue. Distribution within the target curve is random. You can have a 65% win rate and still 10 loosers in a row once ian while. Does not change the 65% chance.

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  #56 (permalink)
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There is a huge and basic mistake in all of these discussions regarding trading probability.

The probability of an event like a coin toss, roll of a die or a roulette reel is not comparable to trading. the outcome of those events occur outside the control of the participant. The participant has NO control over the outcome.

In trading the outcome is directly controlled by the trader, his actions determine the outcome. The entire probability discussion in regards to trading is misleading and based on an error in logic. A win loss ratio is not the same as a probability of one event occurring over another, it is just a win loss ratio of past events without any predictive value.

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  #57 (permalink)
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TI Anon View Post
There is a huge and basic mistake in all of these discussions regarding trading probability.

The probability of an event like a coin toss, roll of a die or a roulette reel is not comparable to trading. the outcome of those events occur outside the control of the participant. The participant has NO control over the outcome.

In trading the outcome is directly controlled by the trader, his actions determine the outcome. The entire probability discussion in regards to trading is misleading and based on an error in logic. A win loss ratio is not the same as a probability of one event occurring over another, it is just a win loss ratio of past events without any predictive value.

A win loss ratio while having no predictive value on next trade does have a value although not absolutely perfect on the expectation of the future performance of an overall system. That is if the win loss ratio is based on a statistical edge which can be identified in the market over many trades.

A trader does not have complete control over the outcome. Identifying points of control (control being points where trader does have control entries and exits) using statistics and probabilities is what allows a trader to win with consistency. A trader does not fully control the outcome but can control entry and exit. The market does have a mind of its own. But using stats and applying math - statistical trends can be identified and leveraged. A trader cannot control the outcome but can be in position to take advantage of what outcomes have the highest probability of happening. The beast can be tamed or at least ridden.

I sincerely believe not using probabilities in trading will eventually lead to account destruction.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."

Last edited by liquidcci; March 23rd, 2012 at 01:43 PM.
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  #58 (permalink)
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FuturesTrader71 View Post
You take the trade on a 60% edge because you have a better chance of winning over the series (which is dynamically changing by the way as far as that xx% edge). However, you can't have a 60% winner and a 40% loser on the next trade...can you?

Not sure why this is confusing. It is in front of us every day. It is a simple fact.

Mike stated it correctly. If you knew which of the 60% trades were winners, then mortgage your house and put 1,000 contracts on those and skip the rest. Oh...so you don't know where the 60% will come in?...so what do we do then?

You cannot pick to just take the winning trades because the ALL have a 60% chance of winning.

Even if you win 90% of your trades, you can't just pick the winners because you do not know ahead of time which one's will win or lose. Every trade you take in that case has a 90% chance of wining.

Of course - the next trade may win or lose but you can't take 2 possible outcomes to = 50/50 probability. That's a bastardisation of statistics.

Look - if you put me in a room with Brad Pitt and you send Claudia Schiffer in with instructions to screw one of us, the probability of me getting laid is not 50/50.

I understand the point being made but probability is not the correct terminology.

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  #59 (permalink)
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DionysusToast View Post
You cannot pick to just take the winning trades because the ALL have a 60% chance of winning.



Look - if you put me in a room with Brad Pitt and you send Claudia Schiffer in with instructions to screw one of us, the probability of me getting laid is not 50/50.

Unless Angelina is in the room

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  #60 (permalink)
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Enough of the 50/50 line of debate!!! We've already done this on the other thread. Go create a new thread if you want.

Move on already!

Plenty of other fantastic material in the webinar to discuss!




Big Mike View Post
Some points I am taking away from this webinar:

Price Risk vs Information Risk

Mike


Big Mike View Post
Don't look to be right. Trade the better probability.

Mike


Big Mike View Post
Most important: Have the right attitude to trade.

Mike


Big Mike View Post
Learn how to take losses.

Mike


Big Mike View Post
Your "monkey" will try to get you out of stressful situations, just like your survival instincts take over when you step in front of a car, or when a grizzly bear is chasing you. It's an instinctive response much beyond your control.

Mike


Big Mike View Post
In trading, Losing is not Bad. Losing is the best way to prepare yourself for the next trade.

Don't sit and hope. Take the loss, move on to next trade.

Mike


Big Mike View Post
Prior market action does not represent future market action.

Mike


Big Mike View Post
Setups don't make money. Probabilities and confidence make money.

Mike



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