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Why 7% is the Difference between Failure and Success in Trading


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Why 7% is the Difference between Failure and Success in Trading

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  #101 (permalink)
BW, BW
 
 
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Fat Tails View Post



Would you please share this spreadsheet you use to calculate optimal F ? Thanks.

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  #102 (permalink)
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usfbzy View Post
Would you please share this spreadsheet you use to calculate optimal F ? Thanks.


It is available here in post #65:


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  #103 (permalink)
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Bau250 View Post
I'm probably reading your post wrong, but are you saying anyone who claims 60% win rate is a liar?

For real?

Let's see if you're still around in a couple of years.

"The mind is its own place, and in itself can make a heaven of hell, a hell of heaven." - Milton
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  #104 (permalink)
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get caught up in theoretical in a way that is not meaningful to actual trading.

Trailing 12 months profit factor 3.1:1...I'm happy with that

Trailing 12 months %profit %60.5....I think that is something to work on.

20 days during that period where net loss days, 34 days where non trade days, 210 days where net positive days.

I suspect the main contributing factor is that markets are dynamic as is my response to the market. Discretion, what formula measures that?

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  #105 (permalink)
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Yes, it seems some people miss the point of the thread completely, despite the fact I summarized it more than once. To each his own, I suppose.

"The mind is its own place, and in itself can make a heaven of hell, a hell of heaven." - Milton
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  #106 (permalink)
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Anagami View Post
Yes, it seems some people miss the point of the thread completely, despite the fact I summarized it more than once. To each his own, I suppose.

@Anagami

Would it be possible to re-run your model based on different risk/reward numbers? For example insted of 2:1 use 1.5 and 1.25 etc so we can get a better feel of the sensitivities?

Thanks
DJ

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  #107 (permalink)
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djkiwi View Post
@Anagami

Would it be possible to re-run your model based on different risk/reward numbers? For example insted of 2:1 use 1.5 and 1.25 etc so we can get a better feel of the sensitivities?

Thanks
DJ

@djkiwi , yes absolutely.

"The mind is its own place, and in itself can make a heaven of hell, a hell of heaven." - Milton
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  #108 (permalink)
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Fat Tails View Post
The other book I have read by William Poundstone was a book on game theory. I enjoyed reading it as well.

i was searching for a recomendations of this book before to buy it, to learn money management, risk, and the advance search send me to this thread, that i find it very interesting, thanks

La lucha es de igual a igual contra uno mismo
The fight is fair against oneself
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  #109 (permalink)
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Fat Tails View Post
As far as my understanding goes, @Anagami has presented Monte Carlo Simulations. The worst path on the chart allows for an estimation of the maximal drawdown.

Bad runs are accounted for in that simulation, as the order of the trades is different for every path. The point I am trying to make - and this is understood by very few traders - that the second system, the one with the high win rate and the 1:1 average win to average loss is the better option because

-> it produces smaller drawdowns (your intuition here is false!)
-> can support a higher leverage with equal risk (in particular in a bad run situation)

Both the model that I use and the Monte Carlo Simulation by Anagami have confirmed this with a completely different approach (one is theoretical the other experimental). Ralph Vince has written this again and again, but nobody seems to understand the mathematics.

Of course an edge is an edge, but look at the pictures of the simulation and you should understand. Two systems having the same expectancy, but the second has the better Optimal F!

Hi @Fat Tails.
Years ago when reading Van Tharp's Definitive Guide to Position Sizing I found what in my opinion came as a surprise to this author and is aligned with your point here. Van Tharp -who was a fan of High R's trades at that time- showed two systems with equal expectancy, but the one with the highest Win% and lower R multiple had better SQN than the other with higher R multiple.

Don't hesitate, just trade!
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  #110 (permalink)
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Correct.


The 20/20 system cannot take the same number of trades over the same time period, but I had already taken it into account! Based on the square root relationship between volatility and time, I had made an estimation that the 20/20 system will be able to enter only one trade, while the 10/10 system enters 4 trades. This assumption is realistic, you can compare the average true range from N-minute bars with the average true range from 4xN-minute bars, and will find that it is approximately the double.

If you read my post attentively you will also understand that I have not directly compared the 6302 trades needed by the 10/10 system with the 218 trades of the 20/20 system, but I have used the above approximation to state that the 10/10 system will be able to take about 872 trades while the 20 /20 system takes 218 trades.

But even after 872 trades (4-times as many as the 20 point system) the 10/10 system is far from reaching the target. I will take about 7 times (!) as long to achieve its target, as it has to generate 28 times as many trades.



The 20/20 system needs 28 times fewer trades (218 versus 6302), and will reach its target about 7 times faster. It is therefore both faster in terms of trades and in terms of time.


Have added the 15 min charts of ES 06-12 from last Friday with the ATR(256) calculated from the primary bars (red) and the ATR(25) calculated from 60 minutes bars (blue)=. The approximation which I have used postulates that the
ATR from the secondary bars should be about twice the size as the ATR from the primary bars, and this is indeed the case, as 3.16 is about the double of 1.64.


Hi @Fat Tails.
Although the relationship between volatility and SQRT (t) is something that I studied in a finance masters degree (in relation to the study of time series), the fact is that I had never considered this calculation for trading. Thanks for this contribution.

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