Is this a valid approach from a statistical standpoint? - Psychology and Money Management | futures io social day trading
futures io futures trading


Is this a valid approach from a statistical standpoint?
Updated: Views / Replies:1,562 / 12
Created: by TraderTed Attachments:2

Welcome to futures io.

(If you already have an account, login at the top of the page)

futures io is the largest futures trading community on the planet, with over 90,000 members. At futures io, our goal has always been and always will be to create a friendly, positive, forward-thinking community where members can openly share and discuss everything the world of trading has to offer. The community is one of the friendliest you will find on any subject, with members going out of their way to help others. Some of the primary differences between futures io and other trading sites revolve around the standards of our community. Those standards include a code of conduct for our members, as well as extremely high standards that govern which partners we do business with, and which products or services we recommend to our members.

At futures io, our focus is on quality education. No hype, gimmicks, or secret sauce. The truth is: trading is hard. To succeed, you need to surround yourself with the right support system, educational content, and trading mentors – all of which you can find on futures io, utilizing our social trading environment.

With futures io, you can find honest trading reviews on brokers, trading rooms, indicator packages, trading strategies, and much more. Our trading review process is highly moderated to ensure that only genuine users are allowed, so you don’t need to worry about fake reviews.

We are fundamentally different than most other trading sites:
  • We are here to help. Just let us know what you need.
  • We work extremely hard to keep things positive in our community.
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts.
  • We firmly believe in and encourage sharing. The holy grail is within you, we can help you find it.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

Reply
 2  
 
Thread Tools Search this Thread
 

Is this a valid approach from a statistical standpoint?

  #1 (permalink)
Elite Member
Hamburg + Germany
 
Futures Experience: Intermediate
Platform: Multi Charts, Esignal
Favorite Futures: YM
 
Posts: 17 since Mar 2010
Thanks: 13 given, 14 received

Is this a valid approach from a statistical standpoint?

Hi everyone,

I have a question concerning a trading rule, which I have come across from 2 different Gurus. The one explained it directly the other had it somehow hidden in his rules.

Here it is in my words:

Letīs assume we have a trading strategy that is basically 80% winning, but the outcome is more or less breakeven.
So the 20% loosers eat up all the winners.

Now the rule is to stop trading when 3 winners came in a row. Because - they say - after 3 winners in a row the probability of encountering a looser gets too high. Now you either stop trading for the day, or at least till the next looser passed by untaken.

Is this a valid approach to skip the low probability loosers, and transform a breakeven strategy to a winning strategy?

As far as I understand statistics it is not possible to know, where the winners ( or loosers) come in.

But is it possible to have a probabilty of a series of winners in a row? Like 3 or 4 winners in a row, with a basic 80% winning strategy for example??

Reply With Quote
 
  #2 (permalink)
Quick Summary
Quick Summary Post

Quick Summary is created and edited by users like you... Add FAQ's, Links and other Relevant Information by clicking the edit button in the lower right hand corner of this message.

 
  #3 (permalink)
Elite Member
Austin, TX
 
Futures Experience: Master
Platform: ninjatrader, r-trader
Favorite Futures: CL, NG, TF, NQ, YM, GC, ES
 
liquidcci's Avatar
 
Posts: 862 since Jun 2011
Thanks: 609 given, 1,051 received



TraderTed View Post
Hi everyone,

I have a question concerning a trading rule, which I have come across from 2 different Gurus. The one explained it directly the other had it somehow hidden in his rules.

Here it is in my words:

Letīs assume we have a trading strategy that is basically 80% winning, but the outcome is more or less breakeven.
So the 20% loosers eat up all the winners.

Now the rule is to stop trading when 3 winners came in a row. Because - they say - after 3 winners in a row the probability of encountering a looser gets too high. Now you either stop trading for the day, or at least till the next looser passed by untaken.

Is this a valid approach to skip the low probability loosers, and transform a breakeven strategy to a winning strategy?

As far as I understand statistics it is not possible to know, where the winners ( or loosers) come in.

But is it possible to have a probabilty of a series of winners in a row? Like 3 or 4 winners in a row, with a basic 80% winning strategy for example??


You have to keep stats on everything and see how things are affected. But from my experience using a method like that does not work. Probabilities are extremely important but there is just no way to determine whether next trade will be a winner or loser based on previous 3 trades. On a surface level when I look at my stats I think something like that would work but when I put it through extensive testing it does not. It just does not stand the test of time over many trades.

"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; May 18th, 2012 at 11:06 AM.
Reply With Quote
 
  #4 (permalink)
Elite Member
Thessaloniki, Greece
 
Futures Experience: Beginner
Platform: QTS
Broker/Data: IB
Favorite Futures: Equities, NQ
 
Posts: 165 since May 2012
Thanks: 104 given, 385 received

It's not impossible if there is some sort of relationship between the result of sequential trades. Usually this works the other way around though, i.e. several losing trades may indicate a change in market regime into an unfavorable environment for a particular strategy. Not sure what the rationale would be for not trading after several winners.

In any case, you'd have to establish such a relationship robustly by analyzing a long sample of trade results.

Reply With Quote
The following user says Thank You to imPairsonator for this post:
 
  #5 (permalink)
Elite Member
France
 
Futures Experience: Advanced
Platform: MT4/NT
Favorite Futures: YM, DAX, Fx, CFD
 
Posts: 14 since Oct 2010
Thanks: 8 given, 12 received


TraderTed View Post
Hi everyone,


But is it possible to have a probabilty of a series of winners in a row? Like 3 or 4 winners in a row, with a basic 80% winning strategy for example??


1 = 80 %
2 = 0.8 ^2 = 64%
3 = 0.8 ^3 = 51.2%
4 = 0.8 ^4 = 40.96%

Reply With Quote
The following user says Thank You to geott for this post:
 
  #6 (permalink)
Elite Member
Northern Germany
 
Futures Experience: Intermediate
Platform: NT
Favorite Futures: FDAX, CL
 
vvhg's Avatar
 
Posts: 1,583 since Mar 2011
Thanks: 1,016 given, 2,807 received


geott View Post
1 = 80 %
2 = 0.8 ^2 = 64%
3 = 0.8 ^3 = 51.2%
4 = 0.8 ^4 = 40.96%

But only if the single trades are completely uncorrelated. In which case the approach of skipping a trade would not work as the chance that the next trade will be a winner would always be 80% regardless of the outcome of previous trades.
However, if the trades were correlated in some way or another, which they probably arent (to any significant degree) the approach could work (or perhaps the opposite approach).
The only way to find out is to keep extensive trade records, kind of like train spotting, only more compulsive

Vvhg

Hic Rhodos, hic salta.
Reply With Quote
The following user says Thank You to vvhg for this post:
 
  #7 (permalink)
Elite Member
Lubbock TX
 
Futures Experience: Intermediate
Platform: NinjaTrader
Broker/Data: Stage 5 Trading
Favorite Futures: CL
 
MWinfrey's Avatar
 
Posts: 1,879 since Jul 2009
Thanks: 1,449 given, 3,306 received

Another thread talks about this which is the "Gambler's Fallacy". I'm providing the link to the first post in the thread but it very quickly gets into what you are talking about.

https://futures.io/psychology-money-management/19803-coin-toss-experiment-strategy.html#post216822

Reply With Quote
 
  #8 (permalink)
Elite Member
Houston,Tx
 
Futures Experience: Advanced
Platform: NinjaTrader
Broker/Data: Mirus Futures/Zen-Fire
Favorite Futures: TF
 
ThatManFromTexas's Avatar
 
Posts: 2,302 since Feb 2010
Thanks: 1,208 given, 4,293 received


TraderTed View Post
Hi everyone,

I have a question concerning a trading rule, which I have come across from 2 different Gurus. The one explained it directly the other had it somehow hidden in his rules.

Here it is in my words:

Letīs assume we have a trading strategy that is basically 80% winning, but the outcome is more or less breakeven.
So the 20% loosers eat up all the winners.

Now the rule is to stop trading when 3 winners came in a row. Because - they say - after 3 winners in a row the probability of encountering a looser gets too high. Now you either stop trading for the day, or at least till the next looser passed by untaken.

Is this a valid approach to skip the low probability loosers, and transform a breakeven strategy to a winning strategy?

As far as I understand statistics it is not possible to know, where the winners ( or loosers) come in.

But is it possible to have a probabilty of a series of winners in a row? Like 3 or 4 winners in a row, with a basic 80% winning strategy for example??


@TraderTed


There are just too many unknown variables that can affect the outcome...

If a system is a trend following system , the trading day is a strong trending day ... and the market is in sync with your system ... you can have all winning trades ... unfortunately, you will hate yourself because you stopped trading after the first three winning trades

The same system on a very choppy or range bound day could produce all losers ... unfortunately you will hate yourself for continuing to take trades waiting for the 80% wins to kick in

Some days the market showers you with gold ...

Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).




Some days it just gives you "Golden Showers" ....

Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).

I'm just a simple man trading a simple plan.

My daddy always said, "Every day above ground is a good day!"

Last edited by ThatManFromTexas; May 20th, 2012 at 01:48 AM. Reason: Piss Poor Typing
Reply With Quote
The following 2 users say Thank You to ThatManFromTexas for this post:
 
  #9 (permalink)
Elite Member
Hamburg + Germany
 
Futures Experience: Intermediate
Platform: Multi Charts, Esignal
Favorite Futures: YM
 
Posts: 17 since Mar 2010
Thanks: 13 given, 14 received


geott View Post
1 = 80 %
2 = 0.8 ^2 = 64%
3 = 0.8 ^3 = 51.2%
4 = 0.8 ^4 = 40.96%

Thanks for all the answers so far.

Geott : I was looking for just this numbers!

But I did not get completely what VVHG said.

Do the trades have to be uncorrelated or correlated for this "series probabilities" to work?

In which case would I fall for the "gamblers fallacy"?

Is this right?:

Correlated:
1 = 80 %
2 = 0.8 ^2 = 64%
3 = 0.8 ^3 = 51.2%
4 = 0.8 ^4 = 40.96%

and

Uncorrelated:
1= 80%
2=80%
3=80%
4=80%


or the other way round ?

Reply With Quote
 
  #10 (permalink)
Elite Member
Northern Germany
 
Futures Experience: Intermediate
Platform: NT
Favorite Futures: FDAX, CL
 
vvhg's Avatar
 
Posts: 1,583 since Mar 2011
Thanks: 1,016 given, 2,807 received



TraderTed View Post
Thanks for all the answers so far.

Geott : I was looking for just this numbers!

But I did not get completely what VVHG said.

Do the trades have to be uncorrelated or correlated for this "series probabilities" to work?

In which case would I fall for the "gamblers fallacy"?

Is this right?:

Correlated:
1 = 80 %
2 = 0.8 ^2 = 64%
3 = 0.8 ^3 = 51.2%
4 = 0.8 ^4 = 40.96%

and

Uncorrelated:
1= 80%
2=80%
3=80%
4=80%


or the other way round ?

It is connected to the gamblers fallacy. Talking about uncorrelated trades the chance is always 80% (in this example) for each INDIVIDUAL trade seen as a single, uncorrelated event (which it is). The chance for four winners in a row would be 4 = 0.8 ^4 = 40.96%. BUT the fourth trade of this series (regardless of the outcome of the previous 3) always has a 80% chance.
So if you skip trades in a system where the trades are uncorrelated or insignificantly correlated, you gain nothing, other than experiencing the gamblers fallacy first hand

vvhg

Hic Rhodos, hic salta.
Reply With Quote

Reply



futures io > > > Is this a valid approach from a statistical standpoint?

Thread Tools Search this Thread
Search this Thread:

Advanced Search



Upcoming Webinars and Events (4:30PM ET unless noted)

Linda Bradford Raschke: Reading The Tape

Elite only

Adam Grimes: TBA

Elite only

NinjaTrader: TBA

January

Ran Aroussi: TBA

Elite only
     

Similar Threads
Thread Thread Starter Forum Replies Last Post
Miscellaneous Statistical Analysis (the big thread) trendisyourfriend The Elite Circle 29 July 15th, 2013 01:51 PM
Government statistical agency helping NC Democrat kbit News and Current Events 0 December 19th, 2011 02:45 PM
Software for basic statistical analysis? Xyzzy Platforms and Indicators 15 October 29th, 2011 05:22 AM
Seeking collaborator on statistical swing predictor cclsys NinjaTrader Programming 4 November 30th, 2009 01:53 PM
Statistical Definitions for Newbies NMTrader Traders Hideout 1 July 28th, 2009 02:39 AM


All times are GMT -4. The time now is 10:24 AM.

Copyright © 2017 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432, info@futures.io
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts
Page generated 2017-12-12 in 0.15 seconds with 20 queries on phoenix via your IP 54.90.92.204