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Losing series, does it matter?
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Losing series, does it matter?

  #1 (permalink)
Trading Apprentice
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Losing series, does it matter?

Hi all,

Not sure if my question is suitable to be posted here. If not, please kindly let me know.

I know many people using MDD as a proxy to set "quit point" or other metrics for strategy mgmt.

How about losing series?

If a strategy in live trading is making a new record of losing series, how would you interpret and react?

Thanks!

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  #2 (permalink)
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  #3 (permalink)
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daniely View Post
Hi all,

Not sure if my question is suitable to be posted here. If not, please kindly let me know.

I know many people using MDD as a proxy to set "quit point" or other metrics for strategy mgmt.

How about losing series?

If a strategy in live trading is making a new record of losing series, how would you interpret and react?

Thanks!

We can't know the sequence of wins and loses ahead of time, impossible. If strategy has a positive expectancy it's a valid edge. IMHO just scale back position size during this run of losers. You have some rules for dealing with a draw down I assume. After X amount down stop for the week. That sort of thing. Probabilities say streaks can happen. It's just part of this game we are in. Ride it out. Don't be like the masses...... like these people....

Ron

It is an axiomatic fact that while you meditate you are speaking with your own spirit. In that state of mind you put certain questions to your spirit and the spirit answers: the light breaks forth and the reality is revealed.
The steed of this Valley is pain; and if there be no pain this journey will never end.
Buy Low And Sell High (read left to right or right to left....lol)
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  #4 (permalink)
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Blash View Post
We can't know the sequence of wins and loses ahead of time, impossible. If strategy has a positive expectancy it's a valid edge. IMHO just scale back position size during this run of losers. You have some rules for dealing with a draw down I assume. After X amount down stop for the week. That sort of thing. Probabilities say streaks can happen. It's just part of this game we are in. Ride it out. Don't be like the masses......

Ron

Hi Blash,

Thanks a lot for this! (finally someone give a favor on this thread)

Yes, I agree that money management is essential to ride out bad times.

But, do you think it a good idea to position size on unfavorable occasions other than dollar-based drawdown, such as scaling down after a long series of losses?

I'm wondering if such idea merely offers benefits on emotional parts, but won't sustain a system in the long-run.

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daniely View Post
But, do you think it a good idea to position size on unfavorable occasions other than dollar-based drawdown, such as scaling down after a long series of losses?

I can provide some insight as I spent quite a lot of time researching LTTF (Long-term trend following) systems and one of the items I spent considerable time on was altering size based on both drawdowns and number of losing trades in a row.

The short version is that both methods reduce the size of the drawdown since size decreases as drawdowns increase, but they increase the duration of the drawdown since the winning trades are then invariably taken with smaller size. It seems to be a case of picking your poison.

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  #6 (permalink)
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daniely View Post
Hi Blash,

Thanks a lot for this! (finally someone give a favor on this thread)

Yes, I agree that money management is essential to ride out bad times.

But, do you think it a good idea to position size on unfavorable occasions other than dollar-based drawdown, such as scaling down after a long series of losses?

I'm wondering if such idea merely offers benefits on emotional parts, but won't sustain a system in the long-run.

I would be inclined to say the emotional part, and lumping in with this because they are all related your beliefs, is the hardest piece so anything that helps this out is a benefit, is good. I think we have to scale back during losers. Like 1 loss next trade regular size. Loss again, so now the third trade (the next one) smaller. I think we should (and I do) have ways to test these rules for scaling back many many times to learn what we can expect. For me its about becoming comfortable with the way the cookie crumbles. I find it extremely helpful to look at nature to understand and become acquainted with the process of things and the importance of patience in this trading game.

Ron

It is an axiomatic fact that while you meditate you are speaking with your own spirit. In that state of mind you put certain questions to your spirit and the spirit answers: the light breaks forth and the reality is revealed.
The steed of this Valley is pain; and if there be no pain this journey will never end.
Buy Low And Sell High (read left to right or right to left....lol)
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  #7 (permalink)
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grausch View Post
I can provide some insight as I spent quite a lot of time researching LTTF (Long-term trend following) systems and one of the items I spent considerable time on was altering size based on both drawdowns and number of losing trades in a row.

The short version is that both methods reduce the size of the drawdown since size decreases as drawdowns increase, but they increase the duration of the drawdown since the winning trades are then invariably taken with smaller size. It seems to be a case of picking your poison.

Thanks grausch. You just pinpointed an issue that I think difficult to deal with.

In general, scaling down is necessary to sustain trading during bad times, and psychologically I shall feel more comfortable with the MDD. However, due to smaller size, it takes longer to achieve another equity high. Longer time required between equity highs, say more than a year, is something to test a trader's patience.

After all, thanks a lot for sharing your invaluable experience!!

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  #8 (permalink)
Trading Apprentice
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Blash View Post
I would be inclined to say the emotional part, and lumping in with this because they are all related your beliefs, is the hardest piece so anything that helps this out is a benefit, is good. I think we have to scale back during losers. Like 1 loss next trade regular size. Loss again, so now the third trade (the next one) smaller. I think we should (and I do) have ways to test these rules for scaling back many many times to learn what we can expect. For me its about becoming comfortable with the way the cookie crumbles. I find it extremely helpful to look at nature to understand and become acquainted with the process of things and the importance of patience in this trading game.

Ron

Thanks a lot for your kind advice.

I'm still learning to deal with this issue, both technically and emotionally. With more experience, hopefully, I will grow as a mature trader and strike a balance between the goods and bads of those approaches.

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