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I'm absolutely devastated, don't know where I'm heading now
This (the original posting and all of the replies) is a fascinating story and case study. To the originator, you truly have my personal sympathy but not my ‘professional’ sympathy. Of course, I feel sorry for your personal losses but how you lost your money and your asking for a ‘solution’ shows that you have not reached a true understanding of what it means to be a (professional) trader. Here are my thoughts, in no particular order.
1) Your post is a scream of pain and you need to be able to do that. Asking this forum for a solution is an expression of frustration but you are extremely unlikely to find an answer. I see so many well meaning and knowledgable replies that on the one hand you have to be overwhelmed but on the other hand frustrated by conflicting approaches and lack of detail.
2) You say in your post “Where do I go from here? What can I do? Where can I learn working strategies to work with? I feel like I'm on square one with no trading experience.” I have 3 responses to this:
a. If your old system had a 70/30 success rate and now it is 30/70 then you still have a successful system and all you need to do is reverse your trades.
b. If in fact your system is running about 50/50 then you are effectively on square one and I can only wish you good luck but of course luck has nothing to do with it. The one thing I would suggest is that you truly analyze how you came up with an effective strategy in the first place. You must have some inherent capability that worked for you. Figure out what that talent was and as another post suggested – get back on the horse. I would bluntly tell you to stop looking to others for help.
c. There is a word that is always an ‘alarm’ for me “try”. In your case “…try paper trading”; “..tried devising…”. As Yoda said “Do or do not, there is no try”.
3) At least one other post points to your lack of money/risk management. You would not have blown up your account if you truly knew how to manage risk. Whatever you do, if you stay in trading, learn that first. Unlike developing trading strategies which others (probably) cannot teach you, risk and money management is teachable and there are lots of books and courses for this.
Summary:
1) As the famous saying goes “Physician heal thyself”. Figure out how you came up with the strategy before and figure it out again.
2) Really learn and do risk/money management.
Thanks for sharing. It seeems you are really in pain, and i am truly sorry for that.
Although i didn't trade as long as you, i must say something is pretty clear for me. Trading systems fail time to time. Its absolutely normal. You can have a bad trimester, quarter, half or even a year in a row.
For what you say above it looks you have a solid system. But maybe you became too confident in your assertiveness and perhaps you forget about risk management.
You said the market doesn't make sense for you anymore. You rememeber a friend of mine few years ago. He broke his own account in one trading and asked my help. Showed me his entirely decision process (wich i must confess was very solid), but when i question about his stop loss it became clear to me when the market turned against him he forgot his risk management. He forgot trading is all about probability.
I am not telling it is the same, but maybe you can consider this before any decision.
One last thing. Before adapt your system, you must know for sure what changed in market dynamics and keep in mind that can be permanent or temporary.
Hope you can find your strength to surpass this test.
Actually not if your a math major... the coin toss was to explain the principal that the money is made NOT in the predicting what you cant predict... but in the management of win and lose...
ie... you can earn money in a completely random system in which its impossible to actually guess the move!!!
this is what they teach when they invite professional traders to learn more about professional trading
(not the hoaky guys i said)...
your triune leaves out the math of the money management, and you didn't learn what i was trying to teach
ie. that you can throw darts at the board and make money even if your dart throwing is 60% losing and only 30% wins!!!
mathematically speaking your number 1 only controls the rate of earnings, not the actual earnings
number 2 does the same... the two of them help your ability to skew the 50/50 to better than that...
but that does not make the money... it is an illusion that it does...
what makes it is the asymmetry in your money management...
in what i am saying your number 3 isnt even on the table...
your point "The problem with the casino or coin toss analogy is that the markets are not random nor are they uniform, but they are zero-sum gambits"
sounds great but shows you have no understanding of those terms in mathematics
the markets ARE random... especially the less time there is...
and if they are not, then all the better to money management
In game theory and economic theory, a zero-sum game is a mathematical representation of a situation in which each participant's gain or loss of utility is exactly balanced by the losses or gains of the utility of the other participants.
this might be true of stocks if they did not have value that could be otherwise...
it appears to be true if you think one person has to lose for another to win...
but given that value can go up without actual money or object going in, this is not true
This would imply that the company that created the stock in the first place, wins and everyone buying it loses.
is that true? or are you looking at a portion of the problem and ignoring the rest?
anyway... Random Walk Theory Random walk theory suggests that changes in stock prices have the same distribution and are independent of each other. Therefore, it assumes the past movement or trend of a stock price or market cannot be used to predict its future movement. In short, random walk theory proclaims that stocks take a random and unpredictable path that makes all methods of predicting stock prices futile in the long run.
basically what you have are small trends mapped on a very random system..
its very random not because of the coin toss, but because every program and item that takes advantage of a trend removes that trend from the future move...
ie. if you remove all the order from something, what remains is random..
the point that money management makes has to do with how to combat that randomness and get ahead
i do not believe that the market is so random, and neither do quants, and their software (i write python)
however... its random enough that it often, very often, eats up accounts and spits nothing out
which is actually the fault of not understanding the basic math of how the choices AND the money game come together to make one a winner or loser despite the random nature of it.
for the sake of peace and argument lets say its 98% random and 2% ordered and any order in it comes from mostly external knowlege... transient news... chipotle customers get sick... and the lag time for that news to reach investors of various stripes and have them react or not react and jut sit...
however. what if it was 100% random? could you earn money on it?
yes... thats the whole point..
oh.. and monte carlo simulation is not casino... thats kind of a funny answer
its a way of making the statistics become more real world
Monte Carlo simulation is a technique used to understand the impact of risk and uncertainty in financial, project management, cost, and other forecasting models. A Monte Carlo simulator helps one visualize most or all of the potential outcomes to have a better idea regarding the risk of a decision.
Monte Carlo simulation can be used to tackle a range of problems in virtually every field such as finance, engineering, supply chain, and science.
Monte Carlo simulation is also referred to as multiple probability simulation.
When faced with significant uncertainty in the process of making a forecast or estimation, rather than just replacing the uncertain variable with a single average number, the Monte Carlo Simulation might prove to be a better solution. Since business and finance are plagued by random variables, Monte Carlo simulations have a vast array of potential applications in these fields. They are used to estimate the probability of cost overruns in large projects and the likelihood that an asset price will move in a certain way. Telecoms use them to assess network performance in different scenarios, helping them to optimize the network. Analysts use them to assess the risk that an entity will default and to analyze derivatives such as options. Insurers and oil well drillers also use them. Monte Carlo simulations have countless applications outside of business and finance, such as in meteorology, astronomy and particle physics. Monte Carlo simulations are named after the gambling hot spot in Monaco, since chance and random outcomes are central to the modeling technique, much as they are to games like roulette, dice, and slot machines. The technique was first developed by Stanislaw Ulam, a mathematician who worked on the Manhattan Project. After the war, while recovering from brain surgery, Ulam entertained himself by playing countless games of solitaire. He became interested in plotting the outcome of each of these games in order to observe their distribution and determine the probability of winning. After he shared his idea with John Von Neumann, the two collaborated to develop the Monte Carlo simulation.
i was a physics major at bronx high school of science..
one would assume that it would be impossible to earn money if a system was 100% random. ie coin toss
but the truth is that is not true at all.... its easy to show too... which is why i said try the coin toss
any bet you make on the market has only two outcomes.. win or lose once the transaction is terminated
its a coin flip... if the coin flip is not perfect 50/50 in its odds, all the BETTER... not worse..
but even if this was perfectly 50:50 you could still earn if you were allowed to make your wins win more than your losses... which is what money management does.. even BETTER for you is that if it is skewed, you can still earn money if your more often on the bad side than the good side!!!!!!!!!!!!!!!!
that is you can do 40 wins for 60 losses and still earn money...
if your losses cost less and your wins earn more...
once you get this, you are less about trying to figure out what you cant figure out
and more about insuring that when you DO place your trade, its win loss asymmetry insures you win, even if you lose more than you actually lose in your choices.
would you like to see a chart of such?
Shalom OliverB! I've blown-up my account on two occasions....both severe! I once lost $500,000 and more recently I lost $10,000. This put me in a really bad spot! But I took those lessons to improve upon my risk management skills. I concluded after bitching, crying, kicking and letting it all out, that at the end it was my fucken fault for failing to employ proper risk management habits.
I took those experiences to improve my risk management skills. After auditing my trades to identify areas of improvement, I'm now testing methods I think will help prevent another disaster. It may take several months to identify areas of weakness, but it's worth the time. In the meantime, try getting a job (temporarily) to help found your next account. I know...it sucks to even think of getting a silly job...most jobs won't pay anywhere near what you made trading....but it's essential to survival!
Look, don't beat yourself up for making these mistakes....we all make them. It's how you handle things moving forward that will ultimately determine your success!
To help you understand what your looking at here...
This is a sim of AON type trade... that is, the trade is made with a stop and a limit...
and if in real life the price would move until it hit one of the two with no adjustments, etc
ie. All or nothing
there are only two outcomes for a trade, so the dice are 50:50
here are the parameters being used...
Starting Account Balance: $5,000.00
Stop set to: .05
Limit set above buy: .10
Number of $1 shares: 500
This is akin to a day trade with oco set with a 5 cent stop, and a 10 cent limit
each trade is $500 out of $5000 purse...
which is not good money management as its 10% of the whole, and the average recommendation is 1%-3%
the simulation in this case will have 253 rounds...
Equal to 1 trade per trading day in a year
the columns of the trade will represent your ability to guess right. ie. your hit rate
10% 20% 30% 40% 50% 60% 70% 80%
so column one is you are wrong 90% of the time, and right 10%...
and the last column is your wrong 20% but right 80% of the time..
the point is that this gives a better understanding and feel for how these percentages work out in real life
this is due to the fact that while a coin toss, or a stock trade only have two outcomes...
the outcomes do not come out in a non random pattern...
now, if you want to argue that flipping a coin is more random than the market.. thats fine
the meaning of that statement is that flipping a coin is a worse situation than the actual market is
this is what i believe... while its VERY random, its not perfectly random...
That with care, and effort, you can skew the outcome to better than 50:50 like a coin toss...
this in effect is what those percentages are about at the top of the columns..
they are allowing that with care, you can have 60 wins and 40 loss average
most will easily understand that this skew when above 50:50 works in your favor.
so yes, its obvious that if you guess right 90% of the time, it will be easier to make more money
but what i am saying and the guys that teach this math are saying, is that money management is something that is MORE in your control than the guess rate... hit rate.. or whatever you want to call it...
Its a lot easier to insure that your loss is less than your win than it is to drastically change your win rate..
but mathematically speaking... if you have a 90% win rate and your wins are less than losses, its not going to go well... win rate is not everything...
so here are the results...
if the account goes red, your either out of the game or have to add more money in
if the account is bold green, your up above what you put in...
the 2nd run has a stop of 5 cents and a profit of 15 cents (per share of course)
First of all, I'm sorry you're going through this now, but it's a necessary blow. You were doing something wrong, and this is your lesson. How you respond/react to it will be a definition of your tenacity and mental strength.
My first reaction to your situation is that it looks like your position sizing was out of whack. You never want to be positioned in a way where your account will blow up. Always know what will happen to your account if the absolute worst possible event would happen because it probably will someday.
If you’re overly levered in one market direction (bullish or bearish), or in one market, or too many correlated markets, then you need to do some hedging.
Don’t let the max risk on any trade be more than 2% of your total account.
Don’t let the sum total of all of your positions lose 20-40% of your entire account if a worst possible, Black Swan event would happen. If your total risk is too much, either shrink your position sizes or add hedges.
If you can’t deal with these constraints, then you need a greater amount of capital to trade with in order to live within these constraints and still make the kind of income you need
Most successful people have multiple sources of income. Get a job. Start a business. Start a gig job. The more diverse the better. This will slice up your available time for trading though, so you may need to find a way to trade that takes up less of your time.
If your account is in drawdown, then enter new trades with small position sizes, maintaining your 2% max risk rule. It may take longer to get out of drawdown, but it will keep you in the game longer.
0 contracts is a position. You don't always need to be in a trade or a market if you can't understand the market shifts.
Diversify the markets and strategies you trade. I have numerous trading systems/setups that I trade that are all different and non-correlated, and sometimes I combine them for greater results, but they are:
- Mean reversion trades
- Trend following trades
- Counter-trend swing trades
- Earnings trades
- Seasonal patterns trades
- Dividend trading systems
- VIX, volatility trades
- Algorithmic/automated trading
The cool thing is that with options, you can really position yourself in so many ways so that you can skew the risk/rewards of your trades greatly in your favor, even if the probabilities are as good as a coin flip, and still come out on top.
As for my experiences with 2019, one of my mean reversion, “Buy the dip” strategies, didn’t do very well last year, because there was a lot of sector rotation going on. So a stock would dip when players rotated out of the sector and into another sector, so the dips were deeper than usual, and my returns didn’t do as well with those setups. So how did I manage this turn? I cut my position size in these trades in half, until they started working well again. The market was very rotational last year as managers are chasing sectors then getting out when they see another sector starting to pick up steam, dumping the previously favored sector, constantly chasing performance wherever they can find it.
Plot a simple moving average of your equity curve for your system, when your equity drops below - stop trading. When trades start working again, look to restart trading. Through your backtesting you should also have an idea/expectation of how long and deep your drawdowns could be.
Good systems can become untradable for 3-6 months so you need to also spend time developing uncorrelated systems which work in different market environments.
"I'm seriously broken. Broke too." Our President would say you're just a loser. Are you going to let Donald J. Trump define who you are?
"Trading is my living." Trading used to be your living... apparently it isn't anymore.
"I don't have any other skills and don't know anything else." Maybe you should have paid attention in school. If you have only invested 5 years pursuing this then you are your own worst enemy to think you cannot head off in another direction and find something meaningful to do.
"This is all I've got... " No, your defeatist attitude and self pity are all you've got. One characteristic all successful traders have in common is the ability to solve problems. You have a problem, get off your ass and solve it. If you can't work your way out of this situation then realize this particular journey has come to an end and begin a new one. Or you can spend your time dreaming about a life you hoped for but was never meant to be.
I would strongly recommend going through the online course offered by Adam H Grimes at MarketlifeTrading. It is free, and quite excellent. I was away from markets for decades, and embarked on a re-education mission. Without doubt, Adam's training site is the best I've seen, anywhere, anytime.
This could be your best move to diagnose your methods and get going again! Best of Luck!
