You were born to be an investment bank specialist!
This is the whole point that we are talking about. Why fit erratically performing market activity into convenient, regular time periods? So what if your weekly figure Mon to Fri is 0.6%? What if you measure it Weds to Weds? or every 10 days? where is the relevance? Why push the proverbial square pegs into round holes?
It is surely the market ârhythmâ that determines your percentage gains not the days of the week? I understand that for traders seeking an income these kinds of targets and measures are irresistible but there is a difference between measuring what performance [I]has been[/I] and explaining the factors causing it (good and bad) and setting these percentages as targets to be met in the future. OK, these percentages can be useful for comparison with industry standards for example, as a gauge of oneâs performance.
This is indeed true. No one âknowsâ the future outcome of all the political and economic policies, strategies, decisions, etc that are being made and implemented all over the globe - not the âwhatâ nor the âwhenâ. These analyses by bänks etc are not just for short-term small retail traders like us. They are also for their major commercial customers, etc. Their interests are very different, but even these huge industrials and businesses are just as much at risk of the unknown and have to make decisions on the âbest fitâ outlook.
This market is so vast with so many different participants with so many different interests and objectives that there is a reason at every single pip why some are buying and others are selling.
Absolutely - you have just defined the need and reason for risk and money management!
If we agree that any sequence of trades will have wins and losses. Ideally or essentially if you operate a system with Edge then there will be a positive net expectation. So in my particular case the Net value of all my trades this week yield up until now has yielded me 0.6%; not outstanding, but positive nonetheless.
However I started of on a good run; there might be something in realising that this was a good run and I should expect some losses moving forward with more trades, so the question becomes why take the risk, when iâm already at my target.
It may be the case that I start off next week with losses and then have to spend the rest of the week trading to edge myself onto or around my profit target.
0.6% is the collective result of all the trades this week to date. 4% was the the result of creaming off only the upside.
This is where youâre going wrong, Ropunzel: respectfully, the words Iâve quoted above are no more than a restatement of the âgamblerâs fallacyâ: youâre imagining that (and actually basing your entire reasoning, in this thread, on) the fact that youâve started off with a good run has increased the risk of its being followed by a bad run, and that [I][U][B]just isnât so[/B][/U][/I]. :58:
From what you have written above you havenât fully understood what EV (Expected Value) and positive net expectation are.
Over a large sample size the value will stablise to a figure, the EV. The rest doesnât matter. you just get in the volume of trades when the criteria are met. Thatâs how you make your money.
If the EV was $10 then it doesnât matter if a trade wins or loses over time the average value of all the trades will be $10⌠so no need to jump of a cliff each time a trade loses⌠or celebrate your winners with champagne for that matter.
Every business has a periodic performance review and targets. Intraday volatility trading for me is best suited to incremental account balance growth. Sometimes important fundamental things come up that create unusual opportunities that one should definitely take hold of (Brexit, US Election etcâŚ)
I suppose my main point is: in a system even with edge, every time you enter the market you expose yourself to risk. I good run is likely to be rebalanced by the a bad one, if you are on a good run why not quite whilst you are ahead and live to fight another day.
more relevant if you are looking for income from your trading but also relevant if you have growth targets for the long term.
[I]Again[/I], this is actually a slightly differently reworded restatement of the âgamblerâs fallacyâ. In this instance, the fallacy is concealed in the words âanother dayâ, the obvious (and unanswerable) question being âwhy not later the same day, to increase the application of your positive expectancy?â.
Read up a little on EV, you will be glad you made the effort.
By the way, quitting when things are going well and trading 24hrs a day when things are going badlyâŚnot a good look, busted account grave yard, headstone âHere rests the emotional traderâ.
Ok. So the EV is simply the probability of winning multiplied by the amount you win versus the probability of losing times the amount you lose; if the net value is greater than 0 then your system is accretive and has edge, great. My contention is that account balance growth journey is not a linear one but instead characterised by a sequence of wins and loses. Almost like an upward sloping sign wave. If you decide to set yourself a rough target for the week/month/year etc say weekly starting on the Monday of each week, you have no idea if you are going to find yourself at the trough of the wave with a sequence of win or at the peak with a sequence of loses; it all depends on the market and its suitability or lack thereof to your particular approach.
If you have a system with edge and a weekly target and you edge approach is consistent and applicable to intraday volatility trading then you can either find yourself immediate on a streak of wins, wins and loses at similar rate, or a sequence of loses then wins. My contention is that if you find yourself in the earlier then stop trading till next week; It might take the whole of next week if at all to meet your target again.
Your evidence for this assertion is both (a) anecdotal and (b) small-sampled. This is, of course, a very real phenomenon: indeed, itâs the regular existence of anecdotal and small-sampled evidence that leads people (typically together with a good deal of selection-bias, too) instinctively to doubt the validity of the gamblerâs fallacy.
Even highly numerate, highly intelligent people can lead themselves to imagine that the fact that theyâve started off with a good run has increased the risk of its being followed by a bad run.
Respectfully, that doesnât make it so, and it [I]isnât[/I] so.
You back test and or forward test to find the EV. The bigger the sample size the more precise it will be.
You use money management to avoid risk of ruin based on your trading capital etc.
What happens in the short term doesnât matter if you stick to your tested plan.
Who cares if you make ÂŁ4000 in a week? The system will produce according to the EV and volume of trades you are able to get in over the systems lifetime or until there is a significant change and the system no longer has a positive EV. You will pick up on this because you will have drawdown parameters that when hit you stop trading and investigate.
Your ÂŁ4000 could be ÂŁ40000 or ÂŁ400000 in time depending on your money management system etc and the volume of trades you can get in.
I feel for ropunzelâs dilemma, weâve all been there.
My personal âropunzelâs dilemmaâ was a few years ago when I was running Big Ben trades - these are once per day trades entered within 30-60 minutes after the London open. Mine were on the FTSE100: believe it or not, I had worked myself up to a point where each of these was worth 80% of my then full-time employed monthly salary - net. In one 2 week period, I won 8 out of 8, the other 2 days I had no entry signal, so it was a 100% win rate. So I had 6 months salary in the bank, for about 5 minutesâs work per day.
I know what I did, but what would you have done here?
Intermittently ⌠to be honest, I sometimes get exasperated at my own inability to explain this to people, and that may sometimes show in my posts. :8:
I have lost count of the number of occasions/threads over the last couple of years on which Ropunzel and I have each been involved in long conversations of which the key concept boils down to a misunderstanding of the âgamblerâs fallacyâ; and they usually end up with my abandoning the conversation in frustration, because eventually I re-learn - each time (until the next time) - that Iâm apparently unable to explain it (even with a link) in a helpful way ⌠the irony being that I like Ropunzel and want to try to help him, but I still fail [U]every single time[/U], and I know it, and it saddens me to see someone as intelligent and educated as he is apparently no further on towards becoming a profitable trader than at the time of any of the previous, essentially similar conversations weâve had. :rolleyes:
Someone less stubborn (and Aspergerish) than I would probably simply shrug and keep out of these conversations, or just say âIâm really sorry but I just lack the didactic skills to help you with thisâ. :8:
