Art, thanks for your post I certainly think that the points are extremely valid. By having a position too large to make sense chartwise etc., a trader would be putting themselves in an almost no win situation. I am reasonably sure that this is the most important aspect of trading as opposed to outright directional analysis. This would seem to let you be wrong and still wind up a winner over all. All new traders should probably have this tattoed on the back of their wrists so they can see it when hitting the buy button on the online account. What say you?
Yes, it is possible to be wrong more often and still make money..your system just has to allow for your winners to run far and cut your winners short. Getting that to work with enough of an advantage, so you can be significantly wrong more than you can be right, is probably as hard as figuring out how to be right more often But it makes me think of that quote I always see from George Soros:
"It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong." -- George Soros
I've done lots of tests on stops. On the tests for stops with a loss I found little difference in overall profits based on where a stop was placed. With tighter stops the percent of winners dropped but the winners made way more money than the losers. With looser stops the percent of winners went up but the total win/loss ratio decreased so the overall profits were the same. I've found it much more profitable to spend my time on the stops for profit and I think it's a big difference between ok and better traders.
One area of research you might want to check is entry size. If you don't do all in at once it can have a big difference in your trading.
I found if I go in partially initially, and then after a fixed period adding more if the position is profitable, the overall profits went up, the time between equity highs went down, the drawdown increased, and the sharpe ratio went down. If I did partial entry at first and then adding if the stop hasn't been hit, but the position is underwater then adding to the position gave lower overall profits, higher time between equity highs, lower drawdowns, and increased sharpe ratio.
Thanks for sharing. What assets have you backtested?
Quote from 40yotrader:
I've done lots of tests on stops. On the tests for stops with a loss I found little difference in overall profits based on where a stop was placed. With tighter stops the percent of winners dropped but the winners made way more money than the losers. With looser stops the percent of winners went up but the total win/loss ratio decreased so the overall profits were the same. I've found it much more profitable to spend my time on the stops for profit and I think it's a big difference between ok and better traders.
One area of research you might want to check is entry size. If you don't do all in at once it can have a big difference in your trading.
I found if I go in partially initially, and then after a fixed period adding more if the position is profitable, the overall profits went up, the time between equity highs went down, the drawdown increased, and the sharpe ratio went down. If I did partial entry at first and then adding if the stop hasn't been hit, but the position is underwater then adding to the position gave lower overall profits, higher time between equity highs, lower drawdowns, and increased sharpe ratio.
I love it when people quote old Georgie Soros. I mean, this guy was making 4K a minute, nevermind the odd billion he made here and there shorting the pound.
Yeh, Soros is one of the greats....but,
He was on the top of this game.
Stops take on a different concept when your wife wants to know where the holiday money has gone and you are struggling for a six pack.
Next time you are out for a walk with the dog, think about the pot you've got to p**s in?
Put the R/R money management criteria into your stock scan as well. For example, GOOG and NOC recently had about the same rise/risk ratio when trending. Look at the charts from far away and you'll see what I mean.
One area of research you might want to check is entry size. If you don't do all in at once it can have a big difference in your trading.
I found if I go in partially initially, and then after a fixed period adding more if the position is profitable, the overall profits went up, the time between equity highs went down, the drawdown increased, and the sharpe ratio went down. If I did partial entry at first and then adding if the stop hasn't been hit, but the position is underwater then adding to the position gave lower overall profits, higher time between equity highs, lower drawdowns, and increased sharpe ratio.
Just out of curiosity, what is your "fixed period"? It sounds like a measurement of time, if so, I imagine you would have to pre-determine the expected time frame of a the trade? if it is a function of price, i could see that. Intersting stuff though, please elaborate if you can/willing.
But it makes me think of that quote I always see from George Soros:
