A Smooth Equity Curve ----- The Holy Grail -----

Discussion in 'Risk Management' started by aeliodon, Apr 26, 2007.

  1. I asked previously: how do you know if you're making ***progress***. After thinking it over I think a smooth equity curve is the hallmark of consistent progress. Some traders go for big wins and end up taking on too much risk.

    If they win, they make a lot and the equity curve spikes up. A spike up in the equity curves also causes confidence to spike up and over-trading usually follows as does suboptimal profits and larger than usual losses.

    If they lose, they lose a lot and the equity curve spikes down. What follows is a spike down in confidence as well and either the trader tries to 'get revenge' and ends up losing even more - wiping out weeks/months worth of profit - or gets demoralized and stops trading and ends up losing out on the opportunities the market offers.

    So if you eliminate the spikes up and down, and you 'ring the register' consistently then you have no major emotional or financial upheavals --- this is why it is said 'good trading is boring' --- cause trading feels very like a very calm and comfortable thing to do. Then its just a matter of sizing up. "Moving the chains" would be a football metaphor. Make a little bit by 10:00am, then add a little by 11, then add a little by 12, lose a little by 1, add a little by 2, add a little by 3, and then finish at the highs of the day. If you trade like this then you know you're making progress the entire day --- instead of being up big in the morning and flat or down by the end of the day --- or even worse being up big by Tuesday and flat or down by Friday.
  2. A great trader makes full use of the entire day, week, month, and year. He steadily advances his equity curve slow and steady - even though it may look parabolic from compounding gains. To end the day at 4pm with less money than you had at 11am is not making full use of the day. To end to week on Friday with less money than you had on Tuesday is not making full use of the week, etc.
  3. There are about 8 doublings of a person's effectiveness and efficiency. They do not show as 8 separate boosts to the compounding of the equity curve.

    It is an amalgamation of the 8 unrelated considerations that a person is able to make. I reread Ben Franklin's autobigraphy frequently because it is a good example of how to address a series of independant concerns whose overall combined effect is synergistic. He scheduled his revisits to these independant concerns in a very orderly way and he finally added the missing ingredient to make this practice follow the calendar quite nicely.

    Your threads that you start and let drop are the opposite of the example of Franklin.

    Now this one shows that you have low expectations for improvement, especially with regard to effectiveness and efficiency.

    There is anything but smoothness in getting skills and experience in trading. View the 40 points a month jounal beginning now. It makes two strong points. No one is performing (See another of your threads) and most feel that the OP is out of the box.

    I cannot imagine making 40 points a month per ES contract. The 1 point long term average and the collective 2 give aways can handle the doublings mentioned above.

    Traders who are growing experience a continuous stream of aha's and religious experiences. Take for example learning that time not price determines a trade. Once that sticks in the person's skill set, then he never goes back to price considerations.
  4. HotTip



    Is it just me, or can I never make out what this guy's talking about? :p
  5. Go for the never part...
  6. A smooth equity curve might indicate you are personally doing well, but my experience with vendors is, that a smooth equity curve is meaningless. They average down, hang on and hope a losing trade comes back, and do other things to milk the curve and/or have high winning percentage.

    You also need to check the OTHER stats, like Profit Factor, Sharpe, etc...
  7. Ive read Franklin's autobio also. Very orderly - Continuous focus on the key habits/traits, with a measuring mechanism.
  8. Are you willing to explan what do you mean by that? Thank you,
  9. 04-27-07 04:06 PM

    Quote from jack hershey:

    Take for example learning that time not price determines a trade. Once that sticks in the person's skill set, then he never goes back to price considerations.

    Are you willing to explan what do you mean by that? Thank you,

    Most charts could be viewed as a graph. The ordinate is usually the dependent variable. (If you know the abscissa you can determine the ordinate by the connection of the ordinate to the abscissa. In algebra Y+mx +b. Or in calculus F(x)= mx +b. Either of these describes a Trend line as we all know. M is the least money makable in that trend. lol.

    But that is not the big reason. Seeing P=F(t) rather than P=F(p) is what is on the table. The human psychology of markets, I believe, is a function of time rather than price when the trader is effective and efficient. It is a matter of vectors that relate to time more than anything.

    For example, in the standard orthodoxy ownership risk increases with time. Being sidelined as a consequence of risk is a function of time.

    While all money is made by the mechanism of price change, that change takes place over time.

    If you look at the dominant forces that control trader's you will find that the big three for the standard orthodoxy are understood to be functions of price more than anything else.

    These three, fear, anxiety and anger, are known to be the greatest causes of mal-performance of traders. They do lead to the demise of the poorer traders (90%).

    This is a tough situation to persist in believing is appropriate. In quant lingo it is a high premium to pay.

    When you see a trader using price he commonly does price targets. He also assigns himself protection in terms of price.

    Then he watches, often using only price to watch. Entries are set ups based on price movement often relative to other prices.

    So what can be done to change these circumstances?

    I had lunch at the Merc club last Friday (20Apr07) The person opposite me was in the 400 million class. She had spent two days on a platform previously unknown to her. She said: "I was amazed to be able to see that time and not price determines trading". She also said "I am never going back."

    Once a person "sees" that the MODE of the market is what deetermines trades, they, then begin to address being effective and efficient. The MODE, effectiveness and efficiency are all measurements with respect to time and not price. Time and profits are what is on the table.

    You either do KNOW that you KNOW over time or you do not. If you know the MODE of the market as time passes, then you know WHEN you must take action to continue to make profits. WHEN is a time that divides the segments of profits to be taken.

    The example she experienced before lunch on Friday happened, primarily in the first hour.

    Two traders wre running cars. One in two digits the other in three digits. Both acted on the signal of the person using timing for trading. He felt having a platform of one screen did not permit him to trade more cars since the screen was scrunched down so much in what it displayed. On the other hand the three digit trader acted (independently) on price for taking profits.

    The Range of the ES was four points and 8 trades were done (called on time). The caller made 6.75 points in his account on the first 5 trades and went flat to just call the next three for 3.50 points. Then both traders went flat. The three digit contracts trader lost on all 8 trades with real money. The two digit trader has 1 one tick loss and netted 6.75 popint in that hour.

    What all people got straight was that timing is what makes money and referring to price in any chosen way among a variety is not a good idea.

    Some one threw a cell phone across the room and that did make a point.

    On saturday am we did training with camtasias of prior market days by using the platform recommended. It take 40 minutes to trade a day using timing.

    The above example took real dollars out of the market at a rate is 70% of what was offered based on the 10 plus points in the high low range of 4 points. 1.75 times the range was taken out and 2.5 times the range was offered. The failure to take all that was offered was just a circumstance of going flat to carry on a conversation about caling and verifiying the last three trades of that hour when one person became some what frustrated by trading on price and ont trading on time.

    What is being contrasted here is a time based platform compared to a standard orthodoxy platform that 9 digit price traders normally used.

    The WHEN of the markets is either of two MODES. One mode comes from a data set that says to CONTINUE to take profits. The other mode is a briefly occurring one that punctuates the day. This is the CHANGE mode which simply conveys that a trader MUST change sides of the market. In doing so he simultaneously takes a profit segment and begin the next period of time in whch he accumulates more profits.

    Above you see NO price considerations and you see ONLY timing considerations in NOW (the present is where data sets are taken).

    All trading above was necessarily on a beginner level for using the platform from one laptop screen as opposed to four flat desk mounted screens for price trading.

    Do not expect to get what I am saying in one reading.
  10. Price is money. Time is Time. Time is more valuable than price, so pay attention to Time considerations far more than price/money considerations. Wasting money is okay - you can always make it back. Wasting Time is Death itself.

    A trader that wastes no time rarely has a losing hour and never a losing day, week, month, or year. He trades a 100% system. Only 100% systems are viable after 10 years.

    There is no risk in a 100% system. Being in a position is the safest place for your money to be in a 100% system. Anyone that doesn't trade a 100% system won't survive 10 years in the market because risk is dangerous and you can only take risks for so long until the mind/body can't take it anymore. Then you end up like Hypo and you need to create 16 sock puppets to convince yourself that the 100% system doesn't exist. What a tragedy traders that take risks immerse themselves in.
    #10     Apr 28, 2007