Are trades indepenent?

Discussion in 'Trading' started by ADX_trader, Apr 5, 2004.

  1. In statistical view, each trade should be independent with one and other. But many people agree that you should reduce your bet when you had a series of losses. This statement seems to argue that trades are dependent. Which one is true?
     
  2. I think each trade is independent, but the traders psychology is not. Therefore after a run of loosing trades the traders confidence can be dented and so it is sensible to reduce trade size until confidence has been restored and then normal trade size can be resumed. Even though the trader may know that each trade is independent of the previous one, most traders will still suffer a loss of confidence after a string of losers. Traders are not computers we have to deal with our emotions.
     
  3. Yes and no but it's a bit long so I will explain this evening or next week-end or I will make it shorter than intended :D.

     
  4. Saham

    Saham

    Re: Are trades independent?

    This is the most intelligent question that has hit this forum since I got (back) here.

    Lemme give my insight.

    As far as trades being independent, yes they are, however in forex the trends the trades are made in may be of a greater fluid part (that separate trades are made up of).

    An earlier poster touched on losing and its psychological consequences.

    I feel that losses are extremely devastating, much more so than most (loser) traders attribute to them.

    A loss is a death! Something that loser traders do not get over as quickly as they may think.

    Losses are extemely detrimental! Leaving an indelible destructive etch in the trader. Therefore, one trade is certainly NOT separate from the other due to having massive subconscious influence upon a loser trader's equipoise and judgement.

    I am persuaded that dumber traders actually view (their) having a loss as a macho thing.

    When I first started trading the more losses I had the *badder* I saw myself.

    //shrug//

    Gamal
     
  5. At least was a little discussed here:
    http://www.elitetrader.com/vb/showthread.php?s=&postid=254247&highlight=independancy#post254247

    "all statistic inference is only true within that implicit premisce of independancy. If one trade depends on another there is a risk of overestimating. If you take one trade and then another 1 minute later this is obvious. But it can be also the same thing with two trades that has been taken the same week since because of market symetry property market cycle tend to repeat more or less although in counterclock path and if your system is also symetrical these two trades will be in fact dependant.

    So as a practical protocol, one can say that statistically it is at least needed 35 items (100 is better of course) in a sample that must be sampled randomly among a population of hundreds of trading days if one want to be sure that the sample is not biased by a too much small size of the population. If one hasn't such a huge number of trading days then rather take a survey approach by splitting days into several market contexts and sub-sampling within each context so as to constitute the whole sample. Of course I simplify but that's the basic idea. If you want to refine with monte-carlo and things like that it's up to you but sometimes it's not more worth than a gadget approach although it is at least useful to have a better visual feeling."
     
  6. mind

    mind

    this thread, as many others here, is based on the false assumption that people who post here do similar things. thus a general statement on streaks is useless to talk about in such a general way.

    i have a system that produces two kinds of trades. one that has nothing to do with the previous, which usually took place some weeks ago. the other kind immediately follows another trade. this kind is very much linked to the previous one. now if you ask if there are streaks, which the initial poster is essentially doing, i have two complete different answers for my trades. similar thing applies to other people answering: some will have streaks, some won't.

    take your trades over reasonable time and calc in a simple spreadsheet if you have streaks or not. before that forget discussions of that kind taking place here. waste of time. even discretionary traders will show different behaviour. and do not forget that you are talking about streaks in a pure way. you are not talking about the "i was wrong x times, i am afraid now" situations. the higher the "x", the fewer observations, the less the quality of the statement.

    sorry, if i sound harsh, but it is so boring to see that threads go in the same direction again and again. if there are months in between, fine. but this discussion seems to take place every week now. and, yes, i know, i do not have to read and do not have to answer ...

    i strongly advise to do the simple math on ones own broker statement. no one's advice can be better than that on this subject.


    peace
     
  7. But the question above doesn't really involve independancy that's why I said yes ... and NO, so next episode coming soon :D.

     
  8. mind

    mind


    not your first and most likely not your last obscure statement.
     
  9. Then answer the question and we will see if you can be more or less obscure ... :D

     
    #10     Apr 5, 2004