A couple more interesting threads/posts on the subject of independencee, streaks, and the "mind game" of losing in general as well as discussion of the "Gambler's Fallacy": http://www.elitetrader.com/vb/showt...=1959&highlight=losing+streak+and+independent http://www.elitetrader.com/vb/showt...10527&highlight=losing+streak+and+independent http://www.elitetrader.com/vb/showt...ight=losing+streak+and+independent#post343016 And here is a gift from acrary: http://www.elitetrader.com/vb/showthread.php?s=&threadid=27437&perpage=40&pagenumber=1
I'm always surprised that people don't care about details: read the question carefully and you should see that there is an implicit conclusion that is in fact false that is to say the question should be first reformulated correctly to be answered.
Well... market is complicated... I wonder if people come up with coin flipping analogy... It all comes down to philosophical and theoretical question... Random Walk... Efficienct Market... Market Cycle... etc...
Hello, My quick .02 take it for what you value it @. Each trade & it's outcome are indepenentof each other, & the outcome of that trade. However, the impact they may have on ones person, & the account are not. Simply this is where, "the sum of the parts, is greater than the whole." Have a Nice Day! God Bless You! Kelly
i completely disagree with that statement. managing your exposure - ie, your risk - mandates that all previous and existing positions affect the next position.
[/QUOTE] i think everybody could clearly see what (s)he was actually referring to. i do not waste time playing formal games. ... btw it is again and again a big surprise that you do not stop quoting yourself. do you get paid from someone for filling screenspace on this board?
How do you get that correlation? Reducing bet size has to do with putting on risk proportional to account size, not on whether or not there's a dependency inherent in the trades.
I'm not smart enough to answer your question, but what I do know is that each prospective trade needs to be evaluated on its own merits, independent of any previous (winning or losing) trade you may (or may not have) taken. Doug
This topic comes up frequently in one context or another. Since I love a good debate, here are my 3 cents. The answer is...sometimes yes and sometimes no. It depends. Trade signals are not generated in a vacuum. If you have a trending method that has generated an entry signal in a non-trending market (which happens often enough), then you will likely have a losing trade. To the extent that this method continues to generate entry signals in a non-trending environment (ignoring for the moment all of the fancy filters which theoretically prevent this sort of thing), the trades will hardly be independent. Similarly, when your trending method generates repeated entry signals during a trending market, then your trades will also be less than independent. However, the market is often in flux, therefore, the signals will probably be independent at those times. There are other variables, as alluded to by other respondents, such as time frames and so on, but you get the general idea. In summary, I think it is a bit naive and dogmatic to assume that trades are exclusively either dependent or independent at all times. Aside from that, I also agree with the other folks who said that the suggested reduction in trade size during losing periods has to do with psychology. In any event, look at it this way. If you are on a losing streak, regardless of the trade dependence/independence argument, you have at least temporarily lost your way. That is the time to slow down and get your bearings.
If you know what you are doing - which presupposes that you understand what and why you are trading - then you will know why you have had a series of losses and don't need to follow some lame rule. And if you don't know what you are doing and need to follow lame rules, then you shouldn't be trading real money anyway. As I trade pullbacks, if I was to cease trading, or become fearful after a few losses, I would be getting out at precisely the time I should be getting in. I've seldom seen a trading "rule" that can't or shouldn't be broken depending on the trader and the system.