This will be my last bit on this piece.. I've seen a ton of systems on C2 that use martingale blow up. It doesn't take any skills to make money with martingale and it isn't an edge. Anyone who studied the market would quickly know it didn't follow a normal distribution (at all times) and martingale would be destined to blow up. The fact that Hoffman blew up his account isn't the real issue here because it is true that even good traders can blow out when trading leveraged instruments. So, I'm not ripping on him for blowing up. Anyone can blow up. The real reason he got ripped on is that he's conveyed himself as a successful trader when he wasn't and he promoted poor strategies to gullible wannabe traders. A. Nobody ask what his returns are. Remember, the other side to martingale is it results in trading with only very small size on the winning trades. This means that his returns even without the loss were probably abysmal. B. He gave impression that winning traders never lose. While there are a few exceptional higher frequency traders who rarely lose, most winning traders lose a lot of times. C. He gave impression he made his fortune trading. He probably pulls in more in 1 month from subscriptions then he does from trading in a whole year. That's the key thing. He may be smart enough to know he is only trading a break even, losing, or marginally profitable strategy. He doesn't care about losing the 300k because he's making millions from subscriptions and this was just a cost of doing business. In fact, they already turned this event into a big marketing and promotion opportunity. ---------- The lesson here is not that leveraged trading is risky. Sure, it is risky. The real lesson is that there needs to be change in the way that vendors are able to communicate. Complete transparency needs to be demanded (like what I offer). Vendors who claim to be trading real money need to show the books. Vendors who trade sim need to make it clear they trade simulator and also use third parties to audit their records. They also need to be questioned why they aren't trading with real money. Vendors who claim to have 20 year profitable records and claim to be only make a decent living but not getting rich need to be shown how CAGR works. 100k compounded at 25% over 18 years = 10 million (if I recall). A 10% return on 10 million is 1 million per year.
Excellent points! ADD: and his returns were likely abysmal in terms of the RISK he was taking on. The true RISK became evident when he lost 312K in a single trade.
Lets face it. We've all made mistakes. No need to rub his face in the dirt. Although I don't like the fact he's getting paid by subscriptions and has an avg down strategy, we've all been here. He has my empathy
Thanks! See above for the real lesson. I edited it. This is true. Remember, it is no secret that the markets are not normally distributed and that it is known even from traditional gambling theory that to martingale requires infinite capital. Most really successful traders understand that limiting the MAE. Max Adverse Excursion is really critical to getting great returns because it determines the amount one can leverage the account. If the MAE was say 400k on his strategy then it would take let's say 1 million to trade it. There is a close relationship between the drawdown and the MAE. Limiting MAE tends to increase drawdown. My main point isn't that he blew up but that his strategy for making money, i.e from subscriptions, was based on deception. ahtlon: I've been very clear that everyone shooting for outsize gains faces substantial risk including total account loss. My main problem is how these vendors operate. My take is that he probably makes a million or so a year from his vendoring and this could have been a calculated bet on his part. My perspective is that it is conceivable that the knew he was trading a break even (or even losing strategy) and traded it anyway because of the advertising value. My problem is with the claims vendors make and the lack of transparency. Let's put Rob to the challenge and showing how long it takes for him to make his account back to break even without adding any funds to the account since it went margin limit. Let's see how a professional really handles a drawdown. John Carter: You've talked about the Rob Hoffman's impossible winning streak. Now, why don't you release his annualized returns for the account? You realize that talking about this guys winning streak without talking about his returns and risk per trade is meaningless. Of course, we know the real risk with a martingale strategy is infinite (or as far as you take it). Also, while you are at it.. why don't you release how much of your annual return is from your sales versus your trading.
Excellent questions to ask. It would be nice if live trading gurus were required to publish independently audited trading results. I suspect that, if it weren't for subscription fees, then his trading career might have just ended. Luckily, he has subscription fees to fall back on.
I was a member of Rob's room last year and have only the following to say. I did gain some valuable experience from him and my subscription was money well spent. However, I lost respect for him and shortly left the room after an oil position he had back in November. Similar situation to this I imagine except he came out with a relatively small profit. He scaled in heavy and was down over 100k at one point. The next day he went back to reminding his subscribers how he has made a healthy 6 digit profit so far this year. I knew then that this guy was a ticking timebomb. He would put up his equity curve for the year and conveniently begin it after his last big loss in January. I also got tired of hearing him talk about himself in the first person all the time. From what I know he certainly makes the majority of his money now off of subscriptions. 95% of the time if he had a good gain of even 1k or more then you knew he was beginning to leverage himself heavily. He always began a trade with 1 contract and would take it out between 5-10 ticks. My guess is that he is now most definitely negative for the year and will not be making it up anytime soon.
Rob is a marketer. He is in this business to sell. What sad is, small traders are duped by marketers. In the end: More than 90% of small traders lose. They just lose!!!
I empathize with most new traders who take big losses. But when somebody claims to be a pro and has the nerve to charge others money for sharing that "expertise" I have no empathy when they turn a 1-lot into a 320k loss in an orderly market. In fact, I'm happy when it happens because maybe his clients/potential clients will stop throwing their money away and learn to trade the old-fashioned way, by DOING IT THEMSELVES and paying their dues. He got what he deserved imo. Maybe it's harsh, but it's just.