How much would you risk on a GOOD trade?

20%

 

LOL! Now there's a new term for the trading industry.

 

Both of you have done some erroneous reasoning.

BUT, with respect to your question, you can find the correct result by comparing instrument price to instrument volatility.

Volatility can be measured in different fractals. If you begin with the fastest fractal, you are comparing instrument price to granularity of the variables.

As you go to slower and slower fractals, the volatility increases with respect to price.

All complete trading systems take this phenomena into account in their design (neither of you would know this).

For example, in a position trading system it is possible to adjust its operation to any level of performance.

The name for this process is called filtering. Lets say the OP wanted to become wealthy. He would turn to asking the correct questions. He and the two of you have not reached that stage of life as yet.

As a person who has explored a lot relative to being wealthy, I can suggest to you that you can make as much money as you want as fast as you want.

For position trading stocks, I settled on doubling capital about every 40 trading days. This requires a filter containing seven conditions.

For intraday trading of commodities, I settled on doubling capital every week. This requires a hold/reversal strategy whereby the system of operation of the market is completely defined.

Other manners of trading/investing allow even a passive investor to use simple filtered lists to buy and hold and make 250% a year ROI in a context of a three year minimum hold period.

 

You must be the world's first trading trillionaire by now.

 

Doubling every week… on my latest count you would have all the worlds money with a year or 2.. Maybe we let Forbes know.

 

Both position trading and day trading have considerations you have haven't attended to.

People who make a lot of money sweep their accounts periodically.

They have associates that process swept capital into prioritized applications.

 

JH = "talented linguists";

(rest of ET = JH) =~ s/talented/cunning/;

 

Here's a quick and dirty Perl script for those who'd like to visualize the frequency of consecutive runs for coin tosses:

You'll need to install the Perl Module Math::Secure::Random.

You can execute it as ./script -r [rounds]

Code:

#!/usr/local/bin/perl

use strict;
use Getopt::Std;
use Math::Random::Secure qw(rand);

MAIN: {

    our ($opt_r);
    getopts("r:");

    my $rounds      = $opt_r || 10000;
    my %tosses      = ();
    my %runs        = ();
    my $last           = 0;
    my $current_h   = 0;
    my $current_t   = 0;

    for (my $i = 0; $i < $rounds; $i++) {

        my $number  = rand();

        if ($number > .50) {
            $tosses{Heads}++;

            if ($last eq "Tails") {
                $current_h  = 1;
                $runs{Tails}{$current_t}++;
                $current_t  = 0;
            } else {
                $current_h++;
            }
            $last   = "Heads";

        } else {
            $tosses{Tails}++;

            if ($last eq "Heads") {
                $current_t  = 1;
                $runs{Heads}{$current_h}++;
                $current_h  = 0;
            } else {
                $current_t++;
            }
            $last   = "Tails";
        }
    }   
    
    print "\n\nTotal Rounds = $rounds\t\tHeads = $tosses{Heads}\tTails = $tosses{Tails}\n\n";

    foreach my $key (keys %runs) {
        print "$key\n=====\n";
        foreach my $run (reverse sort {$a <=> $b} keys $runs{$key}) {
            print "$run\t= $runs{$key}{$run}\n";
        }
        print "\n";
    }
}

A sample run of 10,000 tosses:

Code:

Total Rounds = 10000        Heads = 4958    Tails = 5042

Tails
=====
13  = 1
12  = 2
11  = 3
10  = 1
9   = 2
8   = 9
7   = 26
6   = 48
5   = 79
4   = 155
3   = 306
2   = 616
1   = 1236

Heads
=====
11  = 1
10  = 8
9   = 3
8   = 11
7   = 17
6   = 49
5   = 69
4   = 147
3   = 298
2   = 630
1   = 1252

 

your risk should relate to how long you want to be in business,12 months is 1/12th of your acct per month,if you establish an avg monthly profit, that becomes your new risk per month... humans lie a lot so you can't bet on your ratings of 95% 's,another thing to consider ,if it is that good of a setup, like the bear packer game on monday night, packers giving 8 and over under at 49, the world bet on the pack and the over, if that came thru vegas lost, so they tweaked it( a few bogus penalties) and cleaned up, wall street does the same

 

I assume the take away from your sample run is that out of 10,000 "coin tosses" tails came up 13 times in a row only once and 1236 times a single time before alternating to a head. Simple enough if that is the concept. But if that is the case it seems I should be able to add all the numbers -- heads and tails -- and get exactly 10,000. I'm eyeballing it and it seems the sum comes in at fewer than 5,000.

I'm sure I am missing an important yet simple concept. What is it I am missing?