How to save a lot of money and increase your trading capital.

Discussion in 'Psychology' started by zmostatabi, Nov 28, 2005.

  1. How to save a lot of money and increase your trading capital.
    (There is no Holy Grail) There is no magical mathematical system that will consistently make money in the markets. All mechanical trading systems experience periods of profit, and periods of losses. I've seen reports of the best trading systems having winning trades on average only 48% of the time. Winning 60% of the time is considered spectacular for mechanical systems. Most people lose money on trading systems, this is because they quit during a string of losses. If you follow a blind system, you have to stick with it, even during bad times; this can require deep pockets. Most people cannot do that, so trying to buy a "successful system" is futile for most people. For discretionary traders, there are also no magical indicators, which generate good signals all the time. The trader must learn to know when an indicator should be followed, and when it should be ignored.

    Advice: Some people are far better suited to mechanical systems trading than discretionary trading. It requires complete confidence in the system, and suppression of emotions, the trader must execute every signal. If you are not such a trader, don't waste your money on these systems/indicators, instead add the money you would have spent on such systems to your trading capital.
  2. Don't know what "reports" of the "best systems" you've seen, but there is nothing "spectacular" about a 60% win ratio. Furthermore, % win ratio is hardly meaningful by itself -- despite what many erroneously believe -- without also knowing at least the average win / average loss ratio.

    What really matters for a system, whether mechanical, discretionary or a blend, among other factors, is Expectancy: % wins x average win + % losses x average loss.

    There are any number of 100% mechanical trading systems with 70%, 80% and more win ratios. The price they almost invariably pay for high accuracy is having to settle for low win / loss ratio, possibly much less than 1. This being a psychology forum, such systems do appeal to most relatively normal (conventional) humans, subject to the usual behavioral finance irrationalities.