I've realized something lately and that is it's actually easier to make money than it is to lose money in the market. Think about it. First off you are standing on the outside watching, you do your research you prepare. Then you put on the trade at the most favorable time (in your opinion). The odds have to be at least somewhat in your favor or you logically wouldn't enter it. So the assumption is you are up a statistical advantage from the start. Then you are at a statistical advantage because you can choose to exit early if you are wrong and stay if you are right. It's not like vegas where it's all or nothing in. Once you put your money down in black jack, you are in, no getting 90% back if you get a bad hand. And no seeing the first card before placing your bet to see your odds. Let's say you buy something at $20 and it starts dropping and you get out at $19.50. Then you buy something else at $20 and it rises and you let your win run. You then cash out with a profit of say $2. The key then is to cut losses and let profits run. Statistically you should be making a lot of money if you can do this consistently. The problem is it requires a discipline. We don't cut our losses, we may even blow up our accounts by not cutting them. We sell too soon to lock in small profits. It goes incredibly in our favor and we miss the boat. Happens over and over again. We give up, we stop trading, we take a break. We pull the money out. Just speaking personally from past experience. Lately I really do think it's that simple. Cut losses and let profits run and understand it's ok to have losses, it's part of the process. The problem though is nobody wants to hold anything overnight, not even a trade that's profitably in their favor. Statistically even if it's not in your favor that day, over a 5 day period you might be profitable based on volatility. I've entered a trade and was off by a day on multiple ocassions and kicked myself for getting out as I sit there and calculate how much I would have made if I stayed. I guess it just depends on how you look at it and the experiences you've personally had.
14, it sucked. But if you have a method and it has an edge, and if your sticking too it..then you just gotta stick too it.
Well since I am taking Stat200 right now (not so easy for this old dog but I can try) I thought I would try to figure it out What are the chances of having 10 losing trades out of 10 trades? (a little bit different than 10 in a row because given enough trials you will get 'bunches of wins and losses') the odds are a little bit less than one in a thousand that you would have 0 out of 10 with a 50% probability on each trial. Then I changed the results a little bit to give what I think would be a more useful probability. I changed it to having 2 wins out of 14 and your odds change to about 1 in 200 of having only 2 wins out of 14 trials. Of course your not dealing with just 10 trials (trades) so it becomes obvious that you should experience both 10 wins and 10 losers in a row even more often. perhaps a few times a year if your doing 10+ trades a day every trading day. Best to you Robert
I had 23 losing trades in a row in 1995, lost $4700 doing longer term commodity trading, but on the 24th trade, made up all the losses and then some. You have to have faith in the system you back test and trade. If you can backtest have at least 1000 sample size, you can tell strings of losses and use that to an advantage, if I get three losses in a row, I increase size 50%.
7...i reckon one day I'll have 10. If I have more than 12 I'll probably quit. I mean if you have a system that is right 60% of the time the odds of hitting 7 succcessive negatives is low. but....it can (will) happen.
Interesting commentary and here is a good article on the subject: http://www.absoluteastronomy.com/topics/Martingale_(betting_system) * In 68 spins there is a 50.3% chance that you will lose 6 times in a row at roulette. * In 150 spins there is a 80.6% chance that you will lose 6 times in a row at roulette. * In 250 spins there is a 95.3% chance that you will lose 6 times in a row at roulette. Does anyone have the math on the above ?
There is only a problem when the gains that intervene between the losses fail to provide a greater profit than the run of losses. What would you rather have? 25 losses and 4 gains with a net profit, or 25 gains and 4 losses with a net loss?
I spoke to tom Basso (Market wizards) i think it was 2001 and he told me something: "It was never about me being this great trader. It was all about managing the trades..." Always stuck with me. Of ourse here on E.T. everyone can run rings around M.W. and Hedge fund managers. Yet they are the one making big money. Trading is all about the managing the odds
I've been doing some research only to discover that some of the greatest minds in mathematics were involved in computing these probabilities: Euler, Markov, Watson, etc. Quite an eye-opener to me.