^^ LOL ^^ 10 successive maximum losses.....might happen one day...probably won't. Why not 20 successive losses, 50, 100? Where do you stop? What if a nuclear missile hits the NYSE? 60% D.D on 2.5 risk per trade you are describing a "black swan" even that probably will never happen. I can't see it being that high. Is this why Inst money can't even outperfrom the averages? Risk 0.0001% per trade and trade in 500+ stocks at a time. Might as well simply follow the indexes, collect on fees and be done with it (whoops cats out of the bag there!)
On the other end of the scale you have to laugh at all these so called FX money managers. All in 10X+ leverage in trades and hitting those 30%+ months...only to lose it all next. May as well play in the casino.
And yet in one post you talked about "betting the 2nd farm" and swinging for the home runs.... If you risk less than 2.0% per trade then you are simply another Mutual fund with 6-8% returns if you are lucky. You your-self talked about smaller funds being able to take a little more risk and flexibiltiy etc....but now we mustn't risk what more than 0.5% per trade? AS a matter of interest what risk per trade does the average Mutual fund take? 0.1%? So that would mean they would be invested in upto what...1,000 different stocks if fully invested? They clearly don't even care about trying to outperform "the market" do they? It's basically about managing as much $$ as possible and collecting on the fees. Nice biz.
Hmm. How familiar are you with the ins and outs of mechanical trend following methodologies of the variety Seykota has long employed? I suspect not too familiar at all. The idea of ten trades going bad in, say, a single day or week is rather unlikely, yes, but the conceptual idea of ten bad trades (or the rough approximation of such) over a rough month or quarter, with no meaningful gains to offset them (small wins, scratches etc.) is not that improbable at all, especially for a mechanical system which will occasionally experience correlated whipsaw episodes across multiple markets in spite of best efforts to avoid such. On top of that, many of the old school trend followers are ballers, in respect to a willingness to take on large DD risk as a matter of habit. For example, as of end-of-August 2012, Dunn Capital, with $276MM under management, was down 14.02% on the year. Hyman Beck, another trend follower with $387MM under management, was down 16.61% on the year. JWH & Co. - the trend following firm whose founder bought the Boston Red Sox - down 15.89%. And keep in mind none of the above are crazy extremes... they are just old-school trend followers having a shitty year (with another full quarter to go, in which they could turn things around or possibly go much deeper into the hole). Because a 60% DD was given as an outlier extreme, i.e. something one does not expect to see every year but which will happen on occasion on the far left tail of one's results if one takes on enough "heat" (a Seykota term) below the water line, it is further not implausible in the slightest based on some of the public managers' records for a private trader to be much more aggressive (as Seykota was well known to trade more aggressively than most CTAs). And no, this has nothing at all to do with why "institutional money can't outperform the averages." The trouble with mutual funds is another subject entirely - not even apples and oranges, more like apples and wildebeests. You are really pontificating out of your depth now.
in over 18 years i have never had 10 successive maximum losses..... Might it happen one day? Sure. Might a sunami wipe out N.Y one day...maybe. -------------------------------------------------------------------------------------- Are you kidding? 2.5% risk per trade is a lot. Put ten trades on at that size, get them all wrong, and you are down 25%. -------------------------------------------------------------------------------------- Sure OP...what about 40 successive losses it's all gone! I wonder what the odds are of flipping a coin and it landing on heads ten successive times? I've never managed it..you? Never mind one where the odds are slighly in your favour. What other way is there to outperform the market than two ways? 1) Bet bigger 2) Trade more often That's it! Everything else is a smoke screen. Sure betting 5% per trade is too much. But betting 0.5% per trade means you cannot do anything but line up with the averages. So where's the "middle ground?" Geep does Inst money think like this? No wonder they can't make any decent returns....it's obssesed with minute D.D's. "any drawdown >6% and we will not invest..but we expect you to make us 20% p.a" LOL you must be kidding me! Stick a broom up my ass and I'll sweep your floor as well. So as long as you keep the risk reasonable and tade a little more frequent that's the way to beat the 7% p.a. Mutual Fund game. Or must it be from a superior system? (LOL)
but OP didn't say that. 10 successive maximum losses.No flat or smaller losses 10 MAX losses running concurrently...And so what? You then could hit 12+ successive winners? Where do you draw a line? My point being....you can't have your cake and eat it... <-6% DD's but >20% p.a gains.." Right! ----------------------------------------------------------------------------------------- The idea of ten trades going bad in, say, a single day or week is rather unlikely, yes, but the conceptual idea of ten bad trades (or the rough approximation of such) over a rough month or quarter, with no meaningful gains to offset them (small wins, scratches etc.) is not that improbable at all, especially for a mechanical system which will occasionally experience correlated whipsaw episodes across multiple markets in spite of best efforts to avoid such.
keep writing.... --------------------------------------------------------------------------------------- Because a 60% DD was given as an outlier extreme, i.e. something one does not expect to see every year but which will happen on occasion on the far left tail of one's results if one takes on enough "heat" (a Seykota term) below the water line, it is further not implausible in the slightest based on some of the public managers' records for a private trader to be much more aggressive (as Seykota was well known to trade more aggressively than most CTAs). And no, this has nothing at all to do with why "institutional money can't outperform the averages." The trouble with mutual funds is another subject entirely - not even apples and oranges, more like apples and wildebeests. You are really pontificating out of your depth now.:eek:
Bully for you. The fact that you take a literalist interpretation of what I said, instead of understanding the practical interpretation of it, makes me highly suspicious of everything you say in regards to your own trading, because you do not display the intuitive common sense a seasoned trader would pick up from experience. I am further skeptical of your trading methodology if you say you have never had ten positions go bad in two decades of trading. I have no idea what your actual methodology is, but there plenty of ways for this to happen: A portfolio positioned all long or all short for a temporary period is hit by risk on / risk off catalyst that swamps everything. A methodology with a 45 - 55% hit rate experiences a left tail outlier of poor result. A methodology that puts on trades in batches, three or four or half a dozen at a time, sees multiple batches go bad in an outlier occurrence that happens 0.5% of the time. If you were really a seasoned and thoughtful trader with two decades' experience, you would get what I am saying. Every true battle scarred veteran of markets has some feel for tail risk in their bones because they have lived through enough shitstorms to earn it. Your responses come across as someone who pretends to a be a seasoned veteran but is actually an armchair quarterback. With all due respect I am beginning to think you are not very bright. If you flip a coin long enough, not only will ten successive heads eventually happen, it is GUARANTEED to happen by the law of large numbers. Estimating the odds of a fair coin flipping heads ten times in a row is a matter of high school math. Ten heads is a stretch, at less than one one-hundredth of one percent. But that is still within the realm of "will happen if you flip long enough." And 20 years is a long time. A trader who makes, say, 20 trades a month for 20 years is going to have 4,800 trades - let alone the trader who trades much more than that, or who will routinely have ten+ long or short positions on at one time. Then, too, the fixation on "10 in a row" is a red herring. You fixated on an arbitrary number because your actual depth of understanding in respect to probability and tail risk is weak. Let's take another number, the number five. What are the odds of getting five heads in a row with the flip of a fair coin? Just over three percent. What are the odds, then, of a trader losing five times in a row, having a string of mixed wins and losses that amount to break even, and then losing five times in a row again, giving him an effective result equivalent to ten losses for the period? If his average win rate is 50%, not that bloody low. It will happen. This is the kind of shit that real and seasoned traders understand... and the math is beyond basic... the fact that you take a mocking attitude towards risk control is a huge red flag. Amazing. You have no idea what you are talking about, and so you make glaring statements of ignorance that only serve to reveal how little you actually know. See, this is why I occasionally get a rep for being mean or not playing nice on ET. I try to hold back and not use my rhetorical skills to pound people into the ground, but then shit like this comes out. You haven't even been following along in this very thread that closely if you are really so blind as to how the pros achieve excellent returns while tightly managing risk. The best traders in the world use dynamic position sizing. The size difference between their smallest trades and largest trades can be a factor of 20 to 1, 40 to 1, or even more. The fact that a Paul Tudor Jones might start the year taking positions with 0.5% or even 0.25% risk in no way precludes him from slowly building on his cushion of profits until he eventually has the ideal combination of tactical positioning and feel for the market, thus betting an amount ten times or even fifty times bigger in exactly the right spot. This is really basic stuff that you have apparently never been introduced to. I would not fault you for your lack of understanding if not for your incredibly arrogant habit of assuming that what you don't understand does not exist. You really don't understand what you're talking about here, which is why you are embarrassing yourself. It's an interesting area of discussion that a lot of traders would benefit from getting a better grasp on, so I'll queue up the next TW installment just for you. And again, it's not your lack of understanding that brings out the harshness of my replies here... it's the fucking arrogant ignorance. You obviously don't have working knowledge on this subject, because you are speaking on matters that aren't even up for debate because practitioner track records and real world methodologies achieving just what you say is impossible have already been established ten times over. You might as well be a physiologist who has never heard of Usain Bolt claiming it is physically impossible for a human to run the 100M in less than ten seconds. It's already been done, and the trading equivalent is continually being done by those who know how (without requiring freakish genetic gifts either).
Once again, you are fixating on an arbitrary number and completely missing the point (because you don't have conceptual or experiential grounding in the topic being discussed... this is why I say I doubt the quality of your real world practitioner experience...) And yes, 6% DD's and 20% gains is absolutely doable for a skilled trader with a modest capital base. The ability to remain nimble, and to have access to a huge cross-section of liquid opportunities that are not liquid to one's much larger competitors, creates opportunity for strong outperformance relative to the larger fund universe. This is partly why hedge fund performance numbers show a clear performance / size correlation in favor of new funds before they get too large - opportunities move the needle more, and relative liquidity is higher. Investors are aware of this too, which is why Buffett has said he could make 50% annual as a layup if he were trading a smaller amount of capital.