my journal 3

[Yamato]

Duty to myself now: relaxing. NO more compulsive behaviours. No more checking, no more staying up, no more excessive math exercises. I should try... I have a duty to myself as an automated trader to relax, relax, relax.

When I am tense from hard work, I tend to engage in compulsive gambling. I ought to stop anything that makes me tense.

The problem is not that I place a trade when I am frustrated and stare at TWS. The problem is that I am frustrated to begin with, and secondly that I am staring at TWS: I can't just take every single step towards the edge of the cliff and then be surprised that I take the last tiny step forward.

From now on, relaxation. Enjoyment. Physical exercise. Too much sitting has ruined my body. Too much abuse has gone on for too long. From now on there will be 50 pushups each morning, 50 pullups. There will be no more pills, no more bad food, no more destroyers of my body. From now on it'll be total organization. Every muscle must be tight.

Taxi Driver - I gotta get in shape now... [subtítulos en español] - YouTube

Watch Taxi Driver online - download TaxiDriver - on 1Channel | LetMeWatchThis

 

[Yamato]

Christopher Plummer Sal Mineo Natalie Wood Juliet Mills Malibu 1965 - YouTube

Jane Fonda Tuesday Weld Anthony Perkins Rock Hudson Lauren Bacall Natalie Wood Judy Garland 1965 - YouTube

 

[Yamato]

it will be hard to remember this profit as a complete defeat (but it is)

Actually this week, so far, I've calculated that the systems have lost a total of 700 dollars, of which I have only lost 50 dollars. And the rest I've skipped due to a lack of margin. So i've been extremely lucky. Not only did I recover from the ongoing discretionary loss of 4000 dollars, which turned into a profit of 400, but I also avoided that automated loss of 700. For sure I've made at least 1000 due to discretionary trading. Of course it was all wrong once again, but this brings discretionary trading's total profit to about 1700 dollars. This very wrong behaviour of mine could be the one that saved the account actually, by some sort of paradox.

Probably this is the sort of reasoning that reinforces gambling behaviours: you remember the wins and the profit, like this time, and you forget all the times that gambling blew out your account (in my case dozens of times, for many years). By doing this, you somehow are left with the feeling that your gambling was profitable. It's going to be hard, when the panic you've experienced has faded, to not engage in this behaviour again. You forget all the disadvantages (the biggest one that it's overall unprofitable) and you only remember the good, specific time that it produced profit.

It's going to be hard for me to remember this one as a losing experience. Because of this nightmare I embarked on for the last 2 days, I made 1000 dollars: this is a total consequence of it. 100% positive consequence. And yet this was a losing behaviour, and a terrible trading methodology, I correctly called it "self-sabotage", "uncontrollable urges", "losing control"... it was all bad, but it produced profit. It is going to be a real challenge to remember it as the worst thing I've done in a year, given that it produced a profit of 1000 dollars. I know I am repeating myself, but it's done on purpose, in order to stress it to myself.

This was a... Pyrrhic victory, in that...

The phrase is named after King Pyrrhus of Epirus, whose army suffered irreplaceable casualties in defeating the Romans at Heraclea in 280 BC and Asculum in 279 BC during the Pyrrhic War.

in that I did suffer irreplaceable casualties, namely my discipline and my good habits, starting not with this last trade, but with the few discretionary trades I placed in the first week of trading. All my discretionary trades were wins (otherwise I would have blown out my account), but at the same time they were all losses (of discipline, method, rationality, self-control).

 

[Yamato]

Still enjoying some kind of happiness from what happened yesterday. I am planning to further relax today and in the following days. Today it's snowing in rome. I might go and lie in the snow for a few hours. If I can find a park where there's enough of it. It makes me relax to lie in the snow.

 

[Yamato]

Miraculously, I made it home. Dodging people in the subway (there were no cabs) and dodging puddles and snow.

As Good As It Gets - Melvin Walking to Restaurant - YouTube

Not normal to get snow here. It happens once every 10 years, at least if by "snow" you mean as much as we got today.

I am so cold, from the snow hitting me and the cold. And all that. I know about cold - i've spent years in places that were cold. Nothing like what we got here, but in the places where you get a lot of snow and freezing temperatures inside it's really warm, whereas here it's cold inside and outside. That's how you experience cold: when the heating is inadequate.

 

[Yamato]

so hard to relax

It's not being easy to relax. For over a decade I've done nothing but work.

Work at work, work at home.

The only ways I still know of relaxing is when I take my holiday of 3 weeks to the beach house, and I swim. But that is less than one month per year. And even then, I swim like a madman, so I take that as a job, too.

Another way, rarely, is when I watch a movie without interrupting it to do research on it.

With this state of mind it is only natural that I try to make some extra discretionary trades on the side, so I can make more money, quit my job sooner and finally go to the beach house.

Even writing here, I take this as a job, because I have the duty to write what happens in my life and trading in particular, to myself and to the few readers. It would be relaxing if I just wrote here whenever I wanted, which I guess I could do, too - it would not be a tragedy for anyone. But I feel I would not be fulfilling the duty of a journal writer, as I said earlier.

For example, I was not going to say this, but I have to, in order for my journal and personality to make sense. I am a bit ashamed of it, but mr hyde has struck again and I placed a couple of discretionary trades, both closed now (little profit, not that it matters). It wasn't me doing those things. It was Hyde.

Then add to it that everyone takes advantage of how conscientious I am - and I want to be considered reliable, so I can act superior, as I feel I am. So my only interaction with people is by helping them. I don't even say hi to people in the morning, but if they ask for help, I go and help them, doing my best - with whatever time I have available.

Relaxing for me is like a sin. My father brought me up that way. I have to keep on learning all the time, I have to keep on trying to be better all the time. That's how he lives, too. And he has convinced me that it's the right way.

But now, relaxing has become a virtue and a duty, because if I don't relax, I stay here to monitor tws and then I trade, and if I do that, I blow out the account. And if I blow out the account, I never retire. And if I don't retire, I am stuck doing menial repetitive tasks at the bank (like everyone else, including the CEO), I don't learn, and I commit the initial sin I wanted to avoid, the sin of not improving myself, of not building anything, the sin of wasting my time.

The optimal setting for an intellectual, poet, thinker, artist is one where he does not need to work. He has 24 hours a day to do whatever intellectual activity he wants to do. This is what I want to do. Not the bank, nor anything else. I want to have another 24 hours every day, to do whatever I want.

You may say I'm a dreamer... but I'm not.

 

[Yamato]

If I Could Be With You ~~ Ruth Etting - YouTube

 

[Yamato]

weekly update

If it hadn't been for the discretionary trade on NG, an evil, mother-****ing trade, this week would have been unprofitable. But the goddamn irrational mad trade held me by the balls for two days (going from 0 to +100 to minus 4000 to +400, at which point I closed it), so I skipped the thoughtful but unprofitable automated trades for lack of margin, and here I am with a profitable week due to unreasonable and unprofitable (in the long run) trading, which I should really call "compulsive gambling".



Roughly one third of the weeks are unprofitable, so this means I'll have a 33% of having another unprofitable week. However, the chance of having another two unprofitable weeks is, as always, 1/3 times 1/3, so one chance in 9.

And this prediction roughly gets reflected by the weeks above, because there are two instances. Now, the probability of 3 straight losing weeks is 0.33^3, so 1/27th, so about twice a year.

But at this point it is unlikely that I'll now blow out the account by losing more than 7000 dollars. My probability of that, based on resampled relativized back-tested data, is at about 5% (this including a hypothesized underperformance of the systems relative to the past).

Ruth Etting - All of me (1931) - YouTube

...how can I go on dear without you...

I am actually singing along, so this might mean I am starting to relax...

Relaxing makes me use these ellipsis marks...

...You took my kisses and you took my love
You taught me how to care
Am I to be just a remnant of a one-sided love affair

All you took
I gladly gave
There's nothing left for me to save

All of me
Why not take all of me
Can't you see
I'm no good without you

Take my lips
I want to lose them
Take my arms
I'll never use them

Your goodbye left me with eyes that cry
How can I go on, dear, without you
You took the part that once was my heart
So why not take all of me...

Masterpiece.

A passing idiot (95% of probability) might think i've gone cuckoo... but sorry, dude. It's just that this journal is not suited for you, dear idiot, and luckily the forum settings enabled me to keep you from posting your garbage here, and so I can keep posting, undisturbed, my favorite poetry, art and my own free thinking here, free thinking of which you're not capable. So, just find yourself your average thread, with smileys and one-line posts, where everyone is free ot vent out their stupidity and superficiality. I am fine with just having my usual 10 intelligent readers.

Brazil by Terry Gilliam 1985 - YouTube

 

[Yamato]

more on the counter-intuitive nature of probability

I was asking myself: when can I start spending?

Then the next question is: what is the probability of blowing out the account at x amount of capital?

Ok, I checked and losing 18k is one chance ouf of 5000, more or less. So, if I start spending money once I reach a capital of 20k, I have, each trade, one chance in 5000 to blow out the account.

But then I say: what if I trade for 5000 trades, by keeping capital at that level?

Will then the chance be 100%? No, I don't think so, and that's when I speak of "counter-intuitive nature of probability".

Why I do not think so can be shown with a simple example.

What is the chance of tossing a head? 50%. So, intuitively, you'd also say that, by tossing twice, it would be normal to toss a head. And you would then, intuitively, think that "normal" means 100%. Wrong, and very counter-intuitive.

By tossing a coin twice we have exactly a 75% chance of tossing at least one head.

You see, the possible permutations are:

HH
HT
TH
TT

And indeed there is a 25% chance of not tossing any heads by tossing twice, and this goes on forever. There will always be a chance of not tossing any heads, no matter how many times you toss the coin.

So, getting back to my question, what is the probability of blowing out by starting to spend once I reach 20k of capital?

What seemed intuitively correct until a few weeks ago now appears to be wrong. If I keep my capital at 20k by spending whatever money I make in excess of 20k, and I do so for 5000 trades, my probability of blowing out does not go from 1/5000 to 100%. It becomes 100% minus the probability of always succeeding (by never blowing out). And the probability of always succeeding is 4999/5000 to the 5000th power, which is 37%. So, counting about 2 trades per day, my probability of blowing out by always spending all profit in excess of 20k, would be, after 5000/2/250= 10 years, 100% minus 37% = 63%.

Since I want to trade for at least 10 years, even though this risk would not blow out my account for sure, I need a larger capital, maybe 30k, which would reduce my probability of blowing out to 1 out of... I don't know because excel's 65,536 rows were not enough for my simulation to come up with anything higher than an 18k drawdown.

But presumably let's say that my chance of losing 28k, is 1 in 50 thousands. Let's run the test again for 5000 trades.

In this case my chance of blowing out is 10%, if I trade for 5000 times, with a capital at 30k. I obtained it by subtracting (49,999/50,000)^5000 from 100%.

So it's still there, the risk. So I can't count on 20k and I can't count on 30k.

So I should not do anything until capital reaches 20k. Then, starting at 20k, I should strat withdrawing some money, less than half, while letting the capital grow, and also while including other systems that increase the profit, without increasing risk. You see, if while you wait for the huge drawdown (which doesn't happen in one day), you make money with other systems, this should decrease your overall risk.

However, I still have not figured out a scientific way, a formula, to measure this.

Anyway, according to the probability theory that I understood so far, I can assess that it's not good to ever stop increasing capital, and the best way to go is to only spend a part of your profit.

What remains to be assessed is, as mentioned two lines ago, at what rate I should be adding other systems and in what measure increasing the speed of profit justifies increasing the size of the potential drawdown. Because, one thing is to say that you have a chance in 5000 to lose 18k, while making 2k per month and another thing is to have that same risk while making 20k per month. That 20k per month will allow you to very quickly reduce your risk from 1 in 5,000 to 1 in 10,000. Now: the question, though, that I cannot answer yet is what is the tradeoff, and what kind of increase in profit justifies an increase in potential drawdown. I need a formula for this, and I didn't get this far yet with my understanding of probability and portfolio theory.

[...]

Another question that comes to my mind, related to probability is "will I ever be able to quit my job?", which is the twin of the question "when can I start spending the profits?".

Given that as I said I will never have the confidence that my trading will be profitable (I could have an infinite string of losses, even if I were doing the right thing), where do I set the capital needed to quit my job?

My mom gave me the answer years ago, when she said that I need to have money set aside that I will not trade with. Only then can I really exclude the risks from trading.

But I will not have that money for years.

Any other solutions? I don't think so. You can never exclude the risk of losing your entire trading capital. Let alone the fact of quitting the job because you count on living off the profits.

So I don't know what i will do, because also the alternative of keeping my job and being secure totally sucks, and I would not have started trading to begin with if the idea was to stay at my job until retirement. But my mom does have a point, even without having studied probability. You cannot count on profit and you cannot even count on not losing your entire trading capital.

Maybe a good compromise of these two distant ideas (quitting now vs quitting when I have a million set aside, which means never) is to quit when i can live off the profit made from an investment in government bonds.

If that investment produces a return of... say 5%, then... since I need about 1k per month... I would need 200k to retire, so to make about 10k per year just investing in government bonds. And I only need a part of that to invest anyway (about 30k considering drawdown estimates, but the margin needed is just 6k, so i can invest the rest of it however I want). How fast can I get to 200k? Without reckless money management, it would take years.

I need another plan. Something like this. I decrease the amount of hours at the bank, as much as possible... damn, but I still can't quit it and move to another place. It really sucks. If I had managed my money wisely years ago, when I had a lot more than now, I'd be able to retire immediately, but I was impatient and i blew it. So I guess everything is postponed by years, unless someone just gives me, as a gift, 300k, in which case I'll implement the government bond investment and quit my job.

Well, all right, let's not get discouraged and let's enjoy the little bit I already have now. A small capital, pretty regular monthly profits (from 1k to 5k, with an average of 3k), but profits that I still cannot spend... all right, here it is: let's focus on the fact that I can start spending a tiny bit of the profits as soon as I get to 20k. I will start spending very wisely, by just using 300 dollars to pay for the US server. That will allow me to have about 220 extra euros here, which i'll spend... NOT on treating others to the restaurant (**** that - the neighbour asked me to treat her to the restaurant again, and again I refused, just a few hours ago), but all on myself. On things such as:

1) comfortable taxi rides (without going to the taxi station and without having to get off earlier to save a few dollars).

2) comfortable haircuts (I've taken to giving myself haircuts recently, in order to save a few dozen euros)

3) just knowing that my bank account is getting bigger - that is a good feeling. No more emptying your accounts because you feel bad about it, or feel there's extra money on it. Let's get used to having an account that gets bigger and bigger. That's how I blew all my profits in the past few years: "hey, I'm treating everyone to lunch, since I made money trading!". That's the best way to blow out your account, because when the drawdown comes, your account is not as ready to take it, and this throws you off balance, emotionally, and in turn causes you to engage in revenge discretionary trading.

Ok. Once again, let's take it easy and not reach for the stars. Let's not overstretch myself, and let's keep being a good money manager.

From this temporary poverty i did learn one thing: screw friends. I am not going to spend a dime on treating friends to restaurants any more. Nor paying for the summer house (when there's several people coming I rent an extra house).

Nonetheless, I gotta find a way not just to cut down on my job hours, but to quit it altogether. This is not good. The office monotony is killing me.

...

Morons are ruling the world, the bank, everything. Check office 2007 (big buttons, useless menus), google (setting won't stick), youtube (favorites are not searchable)... I am talking about their settings. Everything is getting worse. Stupid programmers, or stupid bosses deciding things, stupid users... This is not related... or it is. I need to get away from people. The general stupidity is overwhelming me. I just can't take being around people anymore. Not for longer than a few minutes per day.

But I must not let this impatience urge me to engage in discretionary trading, which will blow out my account, and keep me where I am even longer. I must put up with this, until I find something better. I must save, make profit, sleep well, and not be restless and destroy everything.

[...]

Ok, I am going to write some more on the subject of scaling up. I've discussed 1) "when can I spend?" and I've discussed 2) "when can I quit my job?". Now the solution might be to properly assess the problem 3) "when can I scale up?".

This is going to be hard, because the more systems I can trade, the more things get complex. I know I am missing a whole lot of portfolio theory and math foundations to take on this challenge. But I'll try nonetheless, knowing that when I am in doubt, the best option is to underbet.

Let's suppose that I don't spend and I keep living off my salary, even as far as paying the server.

Based on the resampled relativized back-tested trades, my chance of blowing out with a capital of 20k, is 1 in 5000. This is a very small chance of blowing out, considering that, as my premise said, I am NOT going to take away the profit in excess (of the initial 20k), just as recently I started with 4k, and I am not using the profit.

Given that we can consider "safe" (but never "guaranteed") a starting capital of 20k for the present portfolio of systems, we could consider it safe for ANY portfolio of systems that had the same score on the relativized resampled tests.

So, scaling up might be possible even now, provided that I find a mix of systems that scores as well on my tests. And then, once I am done with screening for other systems, with the assumption that, all other things being equal, the more futures I trade the better (for diversification purposes), I should know that I can simply double the contracts of the present portfolio once I reach the capital of 40k.

Damn, but that's far. I'm gonna do that search for other systems right now.

[...]

Ok. I am done with all the work I could do, and I decided to add one more system. It's worth it since at this rate of boredom, I might otherwise take matters into my own hands and trade discretionary and blow out the account. This trade will provide about 2 trades per week and average profit of about 800 per month (trading half a contract, the small QM oil contract). This will add a good 20% of profit to the overall monthly profit. The bad thing about this system is the bigger drawdowns, but it more than compensates for it with the amount of profit.

Also, since I am in danger of compulsive gambling, I might as well let the systems trade for me, since they'll never be nearly as bad as me.

This is the only system I could conscientiously add (even pushing risk a little further maybe). For the other candidates I'll have to wait until we get to 20k.

With this system i'll be trading 13 systems, with an average of 13 trades per week and an expected profit of over 4000 per month.

 

[Yamato]

Serge Gainsbourg et Jane Birkin - Je t'aime moi non plus - YouTube

And now I am going to watch this:
Watch The Iron Lady online free 2011 - download The Iron Lady - LetMeWatchThis

Margaret Thatcher 1960 - YouTube

Margaret Thatcher: Free Society Speech (1975) - YouTube

 

[Yamato]

Continuing from here:
http://www.trade2win.com/boards/trading-journals/140032-my-journal-3-a-42.html#post1782586

Ok, since i've got some free time, I'll resample the relativized (by today's prices) trades from the present portfolio of 13 systems, of which one I've enabled just yesterday. I will describe the findings here below.

Simon & Garfunkel, Bridge Over Troubled Water, Central Park - YouTube

[...]

Ok, so I've got 5200 trades from those 13 systems, and i have on excel 65536 rows, so I can only multiply the trades by 12 times, before mixing them up as usual.

ELVIS - Bridge Over Troubled Water (NEW mix! Great sound!) - YouTube

But even before that, let's look at what the non-resampled relativized trades show as my probability of blowing out at the present level of capital:



Right now, having a bit over 9000, I can afford to lose 7000 and still trade, but not more. How much does that 7k cover? All losses within 7k, which amount to a... 97.6%. If the past repeated itself, not randomly - what I mean if the edge I've had in back-testing kept being of the same quality and performance, but not in a random order (the trades have to happen in the same exact order) - then I'd have a 97.6% chance of making it and not blowing out. But now, since I cannot count on the 5200 trades to happen in the same exact sequence, let's resample them. I'll do it twice, to double-check if the two resamplings match.

I will then accept as valid results whatever is worse between "exact order" (backtested trades as they happened) and "same trades but in random order".

Bridge Over Troubled Water (Live at Pearl's)- Eva Cassidy - YouTube

Ok, I've done it twice, and once again, I got almost the same exact results from both random resampling of the 65k trades (the original trades multiplied by 12 times). Here's the worst one of the two:



How did mixing up the trades affect my probability of not blowing out the account? Simple. What did I say earlier about my chances according to the back-tested chronological order of the trades? Here it is:

How much does that 7k cover? All losses within 7k, which amount to a... 97.6%. If the past repeated itself, not randomly - what I mean if the edge I've had in back-testing kept being of the same quality and performance, but not in a random order (the trades have to happen in the same exact order) - then I'd have a 97.6% chance of making it and not blowing out.

So, how was my probability of losing more than 7k affected by the resampling? At worse, it turned out to be this: 96.1% of survival (on the other resampling it was 97%). So, by resampling, I lose about 1% of probability in my favor.

Baden Powell - Violão Vagabundo - YouTube

How does all this compare to the combination I was trading previously and was it worth changing it and why?

The previous set of trades went from a % point higher to a % point lower, just like for this one, but it was also a point higher than this one (it went from 98 to 97, rather than from 97 to 96), so why did I accept increasing risk by one percent point?

Simple, these reasons:

1) due to inaction and boredom and lack of trades, I have found myself placing discretionary trades, which have proven to be unprofitable. By allowing more actions by the systems, I will be less likely to seek action on my own.

2) The back-tested (relativized) profit goes from 350k to 460k. That is a 30% increase. This will bring monthly profit from 3500 per month (the back-tested sample is 100 months) to 4600 per month. This in turn means:
a) I go up faster and therefore maximize using systems while they work (because in the long run they'll stop working)
b) I go up faster and the more capital I have, the less the chance of blowing out

3) Maybe this is magical thinking (rather than probability theory), but it can't hurt: i have just seen a big drawdown in the CL_ID_05 and I feel it is not likely to continue. I do know that, according to probability theory, the future drawdown is NOT affected by the immediate history of trades behind it. So I guess what subconscious reasoning is telling me is that it is not exactly like this and the past does affect the future. However, even if this were all wrong, then it would be random, so starting after a drawdown it won't hurt me, but just be a neutral action. And the points #1 and #2 are enough to justify my move of including the CL_ID_05 in my portfolio.

On top of everything, I studied in detail CL_ID_05 (of course I created it, but 120 systems I often forget what they do) and it seems a very healthy system. It goes both long and short, it trades often, and it is simple.

Aileen Stanley - I'll Get By (As Long As I Have You) (1929) - YouTube

Now let's study how this affected my forward-tested results. I am not going to do a resampling because I am tired now.

All right, I will do a resampling for forward-tested trades, too.

By the way, you do realize that if everything goes according to... luck, then I will be making at least 4k per month, and if I don't run into the bad luck of (less than) 1 out of 20 chances, then I will not blow out, while making more than my salary. This means drugs, women... but no treating anyone to restaurants. I've banned that from my life. I will not be exploited, by you mother ****ers who call yourselves "friends".

Ok, let's tackle this last feat.

You know, if I ever have extra money, I will spend it to boycott google, because the search settings never stick. These mother ****ers in control of google, excel, windows nowadays have trashed the work of their predecessors. They deserve to go to jail or at least be fired.

lionel richie-say you say me - YouTube

Ok, here's the original performance of the 13 systems on the forward-tested sample:



Now, this looks really good of course, and it shows I have NO chance of blowing out whatsoever, but it's because, with so few trades, of course the chance of getting really big drawdowns is smaller. All it tells me is that, even if performance stayed as good, with 452 trades and a capital of 9k, my chance of blowing out is zero. But what happens with more trades? Even assuming performance stays exactly as good.

So now I'll do the resampling, to see what happens when I multiply the same trades by 144 times (the maximum my excel 2003 allows, given that the new excel is by idiots and for idiots) and mix them up.

Coração Vagabundo - Gal Costa - YouTube

Meu coração não se cansa
De ter esperança
De um dia ser tudo o que quer

Meu coração de criança
Não é só a lembrança
De um vulto feliz de mulher

Que passou por meus sonhos
Sem dizer adeus
E fez dos olhos meus
Um chorar mais sem fim

Meu coração vagabundo
Quer guardar o mundo
Em mim

Meu coração vagabundo
Quer guardar o mundo
Em mim

Ok, here it is:



The trades are the same, the edge is the same, but they're mixed differently and the results get worse. With a capital of 9k (a few hundreds higher), my chance of losing more than 7000 and blowing out is 0.5%, meaning I have a 99.5% chance of surviving any drawdown.

But then I am wondering this: are the systems performing better in the forward-tested period than in the back-tested period? I would expect that, since I've been choosing the systems to enable based on their forward-tested performance.

Let's check the two different sharpe ratios (non resampled trades), one for back-testing and one for forward-testing.

Homme - Brazilian Girls Lyrics - YouTube

Ok, the 452 forward-tested trades have this sharpe ratio:
=15.8*AVERAGE(A2:A453)/STDEV(A2:A453)
=2.67

And the 5208 back-tested trades have this sharpe ratio:
=15.8*AVERAGE(A2:A5209)/STDEV(A2:A5209)
=2.12

So now it's all clear.

New York State Of Mind / Billy Joel - YouTube

Am I gonna be lucky and not incur those... at worst 10% chances of blowing out? Yeah, on paper it's just a 3% chance of blowing out in back-testing, and 0.5% in forward-testing. But let's say it's 10%, because things are going to be worse in the future than they were in the past, for many reasons mentioned repeatedly in previous posts.

Anyway, regarding that 10% chance of blowing out, I am going to pretend I am confident that I'll be lucky. I am going to think of the future, as if I won't blow out the account.

Assuming I'll be lucky, what will I do with this money? 4k per month, more or less.

Well, first of all, in 3 months, I should reach the safer capital of 20k.

Then I'll add a few more systems, and this will increase the profit made per month. So, in 3 months I'll be able to spend and withdraw without worrying about it, but I still will not do it, because my objective is to retire as quickly as possible.

I want the chances of blowing out to decrease and decrease. I shouldn't even be able to spot anything that could blow out my account after a resampling of 65k rows. That should be the rule, before adding any new systems. Not even spotting one chance in 65,000 trades of blowing out.

Let's dream for a while. Once I'll reach 20k, then, in two months, I'll reach 30k, with 30k... basically my rate of return would be about... with a safe investment approach... yeah, the return would be about 20% per month, so I can simply compound capital at this rate and seeing where this will take me.

This is the capital progression I have ahead of me for the next 12 months, if I don't screw up in any way (namely compulsive gambling or scaling up too fast):

9
12
15
18
22
26
31
37
45
54
64
77
93

That's nothing that will allow me to retire within a year.

Let alone that if I want to decrease risk as i go along, it's unlikely that the advantages from diversification will allow me to scale up and keep the same profitability.

Also, given how much my trading has suffered from over-leverage, I should underbet to be on the safe side.

So that progression will probably start at 20% a month in the first month above 20k of capital, but it will slowly decrease to less and less.

However, it is clear that the absolute monthly profit will increase, and so it can only go from the present estimated 4k to above.

This money will not be enough to allow me to retire so I have to come up with something. Some idea to justify quitting my job, or to make my job lighter and lighter.

With that kind of monthly profit, I can take all the cabs I want. But that's not going to be enough to make my job lighter.

I should corrupt my boss into giving me a part-time schedule that only makes me go there once a year. But this is science fiction.

So, this profit won't get me anywhere in the short term, so let's think small once again and stop drugging myself with dreams.

The first thing I should do once I reach 30k is repay my debt with my bank. Or at least begin to do that.

...

Long story. Basically I should stop getting into the frenzy of scaling up fast, because it never got me anywhere and it will never get me anywhere except blowing out the account. I should take my time, because that's the only way to avoid blowing out the account. Once I get to 20k, I can add a couple of systems, but for the rest this portfolio should stay just the same. Then risk will go lower and lower, and I can start repaying the debt, and relaxing a bit. I should just stop thinking about this for a few months.

You know? If I added even just one more system, I would pretty much screw myself with my own hands. I better stop thinking about this. Yes, sure I'll keep studying math. But I've gotta stop obsessing about scaling up with the hope to impress my parents and have their blessing on quitting my job. That's not going to happen, probably ever.

 

[Yamato]

I need a new activity

I just came out of the tub, and I realized this: I need a new active activity. Watching tv or online movies is too passive for me, and doing math is not satisfactory enough.

My life, despite making money with trading, is still very... "dissatisfactory", or however you call it.

If I keep going like this, I will take it out on my trading, or, as usual, I'll take it out on myself, by not sleeping and scratching my head, but that is almost ok, yet if I happened to take it out on trading, it would be a disaster, because I'd blow out my account and end all my dreams.

Veronique Sanson avec Yves Duteil - Melancolie (lyrics) - YouTube

Anything would be good right now, in order to avoid blowing out the account.

I've thought about getting into drugs, but it's too complex/dangerous to get them, so forget about that. Drinking has too many side effects, but maybe it's the best thing overall, for emergencies - I don't mean every day. I should always have some beers handy so, when I am about to do something crazy, like placing a discretionary trade, a couple of beers will make me forget about it.

Another option would be to get into prostitution, but that's too complex/dangerous as well. I don't want to get aids or similar diseases. A good option would be to get my friends to prostitute themselves, but then I'd have to treat them to dinner, which I've resolved not to do. Besides, I could then get blackmailed, such as "I am going to report you to the police, unless you pay me more".

There's not much left. Swimming would be good, but the swimming pool is too far away. Until I'll quit my job, I will have to stay here in rome, and there isn't much I can do here. I could gather a few people and start a club of people who play risk (the strategy game), but that's too complicated, too. Oh, Godfather, I don't know what to do, I don't know what to do...

I'm very dissatisfied. And this is dangerous for my trading.

Oh, I got it.

I should come back from work, and then go into the movie theater and stay there for hours, until it's like... time to go to bed. That way I am forced to watch movies and I can't trade.

But movie theaters are crowded. I need to get a little drunk to stay there. But they've got the popcorn and the coke and all that at the bar. Ok. I might just do this. Come home, get undressed, and go to the movies. That might be the healthies choice for me. I'll try to find if they have like a card, a "movie pass", to see all movies in rome, any movies in any movie theater.

Forget it. It's not feasible, the pass.

But even going to the movies is not going to be easy. I'd have to go with a friend, that neighbour, but she'd talk me into treating her to dinner, let alone treating her to a movie, which would be like compulsory. And to think that a friend used to ask me to go to the movies. If he'll ask again, I'll go.

...

Maybe I should try to get into cooking. The best would be to cook marijuana cakes, so I get into cooking and drugs at the same time. But as I said it's too hard to get drugs in my situation. I don't meet people, so it's going to be that much harder to meet drug dealers.

Damn, it was so much easier when I worked or studied overseas. Housemate or colleagues who smoked pot, or even living on the street where prostitutes worked. That was awesome. I often talked to those prostitutes, went on a coffee break, and once a colleague from work came to my house, and this neighbour was yelling and insulting her, because he must have thought she was a prostitute. Pretty cool. At the time we could not figure out what he was thinking/saying, also because he wasn't yelling in english or french but the local dialect. He did look like he was yelling "whore" or similar.

http://www.youtube.com/watch?v=uSj2toabZsU

...

These guys at khan academy are mean, because I've been spending two months doing review exercises, at the rate of about 10 per day. In the last few days I've been receiving from 15 to 20 daily review exercises for no particular reason. I mostly get them right, at a rate of 9 out of 10, so it means they just increased the pace. This really sucks, but it's still useful in terms of learning, so I am not going to quit. However, it has almost come to the point of being counter-productive, because if you're doing so much work, you don't have the time to really get into the formulas and understanding why they work, and getting to the heart of things. This amount of work encourages memorization. A fair amount would be 3 review exercises per day. Besides, if I get the same exercise right 10 times in a row, and then 10 review times in a row, then they must stop assigning it to me. I've written several complaints in their message board.

 

[Yamato]

automated trading is like going to the moon

You know something, and this is meant for my 10 intelligent readers, because I know what the other idiots would reply... You know something? Automated trading is like building a spaceship and going to the moon. You work on it for years, and some launches, a lot of launches, will fail.

First there's something wrong with the material, then the fuel, then trajectory and then other things. Then, all of a sudden, you manage to take off and get man to the moon. So you go from failure after failure to a complete success. Now what if Von Braun and the other rocket scientists had been surrounded by idiots saying to them for ten years: "hey, you said you'd go to the moon years ago, and you're failing your tests one after the other...you're never going to make it". Think about that.

v2 crash - YouTube

But the superficial idiots of course won't even be able to talk to werner von braun. Instead they talk to me, and not just on the web but even relatives and friends, and colleagues, because i happen to be surrounded by a lot of idiots of course, both on the web and in real life, since they are 95% of the population. And they all tell you the same thing. They tell you that you've tried for years and you've failed, so you should quit. But you know you're working on something complex, which is made of many many components and you know exactly what the components are and which ones are having problems. So you keep on working.

And then one day it all comes together, and, maybe because everyone discouraged you so much, or maybe because you've waited for so long, you almost can't believe it yourself. But that's the nature of this feat, you either crash time after time, or you go straight to the moon. Then of course all those idiots who called you a "dreamer" (at best) will come and congratulate you and call you a "genius". And you'll tell them to go **** themselves.

Diana Krall - Just One Of Those Things - YouTube

So, you know, it was just one of those things, like a trip to the moon on gossamer wings.

The gossamer components of my spaceship that I had to work on were things such as:

1) discarding fundamental analysis and going straight for technical analysis (I did this from the start)
2) finding the right financial instrument, namely futures. Not stocks, not options, not covered warrants, nothing else (it took me years)
3) understanding i needed to back-test trading systems and that i could not count on discretionary trading to achieve profit (years)
4) creating profitable systems (years)
5) realizing I had to completely automate the execution of the trades, and doing it (years)
6) understanding all the implications of risk and money management (years)

 

[Yamato]

something wild

They were showing it on tv, and it brought back some good memories about a girl I met once in boston (very similar to the one played Melanie Griffith), in the street:
Watch Something Wild online - on 1Channel | LetMeWatchThis

She was a stripper, her name was Julie. She approached me as i was leaving a music store, and she asked me if I wanted to be her friend, and then we spent a few days like the two protagonists of something wild. Maybe less dangerous. Damn, unfortunately after a few months I lost touch with her. And I went back to my "safe" lifestyle, unlike Jeff Daniels. Usual regrets of not living. I haven't really started living.

Someting Wild (1986) - Sister Carol playing Wild Thing (High Quality Video) - YouTube

Anyway, this movie is excellent. One of my favorite... 40 movies. But it could be top 10, if you count the ex aequo rankings. The most amazing performance was by Ray Liotta. You really believe the character he's playing. Of course the director did an excellent job, too.

 

[Yamato]

scattered thoughts

**** google that doesn't retain settings preferences

----

casino has a limit you can bet, but you could make money, if you were allowed to double even just up to 20 times in a row, and you have the money (millions). To double it twenty times you need 500 thousand times your initial bet. With trading this is even more true, because price is not random and it tends to bounce back up when it falls. So you could structure it like this: when say EUR is losing 1%, you bet a contract LONG, then if you go down another 1%, you bet another contract, and exit as soon as you break even, then you keep going. Currencies in particular bounce. So, provided you have enough margin, you either break even or you make 1%, because sooner or later it will bounce 1%. It's not my problem now because I don't have enough margin, but one day I will do it. This is martingale strategy and not only would it make sense with the casino (it doesn't, because there's a betting limit), but it would make that much more sense on trading. However, it has to be structured scientifically and calculated with formulas.

----

today i was thinking, as i often do, what is the chance of not getting any trades (i later got two trades - made by the systems I mean). This is how this time i went about calculating it, because there seems to be different methods. If there are 13 trades in a week, but better yet, if there are 6000 trades in 2000 trading days, then what is the chance of a single trade of not happening on a given day?

1999/2000

now we raise this to the 6000th power and we get the chance of no trades happening on a given day.

I get 5% chance of not seeing any trades on a given day.

Yesterday I did something else. I divided the 15 weekly trades by... i said what is the chance for a single trade?

4/5

then i raised that to 15th power and i should get the same result... but I don't:

3.5%

I see what happens here. If you kept narrowing it down, you would get to a 100% chance of getting trades, because, look: the average trade per day is 3, so we just have one day, so we have a 100% chance of getting those 3. But you can't count on that, at all.

So, the larger the sample, the close to reality, I'd say.

Rule-of-thumb type of reasoning, because I am still lacking a lot of probability theory.

After all, this is a matter of how large the sample is, and the general understanding is that the larger the sample, the better.

[...]

----

today i missed it, but if the ng is again at 2.4, i'm going to buy the mini contract, which has a leverage of 1/4 the big contract. If it fell from 2.4 to 1.4, I'd just lose 2500 dollars. If it fell to 0.4, I'd lose another 2500 dollars. If it fell from there to zero, I'd lose not 4000 dollars, but 1000 dollars. So, if everything goes in the worst possible way I'd only lose 6000 dollars. The NG is so low that I wouldn't even call this compulsive gambling, but an investment as safe as buying government bonds. I have to look for more such opportunities. There's futures that are so low or so high that you can just buy them and hold them (going short is only good for currencies).

You know, it is just one of those things... one of those bells that now and then rings.

Diana Krall - Just One Of Those Things - YouTube

It was just one of those things
Just one of those crazy flings
One of those bells that now and then rings
Just one of those things

It was just one of those nights
Just one of those fabulous flights
A trip to the moon on gossamer wings
Just one of those things

If we'd thought a bit of the end of it
When we started painting the town
We'd have been aware that our love affair
Was too hot not to cool down

So good-bye, dear, and amen
Here's hoping we meet now and then
It was great fun
But it was just one of those things

 

[Yamato]

risk (strategy game)

Totally awesome risk game, and it's free:
GlobalSiege | The war never ended

The download page is here:
Download

I just need to find some players now, because it's awesome (software of very good quality), it's free, but still unknown. Let me know if you want to play it.

I might have found something to stay away from discretionary trading.

 

[Yamato]

I am utterly bored. I feel my life is empty. It's already time to go to bed and I haven't done anything. Today I haven't even done any statistics or probability.

I'm going to have troubles going to sleep, so I'll write here.

I did do one very good thing, by restarting the modem: I fixed my dsl problems, which I was having all day. It took at least an hour to figure out that was the way to fix those problems. I even did a system restore or two, before trying the modem restart: what a waste of time.

Somehow this is related to trading, too. It takes years before you realize what it is that you're doing wrong and that's preventing you from being profitable. Having an edge or not, with automated trading, is only half of the job. The other half is money and risk management, and defeating the urges that are making you get it wrong: namely, the desire to make money faster than you can afford to.

Since I can't sleep, I'll do the latest of the endless review exercises khan academy surely has assigned to me.

Then I might even do statistics at stat trek.

...

I am doing it, and I have to say, after dozens of boring lessons, this is finally getting interesting:
AP Statistics Tutorial: Experiments

Actually this latest lesson I am covering now is very related to creating trading systems, because listen to what it says:

In an experiment, a researcher manipulates one or more variables, while holding all other variables constant. By noting how the manipulated variables affect a response variable, the researcher can test whether a causal relationship exists between the manipulated variables and the response variable.

This is what you do when you create a trding system. You change things one at a time. Even clearer if you just work on one independent variable ("manipulated variable") at a time. I change the entry time, and see if it affects profit. Then I change this other thing, then this other thing... it takes a lot of persistence. Of course I did all this naturally, without knowing anything about statistics. And now I'm being taught that I've been doing things correctly.

Actually in the lesson they're showing two manipulated variable at the same time, which is not good because you lose control of the causal relationships. You lose track of what's causing what.

Anyway, if I find anything interesting and useful I'll quote it.

Here it is:

A well-designed experiment includes design features that allow researchers to eliminate extraneous variables as an explanation for the observed relationship between the independent variable(s) and the dependent variable.

This, when creating trading systems, is using the out-of-sample, one with both uptrends and downtrends, to avoid first of all curve fitting, while making sure you're double-checking its profitability on an out-of-sample which has both up and down phases. There are certainly other precautions to "eliminate extraneous variables", which I must have used before, but I can't think of anything else I've done right now.

Ok, I'll stop here for today.

Now I need to find something to fall asleep, like a radio broadcast or something... I found this press review in italian:
Riascolta | RadioRadicale.it

It will probably work. This political party has a radio, the radical party, italian radicals, nothing like other "radicals". They're practically the only honest party we have.

I am surely glad to have gotten rid of tha sardinian friend of mine, who was bargaining on my offer. I spared myself daily arguments for over a month, since we split up on January 1st. Best choice ever made. I had done plenty for him, including automating his first system (for free), system which actually was completely created by me, on top of being automated. He's a superficial and arrogant idiot. He didn't deserve my help, but i learn things by helping people. Besides, I don't help them forever, as I've demonstrated. So it was a good thing I helped him out - it was good for me. He's worthless, mentally speaking, so my help really won't benefit him, because he'll never amount to jack squat, trading-wise. He's too distracted with too many things to ever accomplish anything. But i learned some things by helping him. Not much, but something. For example, i learned how many idiots are around me. But also some other things about trading. I learned slightly more than if I had just been talking to myself. Yeah, because his questions were useful, despite him being an arrogant idiot.

Ok, I am done. Now I'll try to sleep.

...

Woke up early, and did some more. This is the equivalent of using the out-of-sample:
AP Statistics Tutorial: Experiments

Control. Control refers to steps taken to reduce the effects of extraneous variables (i.e., variables other than the independent variable and the dependent variable). These extraneous variables are called lurking variables.

Control involves making the experiment as similar as possible for experimental units in each treatment condition. Three control strategies are control groups, placebos, and blinding.

• Control group. A control group is a baseline group that receives no treatment or a neutral treatment. To assess treatment effects, the experimenter compares results in the treatment group to results in the control group.

The out-of-sample is like a "group" of data on which the system was not optimized. You save it, and then you test the system on it, to see if it works.


Here's another interesting bit from that link:

Placebo. Often, participants in an experiment respond differently after they receive a treatment, even if the treatment is neutral. A neutral treatment that has no "real" effect on the dependent variable is called a placebo, and a participant's positive response to a placebo is called the placebo effect.
To control for the placebo effect, researchers often administer a neutral treatment (i.e., a placebo) to the control group. The classic example is using a sugar pill in drug research. The drug is effective only if participants who receive the drug have better outcomes than participants who receive the sugar pill.

I don't know if in creating systems we see the placebo effect as well, in that the data doesn't have a psyche and cannot react to a placebo, but we could be doing something similar when we do not create a system, and see what happened if we simply went long on that data.

There might be a lack of "randomization" in testing the created system, because I always choose the out-of-sample from the last one half or last one third of the data. But it would be too complex to pick random data throughout the sample. I also need to get the job done. I can't lose myself into details.

Randomization. Randomization refers to the practice of using chance methods (random number tables, flipping a coin, etc.) to assign experimental units to treatments. In this way, the potential effects of lurking variables are distributed at chance levels (hopefully roughly evenly) across treatment conditions.

And now this last characteristic of a "well-designed experiment":

Replication. Replication refers to the practice of assigning each treatment to many experimental units. In general, the more experimental units in each treatment condition, the lower the variability of the dependent measures.

Yes, I am aware that the more data I have, the better.

Now I have to read this last part on "Confounding" and I will be done. I hope I can retain a lot of this stuff, because they're jamming a lot of theory down my throat. But by now, after months of math, I learned that I won't be able to retain/understand everything, but it's overall convenient to just keep going, because in this case quantity directly affects quality (the more you cover, the more you'll understand what you've already covered previously).

...

Ok, I am done with "counfounding" as well.

I realize that I cannot take it any further than this stat trek AP tutorial, which is equivalent to a college introductory course in statistics. It's good enough for me, and at any rate, I will only do what I can do properly. I am not going to get into something huge that I cannot finish.

So, I am done as far as statistics once I finish this course. Probability, I will finish these two things before considering it done:
http://www.brightstorm.com/math/algebra-2/combinatorics/
http://www.funtrivia.com/ql.cfm?cat=7615

The rest of Math is all covered by Khan Academy.

So, my estimate is another 2 months for everything, at the most, and then I'll be able to tackle The Mathematics of Money Management by Ralph Vince. I will stop and look up things on math manuals along the way, because I'll definitely come across some gaps, that I'll need to fill in.

And now, despite sleeping only 4 hours, I'll have to go to work. It really really sucks, but I already took yesterday off. I tried falling asleep for one whole hour, from 6 to 7, but it didn't work.

 

[Yamato]

I am drying off after a shower, and lying here and writing my scattered thoughts as usual.

The bitch must die. She slammed the door again.

The neighbours with the screaming child must all be sacrificed to the god of trading.

I must find a way to sleep. This can't go on any longer.

I must find a way to quit my job, sooner than by reaching a million dollars, or it's never going to happen.

I must. I must.

I am cold, I am tired and I don't see why I have to go to work.

**** them all.

Bunch of idiots.

There's a trade open and it's making money.

I am unhappy, frustrated, sad, depressed, angry, tired, sleep-deprived.

This must all end.

Twelve hours of work and I still can't sleep. Damn. Days go on and on. They don't end.

June 8th. My life has taken another turn again. The days can go on with regularity over and over, one day indistinguishable from the next. A long continuous chain. Then suddenly, there is a change.

http://www.imdb.com/title/tt0075314/quotes

 

[Yamato]

Ok, here I am. I am cold, my feet are cold. But I made it to the office. Just 5 more hours to go. 5 hours and 24 minutes. I think I can do it. Then hopefully once I get home I'll remember that i wanted to sleep.

[...]

Only 3 and a half hours to go.

Fascinating work today (investigating the accounts of some dishonest politicians). Too bad I am tired.

[...]

Another 2 and a half hours to go, and I am feeling very very tired.

[...]

Less than two hours to go.

[...]

Half an hour to go.

If only I could sleep properly. Today I had some great ideas for classifying some files, that really need my neatness. I wrote a note to myself, I'll do it tomorrow or when I'll get some sleep.

 

[Yamato]

Ok, dr jekyll and mr hide as usual. I came home and here i am, finding new activities to do, things to search and so on... at work I was dead tired and wanted to sleep, and now i am home, I can sleep, and instead I am wide awake and working some more. Dr jekyll and mr hide. I'll do anything except allowing myself to rest. This is totally compulsive.

...

I'm gonna try to watch a movie and fall asleep as I watch it, hopefully.