What is decent return?

[wantochangemylife]

interesting video

 

[henry766]

Not as risky as stated as long as gains are real as it's unlikley string of losers from the off ,a string of losers is far more likley down the road , but if his returns are real his % risk will be reducing quite quickly as his capitol rises i.e. if he makes it to second year it takes 41 losers in a row if happens from start of second year (billions to one against), the real and in my opinion 99%of his risk is that his system isn't genuinly profitable , if it is genuinly profitable the risks are worth taking,though it's hard to know if it is genuinly profitable , lets face it most people arn't actually geniunly profitable at all. I actually think most people become risk averse due to having no real probability on thier side , Warren Buffett contrary to some assumptions has and does take very large positions in one or two stocks , but then he knows he's profitable and has plenty of probability on his side .

 

[meanreversion]

Good point henry -- typically the big hit comes a year or two down the line, not straight away. It's not even necessarily a string of losers, it could partly be handing back a large part of open equity.

One of the things I look at on a simulation is exposure -- this is the average amount of open equity in the market. So for example, if you trail stop with a 10 day high/low, the exposure might be 15 pct, whereas with a 20 day high/low, it might be 25 pct. Now, the second method will give you (perhaps) a better raw CAGR, but it comes at the expense of more volatile equity curve, and greater need for substantial margin.

 

[meanreversion]

If anyone has the book "Market Wizards" (who doesn't) then read the bit about Larry Hite, it contains most of what you need to know about mechanical trading. Ask yourself how much you are prepared to lose, not how much you want to make.

 

[wantochangemylife]

First trade live trade today - ftse to finish down.

I am confident in this working and keep going over the data much to the annoyance of "er indoors".
The only way this fails is if I hit 12 losses in a row in the first 6 months and it has only done that in 2009 and 1994 I believe. After 6 months I will have made enough to ride the 12 losses out.

Of course the crap figures released stateside help my bet!

 

[henry766]

Thanks for keeping this civilised mean reversion ( not sure what the mean reversion is , but my own trades are fades of sorts ) , I think the point I was making is that if you have probability on your side , the risk of total loss quickly becomes less as the probability works its magic and percentage risk becomes a smaller proportion of capital . ( I'm also agreeing with wantochangemylife ) , it may be lesss risky and ultimatly more profitable to trade say 20% of capital at a time , which eliminates risk of going bust completly , but still compounds up quite nicley if winning ,talking of market wizards , didn't all of those guys bust atleast once before making it?

 

[Shakone]

wantochangemylife, you say it will only take 12 consecutive losses to fail. Which has happened twice in the last 16 years. So there is 12.5% chance of you failing/getting 12 consecutive losses. Note that is according to your data, the real probability may be different. But what if you get 11 losses, 1 win, then another 2 losses to sum -12. Haven't you failed then? What is the probability of that...and what if you get 6 consec losses, 1 win and then another 7 losses..... you see what I'm saying.

Reduce your risk as much as possible. If you have a genuine edge, then you will get there in the end.

meanreversion, 52% drawdown seems huge!

 

[henry766]

You must remember that if his system is genuinley profitable then he is at any given time more likley to have more than his original capital than less(( as long as he hasn't gone bust yet)hence my suggestion to trade 20% rather than fixed amount ), but as regarding risk , didn't george soros take an awfully large bet against the pound once upon a time?

 

[henry766]

p.s. 52% drawdown is slightly more than £250 and the profits many thousands.

 

[Shakone]

Well personally I think 20% is a ridiculous amount to trade. Even if my trades had 90% win with risk and reward the same, I still wouldn't trade 20%. Aside from the obvious risk of blowing up, there are psychological issues to taking a 20% loss, and then an almost 40% lost on a run of only 2 losers. Which can happen so easily.

 

[wantochangemylife]

Tell you what I will keep posts of what & how I am doing.......as you can see I am starting out with small bets & will up this to £30 once the balance reaches £2000.

Here are the starting figures

Starting balance £1000
Bet today - ftse down £20
Closing balance £980

 

[wantochangemylife]

I dont expect to see huge gains overnight - it will take me around 3 month to hit £2000 and there will be time where I dont win for a few days in a row.

 

[henry766]

Just a quick one to shakone, if you had a 90%win rate , the chances of losing the first 2 in a row are 81 to 1 i believe , possible but not really happening "so easily".( camaroon are shorter odds at ladbrokes to win world cup)

 

[Shakone]

But Henry, it is foolish to take the risk, when you have an edge. You don't need to take that risk. It might be 81 to 1 (and this guy's system is not!), but so what. If you genuinely have an edge, you will make money as long as you avoid
1)blowing up on a sequence of losses
2)losing because psychologically you couldn't handle losses properly, and traded poorly.

How many people after losing 40% of their account are in the right frame of mind to trade properly. What about if they lost 60%? Do they still believe in the system? This is a daily system. In other words, if he bet 20% he could lose 36% in two days! 48% in 3 days. You think that's a good idea?

There is a 12.5% chance (according to the poster) of the system encountering 12 losses over a year! And you want him to risk 20%. Sorry bud, I just don't agree. This is an unproven system. I don't care how long he backtested it for this system is not a sure thing.

 

[henry766]

if you have a a 90% winning strategy that only occurs once a year , you should put plenty on ,and I believe george soros at all would agree with me , 12.5% means it's "unlikley to happen , whats more were not talking his life savings here, I don't want him to do anything ,it's just not a very big risk .

 

[Shakone]

once a year? Yeah if you have a strategy that occurs once in a lifetime that is 90%, why not put everything on it. Makes sense. But not here. He's got a daily strat. Signals coming along every day.

 

[henry766]

Thats true , i'm not suggesting he should take silly risks , and as i said in the first place 99% of the risk is that his idea isn't genuinly profitable at all , but look at how much money we're talking here , if he bets less, even if if he is as profitable as he states , he's probably not even hitting minimum wage for his time and effort .

 

[wantochangemylife]

henry - you are quite right re worthwhile bets - its very much live testing only for now. Once I am satisfied I will increase betting to £100. Worst case is I loss £1k which is nothing these days is it?

I am just following advice from more experienced posters who advised to bet small to start with.

The beauty is while testing I can place the bet do a days work and not have to sit there watching the screen all day. Its all a bit of fun really at this stage.

Thanks for reading and posting on my thread.

 

[henry766]

My pleasure wanto , what did you think about tradinga percentage rather than a fixed amount?

 

[henry766]

Another quick one , a guy called jack schwartz( i bel;ieve thats his name) did a lot of work ( and wrote a book, which i have ) in which he researched short term "seasonals" on ftse 100 index , i.e, which days of the year "traditionally "finished up /down etc with percentages and even down to half hours , days of week , days of month etc , i think if i remember rightly beginning and end of both week and month tend to be positive , he had allsorts in there , like xmas effect etc also