Disliked#2 is not, in general, a trading myth.
If a given negative expectancy strategy happens to have a long-term observed trade distribution with a negative serial autocorrelation, then MM, all by itself, expressly designed to take advantage of that property, will either reduce the negative expectancy or turn it positive.
In plain English, negative serial autocorrelation means, in the simplest possible terms, that a loss is more likely than not to be followed by a win.
One good example on this forum -- although I would think there must be quite...Ignored
The expectancy of the strategy is only determined by the probabilities of winners and losers and the average winner and the average loser according to the formula of expectancy.
Expectancy = (PWinners x AWinner) - (PLosers x ALoser)
Since MM is not included in the formula, you can't assume that changing position sizing will have any effect whatsoever on Expectancy. It will only affect your cumulative P&L and that's all.
DislikedIn plain English, negative serial autocorrelation means, in the simplest possible terms, that a loss is more likely than not to be followed by a win.Ignored
Let me give you a practical example. A trend following strategy gets burned and experiences the losing streak during trendless periods of the market. If you were using a trend following strategy for the Dow Jones Industrial Average between 1965 and 1983, you would have been burned to death several times. Now putting the same strategy to work now, how can you make sure about the distribution of the winners or the losers for the next 10 years???!!! You really can't...Because as the sample gets bigger, from 1,000 trades to 10,000, the streaks become larger in terms of numbers.
In case of a 1,000 trade sample, if losers are 60%, then 600 trades are losers, but in the case of 10,000 trades and for the same percentage, then it's 6,000 trades. Out of 600 trades, what do you think the odds for a 30 losing trades streak would be? With the same in mind, out of 6,000 trades, what do you think the odds for a 300 losing trades streak would be?
Best Regards,
Nader
Best Regards,
Nader