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Double up and get rich???

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  • First Post: Feb 26, 2010 6:10pm Feb 26, 2010 6:10pm
I just posted this on a system that will probably be deleted.
However, I find this information very useful, specially for beginners, so I thought it would be a good thing to post it here.

Many of us start trading and think "If this is 50/50 chance, if I loose I will double my next trade and recover". I mean, how many trades can you loose in a row? 2? 4? 7???

Also, some people say "With good money management I can turn a 50/50 chance system in a winner, I will loose what, 6 times in a row if I have bad luck?"...

It turns out that this is not the case.

In this thread, this guy said that having 10 looses in a row would be bad luck.
Here are 1,000 random numbers from random.org (www.random.org)
A series of 10 numbers is not bad luck, it's absolutely normal.
If you define bad luck as an event with low probability against your desires, you will have "bad luck" and loose all your money some day in the next year or two, making only one trade per day! http://cdn.forexfactory.com/images/s...nailbiting.gif

If not, every gambler in Las Vegas would be rich with his "If I loose I bet double until I recover" argument, and every Martingale EA would work http://cdn.forexfactory.com/images/s.../yim/happy.gif

Numbers from random.org (try http://www.random.org/integers/?mode=advanced):

1101000100101010001001011001000111111001001001110100010111111010001101110100010001100111111011010000010011111010110110111100011101100010011110111010111010011100010101011000101001101100111000 01001100101010110010111001000011011001000100100101011100011111000111001010110000010100101111100101100100110000010011111100100010110111010110011100100010011100110001011111000111100100010111000011110111011001000101000001101110011100000010101111100000010100110001101110010010100001100000000000010000001001111111111111100111001110111010001000111100100101010000010111110001000100111111100111001010101000110010100110101001010011010111101110100111011100110101110000001000110111100001001000011010010001000110101111000101000001010010110100110001100100001001100110101100011010101001100100111110101110100111101101111110001111101100101100101000001011011100101111101100100100000001010000001011000101001001101010100001100000100110010011110001111111101111110011100110001110110010111101 100110
what does this... mean?
Thanks for posting. Cool site.
It means even if you have a method with a 90% success rate statistically you can still have a string of consecutive losses.
Don't wish it were easier, wish you were better. ~ Jim Rohn
Quoting LasVahGoose
It means even if you have a method with a 90% success rate statistically you can still have a string of consecutive losses.
Thats exactly right
Quoting LasVahGoose
It means even if you have a method with a 90% success rate statistically you can still have a string of consecutive losses.
Oh ok... which is right, and you would just consider yourself very unlucky right?
Quoting Sim
Oh ok... which is right, and you would just consider yourself very unlucky right?
No, but I'd consider getting struck by lightning unlucky.
Don't wish it were easier, wish you were better. ~ Jim Rohn
Quoting LasVahGoose
No, but I'd consider getting struck by lightning unlucky.
so would I. Downright unfortunate!
Quoting LasVahGoose
No, but I'd consider getting struck by lightning unlucky.
so would I. Damn disappointing.
Statistics have far less to do with markets, than other fields of study... geometry would be a good example. Spend less time flipping quarters, and more time measureing swings.

Toots,
MM

P.S.

There's is nothing wrong with adjusting position sizing to cover losses.
Quoting mr.marketz
Statistics have far less to do with markets, than other fields of study... geometry would be a good example. Spend less time flipping quarters, and more time measureing swings.

Toots,
MM

P.S.

There's is nothing wrong with adjusting position sizing to cover losses.
Craig Harris?
Quoting hanover
Craig Harris?
Hanover,

Not sure I follow.
Quoting mr.marketz
Statistics have far less to do with markets, than other fields of study... geometry would be a good example. Spend less time flipping quarters, and more time measureing swings.

Toots,
MM

P.S.

There's is nothing wrong with adjusting position sizing to cover losses.

The only reason why the wast majority of traders doesn't care for statistics, is because they haven't yet found out how to apply valuable statistics regarding the market and exploit it. Average ranges are commonly known, yet I haven't seen many use its fully potential.

You're right, there is nothing wrong adjusting your sizing to cover losses, you should make sure you do not lose more than last loss and the only way to recover losses are to win more than you lose after a drawdown.
Measure twice, cut once
Quoting aediaz1
The only reason why the wast majority of traders doesn't care for statistics
Hi aediaz1,

I was actually saying the contrary. Most traders ARE concerned with statistics... and little else. The market is a living organism comprised of many participants. Using a math formula to quantify what the entire group is likely to do next is similar to predicting the next store to be looted in a riot.

My feelings are that applying statistical studies in the market place has more to do with comforting our psychology than anything else. Just my philosophy, though. I'm sure that others would strongly disagree... and perhaps rightfully so.
Quoting mr.marketz
Using a math formula to quantify what the entire group is likely to do next is similar to predicting the next store to be looted in a riot.
The thread isn't about using a math formula for trading. It's about your methods statistics as in win/loss ratio. Even the best methods executed perfectly will generate losses.
Don't wish it were easier, wish you were better. ~ Jim Rohn
LasVahGoose,

True, but even win/loss ratio stats are fairly useless to one's profitability, imo. Not to mention that drawing a parallel to the random number generator example in the first post can seem "misleading".

To put it simply, comparing the possible statistical outcomes of a random number generator and your ability to book profitable trades is sort of like saying that no matter what you do, or experience you have... your ability to get a winner and a loser is always 50/50. On a philosophical level it sounds about right. In real life terms, it's completely absurd. If you you think about it for a while, this concept should click.

The bottom line is this, the win/loss ratio of system is meaningless... if it wasn't EAs would have made us all rich by now. We are dealing with a live creature which cannot be quantified.
Quoting mr.marketz
LasVahGoose,

True, but even win/loss ratio stats are fairly useless to one's profitability, imo. Not to mention that drawing a parallel to the random number generator example in the first post can seem "misleading".

To put it simply, comparing the possible statistical outcomes of a random number generator and your ability to book profitable trades is sort of like saying that no matter what you do, or experience you have... your ability to get a winner and a loser is always 50/50. On a philosophical level it sounds about right. In real life terms,...
The win/loss ratio was just an example of the type of statistics being discussed as opposed to what were saying, using a formula to trade the market. This thread is actually a part 2 or continuation of a previous discussion. The statistical generator has nothing to do with what you are talking about. You've missed the point of the thread 100%.

So you trade a method with a 100% win rate and never take losses?
Don't wish it were easier, wish you were better. ~ Jim Rohn
Quoting LasVahGoose
So you trade a method with a 100% win rate and never take losses?
I take losses all the time... and I still dislike them. That's why it soothes my mind to know that my next trade will be of bigger size with hopes of covering that loss. I believe that we're wired in a way to completely reject losing... that's why trading IS the hardest (and most lucrative) profession out there. This is why mm is key to my trading. It allows me to trick my mind into thinking that the last loss was not an actual "loss", but simply a single step in a sequence of trades.
Quoting mr.marketz
I take losses all the time... and I still dislike them. That's why it soothes my mind to know that my next trade will be of bigger size with hopes of covering that loss. I believe that we're wired in a way to completely reject losing... that's why trading IS the hardest (and most lucrative) profession out there. This is why mm is key to my trading. It allows me to trick my mind into thinking that the last loss was not an actual "loss", but simply a single step in a sequence of trades.
Okay, so if you've been trading your method a long time you should have an idea of how many losses in row your method has made or can make. How many losses in a row would still be considered 'normal' vs. a problem?

So maybe a method can hit a period where it can statistically have 10 losers in row and still be within the 'normal' range of the method. (I can't think of the proper terminology at the moment, but hopefully that makes sense).
Don't wish it were easier, wish you were better. ~ Jim Rohn
Quoting LasVahGoose
Okay, so if you've been trading your method a long time you should have an idea of how many losses in row your method has made or can make. How many losses in a row would still be considered 'normal' vs. a problem?

So maybe a method can hit a period where it can statistically have 10 losers in row and still be within the 'normal' range of the method. (I can't think of the proper terminology at the moment, but hopefully that makes sense).
Goose,

I don't keep those kinds of records, because as I stated earlier... I don't believe they offer any benefit (i.e. edge). The market is dynamic, so those stats are only good for a block of time here and there, anyway.

A "method" can (and will) most certainly hit a spot of 10, 20, or whatever losers in a row. However, if you as a trader lose 10 trades in a row... you need to pump your breaks and go back to paper trading. If you lose that many trades in a row, it can only mean one thing...you're trading a system, and not your edge. Last time I checked, systems didn't make any money (insert my previous EA comment here).
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