Trade Explorers Pattern Poll

Ive come to a conclusion that all t.e. share a similar pattern

A) Win Rate > 50
Average Profit < Average Loss

B) Win Rate < 50
Average Profit > Average Loss

Which type is more likely to blow up in your opinion ?
Which type has a larger drawdown or profit runup ?

Both types can blow your account away. And they do.

BTW have you paid an attention how desperate the situation is with live TEs? Here at FF, i have made an educated guess that about 0.001% do survive a full year of trading. Lets say I am wrong. Best would be 0.01%. Which is 10 TIMES MORE! That is plenty of room to correct my mistake!

For most strategies DD is determined how the choppy times gets handled? The trick to low DD is to trade the trend with inwards trades, which are good for choppy, but not for trend times. But there is a work around...

The other option is to have good intuition. That happens after 10-15 years of trading or when you are just gifted...

I do not know why TE stats show the results you posted. Not sure it makes sense, but I don't do that kind of analysis anymore, so I have to trust your conclusions. I would guess that average profit < average loss will blow up your account. It is common for traders with a fear of losing to alter their trading technique after a few losses. They will start exiting with small wins, but then hold onto losers hoping they will turn. The losing trades suffocate the small wins.

As for using TE, I think most FF members are either in the learning, or the designing phase of Forex trading, so they demo trade on their own platform and have no reason to use TE. I think most of the profitable retail traders are proprietary traders so they have no reason to post their trading accounts on a global public forum. Those that run/work hedge funds, sell signal services, sell tools, or (maybe) sell education, on the other hand, might find TE useful for marketing their business. I also know quite a few traders do not use "investor" passwords on their trading platforms, so it is impossible to create a TE.

I think that once you have a proven system then you do not need any analytics because you already know how to trade. All you need are broker statements so you know how much money you have to risk, spend, and/or pay to taxes. It seems to me there is a small window between testing your plan and implementing your plan when TE analytics might be helpful, or, if you are a public company using it as a marketing tool. Other than that, seems pointless. If you cannot tell if you are winning or losing, you probably shouldn't be trading.

Type A are convergent in nature....eg. mean reversion whereas type B are divergent in nature eg. trend following/swing/momentum. Type A typically have low drawdowns for long periods of time until market conditions change but then have the unnerving ability to wipe out accounts in short order. They therefore have a relatively short hiatus before turning ugly compared to the latter. They are deceiving in their ability to manage risk in that intrinsic risk remains in these strategies and is not totally released by risk management mechanisms....and as a result when market conditions change to divergence , they quickly lead to risk of ruin.

Type B are more robust as they have positive skew...eg. many small losses but unlimited upside potential (capitalise on white swans)......whereas Type A have negative skew...eg. many small wins with occasional big/unlimited losses (victims of black swans). Type B typically have far higher drawdowns than type A....but what is overlooked is that this style of strategy is actually far more robust. The volatile equity curve of Type B is a result of this style of strategy releasing risk during unfavourable conditions by cutting losses short. They also have a far higher and quicker recovery from drawdowns with the ability to generate extreme profits during favourable market conditions unlike strategy A that has a more consistent equity curve with less volatility....until it blows up.

Type A has a risk profile that suits most retail traders as it makes you feel that you are right more of the time given the higher win rate....however it has a sting in the tail with black swans. This style of strategy has the ability to lull the trader into a false sense of security and is responsible for most account blowups. For example, averaging down strategies, mean reverting strategies and Martingales fit into this style of risk category. This style of strategy is suited to those traders who believe they can predict the market as the repetitive patterns of mean reversion creates the illusion that markets are predictable in nature.

Type B has a risk profile that is counter intuitive in nature to our way of thinking...but capitalises on white swans. This is used by those traders who believe that markets are unpredictable in nature and as a result is used by those trading styles that 'follow' price as opposed to predicting it's future.

Both convergent and divergent strategies have their strengths dependent on market conditions.....but divergent strategies tend to be more long lasting and capable of handling market uncertainty.

If markets are prone to more fat tailed events than anticipated by a Gaussian distribution then divergent strategies will outperform over the longer term. The converse is true for markets with less fat tailed events than implied by a Gaussian distribution. The bottom line is that uncertainty makes it impossible to predict the occurrence of fat tailed events...hence my preference for a greater bias towards divergent strategies.

Opportunities exist to deploy both styles of strategy to get the best of both worlds and also benefit from the low correlation between these strategies when managing risk.

Amazing explanation, thanks allot

Is this how a divergent system should look like ?

Nice Max. definitely a divergent result which is effectively guaranteed under Non-Gaussian conditions by applying the maxim....'cut losses short and let profits run'. Have a great break mate and happy New Year :-)

Happy New Year to you and everyone in this thread too !))
Wishing all the best both in life and in trading!