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Double up and get rich???

  • #101
  • Apr 15, 2010 9:31am Apr 15, 2010 9:31am
Quoting SunTrader
Mr J,

He'll never admit it.

Sun
What must i admit? That i am a loser like you....
Never Ever Give Up!
  • #102
  • Apr 15, 2010 9:37am Apr 15, 2010 9:37am
Quoting Mr J
Cobra, you could be more wrong, but you're still way off base. I'm comfortable with the possibility of losing 10 trades in a row precisely because I know I trade decently, and that if and when that day comes, it will only be a bump in the road.

I've spent enough time developing a reasonably objective outlook that I won't enjoy the day it turns positive. I don't need a positive outlook on forex to be a successful trader, nor a negative one to be an unsuccessful trader. Together they allow for a balanced outlook, and I think that is healthy.

If...
I belief in winning. The statement i posted testifies to that fact. I really have nothing more to say. If your coin flipping theories makes you happy and you want to compare that with forex trading, you are welcome.

Good luck.
Never Ever Give Up!
  • #103
  • Apr 15, 2010 10:25am Apr 15, 2010 10:25am
Quoting andreypu
With a 100K account, you can cap your risk each year to 10% of the entire account. Your upside is 2000%, or actually a 200K increase on your 10K. So the entire account will grow to 300K in a great year. In a losing year, your account could shrink as low as 90K.

After a 10% losing year, your risk shrinks to 9K (10% of 90K.) So a great year (2000%) moves the account up to 270K (90K + 180K.)

The example paints broad strokes, but conveys that a high risk/high reward system can be very profitable over the long term.
This is a complete fallacy. Simply capping equity drawdowns during an arbitrary time period (a year, in the above example) can not provide a long term edge in a random game. It won't work with roulette, for example.

Many will say "Ah, but trading is different to roulette". Yes it is, but only in the sense that it's (potentially) possible to gain an edge from entries and exits. Here's the bottom line: Provided that the outcome of any given sequence of trades is random, attempting to gain an advantage by using equity-based MM strategies is futile.

Let me try to explain it another way, using a simple example. Supposing you lose 10% of your equity across the period January/February, so (according to the above strategy) you quit trading for the rest of the year. Unless you somehow know in advance that the months March thru December are more likely than not to result in further account loss, there is no mathematical justification for not trading them. In other words, there would need to be statistically valid causal link between Jan/Feb and the rest of the year.

Bottom line: You either have an edge from your entries and exits, or you don't. Beyond that, there is no way of gaining an edge; any winning or losing sequences are nothing more than fortuitous.
  • #104
  • Apr 15, 2010 10:43am Apr 15, 2010 10:43am
Re the debate between Mr J and Cobra........

The table attached to this post gives the probability of a losing X consecutive trades within a 50 trade sequence, for a given win rate. Note that values are rounded to the nearest whole percent, and that the values in the yellow shaded areas mean "greater than 99.5%" or "less than 0.5%" respectively. Values of certainty (100% or 0%) are of course impossible.

The table assumes that the outcome of any sequence of trades is itself a random event. However, if we can show that, following a loss (or sequence of losses) that the probability of the next trade being a win is greater than normal (i.e. the stated win rate), then the probabilities in the table are overstated. If less than normal, then the probabilities are understated. And so on. In other words, if there is statistically valid 'clustering' (or 'anti-clustering') of wins and losses.

Unless one has a 100% win rate, a sequence of any number of losses is always possible, but if the win rate is high enough (e.g. 99% upward), it may become improbable to the point that it may be realistically ignored.
  • #105
  • Apr 15, 2010 12:17pm Apr 15, 2010 12:17pm
Quoting hanover
This is a complete fallacy. Simply capping equity drawdowns during an arbitrary time period (a year, in the above example) can not provide a long term edge in a random game. It won't work with roulette, for example.

Many will say "Ah, but trading is different to roulette". Yes it is, but only in the sense that it's (potentially) possible to gain an edge from entries and exits. Here's the bottom line: Provided that the outcome of any given sequence of trades is random, attempting to gain an advantage by using equity-based MM strategies...
maybe i didn t made myself clear. This specific part you quote was quoted by me from another thread, the money management thread. I used it to show than even a high risk system or a double down can be combine high profit rate and a sort of stop loss.
instead of talking generalities on which we can all agree and disagree without meaningful progress we should observe what happens in real trading. Most of the posts here agree that doubling down is dangerous because even if it helps you win some trades you are in danger of loosing a lot in random, subit, and large movements against you. well the worst case , the real black swan in this category is the price movements in 2008 from summer to november, when euro plunged like 3000 pips with barely any retrace , when there was a flight to safety usd and every day brought its share of terrible news. As a matter of fact i tested the worse - until today periods of price movements. The real results are quite impressive and very positive for using a doubling down system , i used entry points very simple, canddles and averages on short time frames, 30m or 1h. i won t tell you more unless you have a genuine interest beyond the simple rhetoric that it can t work because price action is random. Using a large stop loss at 10-20 or 30 % of your account with this strategy will not change the outcome of the strategy , i.e. since it is profitable you will very quickly recover your stop losses . Not using stop losses will just mean more profit but the difference becomes marginal with the time. The main issue is the money management technique and the size of your bets. You would have needed around 40,000 $ in margin at some point to continue to operate the strategy started with one lot.
And then of course it all comes to these three things that make the difference between sucesful traders and failure - assuming no particular skill in choosing entry and exit points, just based on simple signals
- psychology (how can you deal with -40000 $ red in your account. ) If you have an account of 1, 000,000 $ it doesn t make a huge difference
- money management.
- expected outcome profit based on initial investment - as many people have said here below martingale works if you have a very high amount ready to invest say 10,000,000 and you start with 10,000$ initial bet, but then the profit would seem not very significant if you make 100 $.
Andreyou
  • #106
  • Apr 15, 2010 1:39pm Apr 15, 2010 1:39pm
Quoting andreypu
maybe i didn t made myself clear. This specific part you quote was quoted by me from another thread, the money management thread.
I wasn't disagreeing with your entire post, only the part that I highlighted, which you'd copied from elsewhere.

"unless you have a genuine interest beyond the simple rhetoric that it can t work because price action is random"
I'm definitely NOT saying that price movement is random. If that was so, then ALL trading strategies would have an expectancy of zero, and (because of costs) EVERY trader would eventually lose. Hence trading would be a futile activity, and I would have given up my journey a long time ago. Instead, I believe that knowledge of economics, markets, and price movement can give a trader a winning edge, and one that can be exploited by the disciplined application of a suitable system of entries and exits.

What I'm saying is that any strategy, if traded often enough, will eventually generate a random sequence of wins and losses, because nobody can know with any real certainty which of his trades will turn out to be winners.

"expected outcome profit based on initial investment - as many people have said here below martingale works if you have a very high amount ready to invest say 10,000,000 and you start with 10,000$ initial bet, but then the profit would seem not very significant if you make 100 $"
I likewise don't see any point in opening a $1m account, and then trading micro position sizes, to try to eliminate the risks inherent in Martingale. I agree with you, making (say) $100 a day on a $1m account is hardly a worthwhile return. Even with the current low interest rates, there are still plenty of investments that offer 7%-8% p.a. return, and with arguably less risk.

"well the worst case , the real black swan in this category is the price movements in 2008 from summer to november, when euro plunged like 3000 pips with barely any retrace"
I don't believe that, beyond obvious risk management (i.e. employing stoplosses and small, consistent position sizes), it's possible to factor in a 'black swan insurance' strategy. Black swans, by their very definition, are events of unpredictably large magnitude and consequence that occur completely unexpectedly. Hence no amount of forward or back testing, or study of previous 'black swan' events, can tell us if/when one is more or less likely to occur in the future, let alone its probable magnitude of impact. Progressive sizing systems that fail to place suitable limits on risk are the most vulnerable to these kinds of events. I don't see that as being negative; I see it as an obvious fact.

"instead of talking generalities on which we can all agree and disagree without meaningful progress we should observe what happens in real trading."
I'm not picking on you specifically, but there seem to be a lot of FF readers who believe that, supposedly because the probabilities underlying price movement can't be calculated with exactitude, that math and statistics have no application in "real trading". I don't have the time to write a lengthy thesis that (attempts to) prove otherwise, so I'm happy to simply let them disagree. Most trading truisms are ultimately little more than logic and common sense.
  • #107
  • Apr 15, 2010 1:41pm Apr 15, 2010 1:41pm
good post hanover as per
  • #108
  • Apr 15, 2010 2:32pm Apr 15, 2010 2:32pm
Quoting LasVahGoose
No, but I'd consider getting struck by lightning unlucky.
The trend always ends.
  • #109
  • Apr 15, 2010 6:11pm Apr 15, 2010 6:11pm
Quoting hanover
Re the debate between Mr J and Cobra........

The table attached to this post gives the probability of a losing X consecutive trades within a 50 trade sequence, for a given win rate.
For those who interested to do their own calculation on different scenario, i would suggest this excel formula.

x = number of trials
y = number of consecutive losses
z = probability of losses in single trial.

=1 - binomdist(0, x - y + 1, z^y, false)

For example, x = 50, y = 10, z = 0.6, then

1 - binomdist(0, 41, 0.6^10, false) = 22%
  • #110
  • Apr 15, 2010 11:14pm Apr 15, 2010 11:14pm
Well the other way to see this is to have a large amount of cash available say account A which you keep in low interest overnight deposit. Then you have account where you place your bets. Say account A is 8 x and account B is 2 x. Account A generates 2 % overnight and account B used to play double up generates high profit, say 500 % per year. Once in a while you need to get money ( more x from account A to B) to support your trading. Once your positions are closed you move your money back to account A. Your total profit will be something like 0.2 * 500 + 0.03 *.8 = 12.4% per year. That should be interesting for high accounts, say 1 million USD> They should do that. Hey wait a minute, this is what they already do ! It s called hedged funds ! Yes sometimes things go awry like Lehman brothers. Oups but this happened once in a life time and all the money lost is a fraction of what their fund has made in the previous year and similar funds have made in the last years. Can an individual trader replicate this pattern ? Yes with proper money management
Andreyou
  • #111
  • Apr 16, 2010 1:10pm Apr 16, 2010 1:10pm
Quoting andreypu
Well the other way to see this is to have a large amount of cash available say account A which you keep in low interest overnight deposit. ......
Yes, that's an excellent point. There's no need to have all of one's funds in the forex account (the minimum requirement is enough to avoid a margin call); it's easy, and relatively inexpensive, to wire money around these days, should the need arise. Another good reason is that it protects your money against the possibility of broker fraud, or broker insolvency. I've read stories of brokers who won't let their clients withdraw their funds, for example.

The only problem I have personally is that, however many variables and (apparent) safeguards I attempt to bring into the mix, there's never an absolute guarantee that a 'death trade' won't occur during the course of my lifetime. For some people, that tiny risk of wipeout might be perfectly acceptable; but for me, unless I'm playing with money that I don't care about losing, it's not. It's a personal choice.
  • #112
  • Apr 16, 2010 2:47pm Apr 16, 2010 2:47pm
Quoting hanover
Yes, that's an excellent point. There's no need to have all of one's funds in the forex account (the minimum requirement is enough to avoid a margin call); it's easy, and relatively inexpensive, to wire money around these days, should the need arise. Another good reason is that it protects your money against the possibility of broker fraud, or broker insolvency. I've read stories of brokers who won't let their clients withdraw their funds, for example.

The only problem I have personally is that, however many variables and (apparent) safeguards...
I know that Dukascopy allow you to use a bank guarantee, therefore allowing you to draw interest on your balance which would be held in a Swiss bank such as EFG. I don't know if any other brokers allow this.
  • #113
  • Last Post: Jun 1, 2011 4:01am Jun 1, 2011 4:01am
I think that statistic have nothing with real life,because sometimes you can't know what will happen tomorrow morning, it is life,so i like it in this reality))
Okay, let's have fun...
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