Thinking In Twenties

This is a discussion on Thinking In Twenties within the General Trading Chat forums, part of the Reception category; Hi all, thought I'd post another article from my blog, it's about using big enough sample size when you're system ...

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Old Dec 9, 2009, 11:47am   #1
 
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Thinking In Twenties

Hi all, thought I'd post another article from my blog, it's about using big enough sample size when you're system testing but it's relevant even when you're not testing. Approaching trading with a commitment to the next 20 trades to ensure that the probabilities you're system gives you plays out fully is vital. Here's the article, hope you you find it relevant:

Consistent profits in trading require the adoption of a mindset which is unique to perhaps only this business and professional poker playing. Fundamental to success is the ability to think in probabilities or rather to approach trading with a crystal clear awareness of the probability associated to a certain outcome on a trade.

It stands to reason that the trader should only be interested in systems which offer a better chance than not of a positive outcome. However, having an awareness of an outcome’s probability is not enough without an awareness of the fact there is a probability associated to the process to that outcome.

What I mean by this is best demonstrated by an example. Suppose a trader has followed the Comex gold futures market for a number of weeks and has noticed it trends well and tends to continue when it breaks the day’s high or low if it occurs after 1pm. Based on his research he’s worked out there is a 60% probability that if the break occurs after that time it will trend for another 20 ticks before stalling.

He’s ready to start trading on a live account so at 1pm he places a stop order 1 tick above or below the high or low of the day and a limit order to close the position 20 ticks away. He knows that according to his research there’s a good chance (60%) that the market will give him 20 ticks if the break occurs. The difficultly for him is that he doesn’t know in what order the trades will occur, if there’s a 60% chance of success, he can quite easily get 4 or even 5 losing trades in a row before his first winner.

Depending on how much he loses on each trade, those four losing trades could be financially and emotionally so painful that he’s convinced his research was wrong and he should move onto another strategy. However, for every losing trade the odds of the next one being a winner increases subject obviously to him having done sound research beforehand. Stopping at this stage is precisely why many traders are unable to convert their research into profits and why they lack the confidence required to follow their strategy in the long term.

During the real money testing stage therefore using a sample size of 20 trades (Mark Douglas in his book “Trading in the Zone” talks about this being an adequate number) is the most effective way of drawing together data on which you can conclude whether your system should become a permanent part of your business plan.

If the results confirm what your research suggested then obviously you’ve got a winning system, if the results aren’t as good as you expected, then rather than drop the system consider why this might be. It may be simply you tried your system on a day where there were lower volumes due to holiday in Europe for example. Factors like this aren’t always apparent in the research stage and won’t necessarily undermine the validity of the system.

The necessity of having total confidence in your system is obvious but this faith can sometime stretch to only the outcome of the next trade. Viewing your system’s performance over a group of trades, requires a fundamental shift in the way you approach your trading. However by doing so, the result of the next trade won’t matter since you’ll know that given enough time and trades overall you are 100% certain you will come out a winner. Cheers Tim, eminifuturesblog.com
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Old Dec 9, 2009, 12:59pm   #2
 
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Re: Thinking In Twenties

I think Mark Douglas covered this pretty well... Don't think you needed to re-write his words.


Feedback on your blog

I'm a wee bit confused as to your motives;
I've read your blog, you say

' Hi welcome to my blog which I’ve started to help me record my success and failures of day trading the mini S&P 500 and Nasdaq futures contracts '

So far i haven't seen ANY attempt to record yourtrading; but rather just random trading 'advice'. Which is different than a record of success/failure ... Blogs usually document trades FIRST and articles LATER; so far its just been a couple random-context articles; Usually in a blog you want to see how the person trades, therefore as to guage whether their LATER articles are worth reading, if you regard them highly - You will read them and take in what they say. But when an author starts with advice; Just seems a bit pointless/random.

Usually a blog that records 'success and failures' you'd expect a bit of trading .....
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Old Dec 9, 2009, 1:15pm   #3
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Re: Thinking In Twenties

IMHO you're stinking the place out..but carry on...doubtless some will like your stuff...well I say "yours"...
What always makes me chuckle re. these efforts Is that the new authors assume/suppose/imagine we havn't seen this type of pitch a thousand times before...
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Old Dec 9, 2009, 1:41pm   #4
 
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Re: Thinking In Twenties

Quote:
Originally Posted by Black Swan View Post
IMHO you're stinking the place out..but carry on...doubtless some will like your stuff...well I say "yours"...
What always makes me chuckle re. these efforts Is that the new authors assume/suppose/imagine we havn't seen this type of pitch a thousand times before...
This will turn into that David Dably conspiracy all over; where he believed that the forum moderators where hiding the 'secrets' and truth about trading from their members, so as to make money through selling them unlimited amounts of crap information! '

'' READERS ... Look at these losers who only want to sell you something ... they DON'T want me to tell you my story or trading experience because they are afraid I might tell you something which after you try you make plenty of money and retire and never come back here. ''

The irony was that HE was trying to sell something.

In fact, he had a website to training people to sell stuff over the internet. What a noob!
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Old Dec 9, 2009, 2:04pm   #5
 
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Re: Thinking In Twenties

If I did a blog, it would read something like:

8th December 2009
Went short E-mini today. Found myself enjoying some Cheese & Chive flavoured crisps today. Might buy a box especially for Christmas and give each member of my family a pack as their present in return for receiving socks & underpants every year for a long time.
Got to about 7pm and decided to knock it on the head and have a couple of beers.

9th December 2009
Am still short E-mini as the market hasn't taken me out yet. Had some soup for lunch and a packet of Frazzles. I might consider replacing the cheese and chive crisp for Frazzles. Really fancy a pint. Alastair Darling is a c0ck. Think I might go skiing to Verbier and take the kids.

Seriously, I don't mind the boy posting his stuff up. If people want to read it then they can, if they don't then they don't. Doesn't interest me but others may find it valuable. Each to their own.
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Old Dec 9, 2009, 2:12pm   #6
 
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Re: Thinking In Twenties

Quote:
Originally Posted by robster970 View Post
If I did a blog, it would read something like:

8th December 2009
Went short E-mini today. Found myself enjoying some Cheese & Chive flavoured crisps today. Might buy a box especially for Christmas and give each member of my family a pack as their present in return for receiving socks & underpants every year for a long time.
Got to about 7pm and decided to knock it on the head and have a couple of beers.

9th December 2009
Am still short E-mini as the market hasn't taken me out yet. Had some soup for lunch and a packet of Frazzles. I might consider replacing the cheese and chive crisp for Frazzles. Really fancy a pint. Alastair Darling is a c0ck. Think I might go skiing to Verbier and take the kids.

Seriously, I don't mind the boy posting his stuff up. If people want to read it then they can, if they don't then they don't. Doesn't interest me but others may find it valuable. Each to their own.

You should write a book.

One about life in the army.
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Old Dec 9, 2009, 2:14pm   #7
 
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Re: Thinking In Twenties

Quote:
Originally Posted by robster970 View Post
If I did a blog, it would read something like:

8th December 2009
Went short E-mini today. Found myself enjoying some Cheese & Chive flavoured crisps today. Might buy a box especially for Christmas and give each member of my family a pack as their present in return for receiving socks & underpants every year for a long time.
Got to about 7pm and decided to knock it on the head and have a couple of beers.

9th December 2009
Am still short E-mini as the market hasn't taken me out yet. Had some soup for lunch and a packet of Frazzles. I might consider replacing the cheese and chive crisp for Frazzles. Really fancy a pint. Alastair Darling is a c0ck. Think I might go skiing to Verbier and take the kids.

Seriously, I don't mind the boy posting his stuff up. If people want to read it then they can, if they don't then they don't. Doesn't interest me but others may find it valuable. Each to their own.

You should write a book.

One about life in the army.

I recognise a fellow veteran when i see one.
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GET YOUR TOWELS READY, ITS ABOUT TO GO DOWN.
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Old Dec 9, 2009, 2:24pm   #8
 
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Re: Thinking In Twenties

"If it moves, salute it; if it doesn't move, pick it up; and if you can't pick it up, paint it."
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