Firewalker's Journey: A path of discovery in search for enlightenment

This is a discussion on Firewalker's Journey: A path of discovery in search for enlightenment within the Trading Journals forums, part of the Reception category; Originally Posted by firewalker99 A win:loss ratio of 50:50 can be very very profitable, if accompanied with a risk:reward of ...

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Old Aug 16, 2006, 12:59pm   #151
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Originally Posted by firewalker99
A win:loss ratio of 50:50 can be very very profitable, if accompanied with a risk:reward of 1:5. Doesn't even need to be that high.
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You are, of course, bringing in the argument of close stops. If your lack of tolerance to a loss is clearcut, with no dillydallying on exits, then lower than 50:50 is possible. It can't be brought home often enough. If a trader hangs on too long to a losing trade it doesn't matter how good his ratio is, his gains will be mediocre, at best.

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Old Aug 16, 2006, 1:03pm   #152
 
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Originally Posted by Splitlink
You are, of course, bringing in the argument of close stops. If your lack of tolerance to a loss is clearcut, with no dillydallying on exits, then lower than 50:50 is possible. It can't be brought home often enough. If a trader hangs on too long to a losing trade it doesn't matter how good his ratio is, his gains will be mediocre, at best.

Split
Of course, one has to obey to his system and take a loss whenever it's there and go beyond that and look for a next possible entry. If a trader hangs on too long to losing trades, then even if his system provides him with a high probability for success, he could still me on the way to liquidating his account...
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Old Aug 16, 2006, 1:49pm   #153
 
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All of which remains anchored in what one has read and what one has heard and what one has been told rather than in what one has experienced.

Yes, a win rate of 50% can be profitable with a profit:loss of 5:1. And when you've demonstrated that you can consistently accomplish a 5:1 profit:loss ratio, please get back to me. Until then, I suggest you pay closer attention to what ymonly had to say. Being satisfied with a win rate of 50% or less is usually a beginner's rationalization for being too lazy to find something better (experienced traders know what risk:reward really means*).

Db

*Edit: i.e., that risk:reward has to do entirely with probability. Pulling some target out of thin air is meaningless. Unless one has some idea of the probability of a target being reached, what is probable is that he will be disappointed. As for "risk", the market couldn't care less what the trader is willing to risk; it's up to the trader to determine what the market demands. He can then decide whether he wants to risk that much or not. Simply placing a stop somewhere according to how much the trader can afford to lose often does little more than guarantee that the trader will in fact lose it.

Last edited by dbphoenix; Aug 16, 2006 at 2:09pm.
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Old Aug 16, 2006, 3:08pm   #154
 
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Originally Posted by dbphoenix
All of which remains anchored in what one has read and what one has heard and what one has been told rather than in what one has experienced.

Yes, a win rate of 50% can be profitable with a profit:loss of 5:1. And when you've demonstrated that you can consistently accomplish a 5:1 profit:loss ratio, please get back to me. Until then, I suggest you pay closer attention to what ymonly had to say. Being satisfied with a win rate of 50% or less is usually a beginner's rationalization for being too lazy to find something better (experienced traders know what risk:reward really means*).
Like I said, this was a generalization and had in no means any reflection on my personal thoughts nor targets. Everything I said was based on the simple mathematical promise of expectancy and not on what trader x or y has proven to do or said he was able to do so. For the record, I'm not willing to trade anything with a 50% win rate because after all I've been through I want something to have (a lot of) confidence in. So until - or if - I reach that point, I'll keep looking, trying, reading, searching, observing, analyzing...
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Old Aug 16, 2006, 3:27pm   #155
 
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Originally Posted by firewalker99
Like I said, this was a generalization and had in no means any reflection on my personal thoughts nor targets. Everything I said was based on the simple mathematical promise of expectancy and not on what trader x or y has proven to do or said he was able to do so. For the record, I'm not willing to trade anything with a 50% win rate because after all I've been through I want something to have (a lot of) confidence in. So until - or if - I reach that point, I'll keep looking, trying, reading, searching, observing, analyzing...
Expectancy is not a promise but a calculation. The point is that whatever one has pegged as his "reward" is wishful thinking unless he has determined the probability of actually reaching that target. Otherwise, he's just playing math games.

As for a setup that occurs once a week and has an 80% expectancy with a reward of "only" five points, how is that inferior to the beginner who overtrades every day and watches his equity dribble away? Those five points, if played with size, will look pretty good.

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Old Aug 16, 2006, 3:34pm   #156
 
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Originally Posted by dbphoenix
Expectancy is not a promise but a calculation. The point is that whatever one has pegged as his "reward" is wishful thinking unless he has determined the probability of actually reaching that target. Otherwise, he's just playing math games.

As for a setup that occurs once a week and has an 80% expectancy with a reward of "only" five points, how is that inferior to the beginner who overtrades every day and watches his equity dribble away? Those five points, if played with size, will look pretty good.

Db
That 80% setup is without a doubt very good. But you left out the most important part of my sentence: and you have to place your stop at 20 points with a target of only 5 points? After every month, the fiffth week would be a losing trade that equals the profits he made. Otherwise I'd be glad to trade a setup with that frequency or expectancy.
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Old Aug 16, 2006, 3:43pm   #157
 
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Quote:
Originally Posted by firewalker99
That 80% setup is without a doubt very good. But you left out the most important part of my sentence: and you have to place your stop at 20 points with a target of only 5 points? After every month, the fiffth week would be a losing trade that equals the profits he made. Otherwise I'd be glad to trade a setup with that frequency or expectancy.
And you're continuing to play with numbers rather than address what's involved in real-time trading with real money. Would you trade exactly the same size for your fifth week if the previous four weeks had all been winners? Would you have no contingency stops? Would you make no changes to how you scale in or out? What do all of your calculations have to do with real trading?

Db
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Old Aug 16, 2006, 3:44pm   #158
 
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Quote:
Originally Posted by dbphoenix
*Edit: i.e., that risk:reward has to do entirely with probability. Pulling some target out of thin air is meaningless. Unless one has some idea of the probability of a target being reached, what is probable is that he will be disappointed. As for "risk", the market couldn't care less what the trader is willing to risk; it's up to the trader to determine what the market demands. He can then decide whether he wants to risk that much or not. Simply placing a stop somewhere according to how much the trader can afford to lose often does little more than guarantee that the trader will in fact lose it.
I would define my stoploss on several criteria like ATR and depending if the target(s) is(are) fixed or not. Anything based on how much I was willing to lose in absolute numbers, would be an inferior strategy and subjective. My "risk" in total, depends on the probability of the setup and volatility at that moment which define the number of contracts to enter the trade with. Incorporated in the probability of the setup, has to be a target of course. What about time stops?
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Old Aug 16, 2006, 3:52pm   #159
 
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Originally Posted by dbphoenix
Would you trade exactly the same size for your fifth week if the previous four weeks had all been winners?
If I would not, than I'd let myself be emotionally influenced on what happened before.

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Originally Posted by dbphoenix
Would you have no contingency stops? Would you make no changes to how you scale in or out?
Do you mean with contingency stops, emergency stops where I pull the trigger manually? Wouldn't that seem like abandoning the plan? Then again, why would I change my entry/exit if I had 4 successive profitable weeks? Are you implying you should change your plan depending on the outcome? This seems to go against everything you've told me to stick with the plan.

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What do all of your calculations have to do with real trading?
Nothing, I'm not real time trading. But all this has to be defined if I ever were to begin again.
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Old Aug 16, 2006, 3:56pm   #160
 
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You're breezing by all the prerequisites as if they are givens and wading back into the theoretical. What evidence do you have that "defining" your stoploss based on anything you've posted has any value? How would you set your target? What evidence would you have that you had set it properly? What's the probability of your setup? What, as far as that goes, is your setup?

In any event, shouldn't all of this be in First Steps or in your journal?

Db
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Old Aug 16, 2006, 4:18pm   #161
 
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Quote:
Originally Posted by dbphoenix
You're breezing by all the prerequisites as if they are givens and wading back into the theoretical. What evidence do you have that "defining" your stoploss based on anything you've posted has any value?
Db
I have no evidence whatsoever, I was merely hypothesizing about what perhaps could be a way to do it. I'm listening to any suggestions or examples that have a proven track record. If you have any evidence that anything I've posted has no value at all, then don't hesitate to tell me if I'm wasting my time.

Quote:
Originally Posted by dbphoenix
How would you set your target? What evidence would you have that you had set it properly? What's the probability of your setup? What, as far as that goes, is your setup?
In any even, shouldn't all of this be in First Steps or in your journal?
A while ago you said you didn't find any ways to calculate a target. My point of view was I used ATR. As for the journal part, I was only replying to the questions you stated, no problem if you'd rather see them elsewhere.

About all the maths, you asked why? Well, to gain confidence, to have something to rely on. To see what the longest losing streak could be so that when I take to step to realtime trading, the light goes on when I would detect something statistically signifcant.
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Old Aug 16, 2006, 4:27pm   #162
 
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Yes, you are hypothesizing. And if you remain rooted there, then, yes, you are wasting your time unless and until you go beyond that to finding a setup, testing it, and so on. You aren't going to gain confidence by fiddling with formulas. You're going to do it by finding, defining, testing, and trading a setup.

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Old Aug 16, 2006, 11:25pm   #163
 
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Originally Posted by dbphoenix
Yes, you are hypothesizing. And if you remain rooted there, then, yes, you are wasting your time unless and until you go beyond that to finding a setup, testing it, and so on. You aren't going to gain confidence by fiddling with formulas. You're going to do it by finding, defining, testing, and trading a setup.

Db
If I recall correctly, hypothesizing, testing and experimenting are some of the first stages in finding a setup following the "scientific method". This is exactly what I'm doing, not? I fail to see how I can answer your questions while I'm still searching for answers empirically. So let me ask you then what possible pathways are they I could walk or investigate finding a resolution to the following problems:

- How would you set your target? You yourself said you had not found any conclusive evidence of this or that strategy.

- What evidence would you have that you had set it properly? Only the results of the testing that would show a certain probability...?

- Would you have no contingency stops? What exactly do you mean by this, can you give an example?

- Would you make no changes to how you scale in or out? Have you found it useful to change or use scaling entries/exits depending on what happened in the past to your trades? I would say yes, if there's a possibility to enhance or refine your signal, but no if those changes were merely based on the result to your account size.
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Old Aug 17, 2006, 1:06am   #164
 
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Originally Posted by firewalker99
If I recall correctly, hypothesizing, testing and experimenting are some of the first stages in finding a setup following the "scientific method". This is exactly what I'm doing, not? I fail to see how I can answer your questions while I'm still searching for answers empirically. So let me ask you then what possible pathways are they I could walk or investigate finding a resolution to the following problems:.
Yes, hypothesizing, testing, and experimenting are some of the first stages in finding a setup. But you aren't doing any of that. What you're doing is regurgitating what you've read about expectancy. Chatting on message boards about expectancy formulas has nothing to do with the task of detecting patterns.

Quote:
- How would you set your target? You yourself said you had not found any conclusive evidence of this or that strategy.
It doesn't matter what I or anyone else does. All that matters is what you've found to contribute to a consistently profitable strategy through your own testing and your own trading.

Quote:
- What evidence would you have that you had set it properly? Only the results of the testing that would show a certain probability...?.
The evidence would be a consistently profitable strategy, which you would create through testing and trading.

Quote:
- Would you have no contingency stops? What exactly do you mean by this, can you give an example?.
It doesn't matter what I or anyone else does. All that matters is what you've found to contribute to a consistently profitable strategy through your own testing and your own trading.

Quote:
- Would you make no changes to how you scale in or out? Have you found it useful to change or use scaling entries/exits depending on what happened in the past to your trades? I would say yes, if there's a possibility to enhance or refine your signal, but no if those changes were merely based on the result to your account size.
It doesn't matter what I or anyone else does. All that matters is what you've found to contribute to a consistently profitable strategy through your own testing and your own trading.

You're not going to get anywhere until you stop waiting around for somebody to tell you what to do and start the work. If you have absolutely no idea how to locate a pattern, try the First Steps forum. Or hire a mentor. But all of these "what would you do" questions are pointless.
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Old Aug 17, 2006, 2:26am   #165
 
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Originally Posted by dbphoenix
. Being satisfied with a win rate of 50% or less is usually a beginner's rationalization for being too lazy to find something better (experienced traders know what risk:reward really means*).

Db

*.

DB ,,

Firewalker is talking a lot of sence. Listen to what he says because his views are foundation of many many program trade's that I know of and not only is not a biggerner's rationalisation , it is a pro approach to trading ..

Firewalker May i invite you to our technical Trader Forum ( Home page/control panel ) as we have very high calibre traders there. I trade the market myself daily and post all MY P/L daily on that site directly from Broker's screen .

Just one point regarding expectancy ... you said ... apart from psychological side of trading there is no difference what so ever between 40-60 and 60-40 system .. You are spot on how ever the psychological side of trading nearly always kicks in when the trader's loss rate increases and traders cut their winning trades unless their strategy is 100 % coded. Even if the strategy was driven by 100 % piece of software a 40-60 system could result in massive drawdawns that the winning trade has to run for a LONGGGGGGGGGGGGG time to compensate the losses which would make the trade subject to more adverse NEWS( upgrade/down grade/geo political issues/macro economic projections ) ..Saying that , I KNOW mathematically you are correct. I myself developed few trading algorithms based on mathematics you refered to ..

IT IS HUMAN NATURE TO WANT TO WIN MORE TIMES THAN LOSE .. EVEN IF THE TOTAL WIN IS SMALLER COMPARE TO ONE TIME BIG WIN .. We are all human ....

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