Hey, Techies......Reality Check

[roguetrader]

In reply to the question........

As you have traded technically yourself I wonder why you didn't use your own numbers to "tell the story"

You replied.............

Mine were too good, and would have ruined the point I wished to make!

Which kind of renders all other similar posts on the subject a waste of time

In the interests of continuity, which two trades does this refer to?

Total # trades..............................2...........total return 36.5% on capital employed

I'm assuming "TELOZ Trade Opened" is one, which is the other?

 

[charliechan]

first, trading is actually a negative sum game. you always lose more than the amount risked and make less when you win due to the vig or commission. the question here is not FA or TA as FA falls on its face often as we saw in grand fashion during the internet boom. the market is a game of perception not reality. to the TA people, i ask, ever see a chart of random numbers within the parameters of an average stocks daily movement? if you have, you will see double tops, pennants, et al all over the place. are they predictive? of course not, as we know they were created randomly.

yep.

and thats about all that can be said really!

 

[SOCRATES]

yep.

 

[neil]

Happy ending

yep.

Well thats that thankfully :cheesy:

 

[ducati998]

rogue

General Motors.

Interesting the general apathy.
You have three technical systems, returning hugely different % on capital, and not the slightest interest in looking at the reasons for such wide fluctuations. Obviously these results are not representative of the traders on these boards, even though 3 / 4 came from these boards.

I shall simply have to conclude that the standard is much higher than one would suspect, and that is that.

cheers d998

 

[roguetrader]

rogue

General Motors.

Interesting the general apathy.
You have three technical systems, returning hugely different % on capital, and not the slightest interest in looking at the reasons for such wide fluctuations. Obviously these results are not representative of the traders on these boards, even though 3 / 4 came from these boards.

I shall simply have to conclude that the standard is much higher than one would suspect, and that is that.

cheers d998

Right, I forgot you had options positions on GM that messed up the trade the way it played out.

As for trading, its lke this, if you are successful, you are not going to brag about it as if you do not put your methods and results up for close scrutiny then you open yourself to abuse since your claims are unsubstantiated. So why not put your methods/results up for scrutiny? If you are a daytrader, then you are in the highly competitive end of trading, and you survive, or at least you believe you do, by doing things differently from the majority, giving you the so called "edge"
Now whether exposing what you do to all and sundry really would make a lot of difference to its performance, may be debatable, but why take the risk? So the net result is that successful traders will not contribute much and unsuccessful ones have nothing to contribute, no mystery.

 

[ducati998]

rogue

As for trading, its lke this, if you are successful, you are not going to brag about it as if you do not put your methods and results up for close scrutiny then you open yourself to abuse since your claims are unsubstantiated.

So why not put your methods/results up for scrutiny?

If you are a daytrader, then you are in the highly competitive end of trading, and you survive, or at least you believe you do, by doing things differently from the majority, giving you the so called "edge"

Point taken.
However, here are some real results, taken off the work of others who for whatever reasons have placed their trades into the public forum, and two of them with nigh on 100% disclosure, the other two without "disclosure" of the methodology.

"The Edge"...........widely claimed to be "yourself" so very little harm in discussing in general terms, the reasons behind such disparate results.

Are the results simply due to individual skill, such as claimed by the Socrates camp, or are there inherent advantages, disadvantages within the same methodologies?

Remember 3 / 4 of the posted results are from "technical methodologies" only my "2" trades represent the "fundamentals".

cheers d998

 

[roguetrader]

Remember 3 / 4 of the posted results are from "technical methodologies" only my "2" trades represent the "fundamentals".

Possibly that represents a great deal of the problem, the fundamental study contains only 2 trades, not what one would call a statistical study, certainly not one worth comment.

As for the other two, I commented briefly on one, "If he / she was a scalper....blah blah." Point I was making without any context or background to the trades who can comment.

As for the other, I think the post mentioned something about a "twist" so I suspect all the information is not there, so one would be foolish to comment without knowing what was missing. Your trades perhaps. 87% return capital employed (not sure of the precise meaning of that) But either way I'd interpret it, it's better than my returns. But then having said that, there is no timeframe which makes a huge difference. Comparison, imagine for a minute the first trader is a scalper, and the posted trades represent a days work which he / she can do consistantly, and the second represents a years work. Now we have one returning 87% in a year, not bad, but the other returns about 40% per month, about 480% p.a. Without context and background statistics are meaningless.

 

[ducati998]

rogue

As for the other, I think the post mentioned something about a "twist" so I suspect all the information is not there, so one would be foolish to comment without knowing what was missing.

Your trades perhaps. 87% return capital employed (not sure of the precise meaning of that) But either way I'd interpret it, it's better than my returns. But then having said that, there is no timeframe which makes a huge difference.

Comparison, imagine for a minute the first trader is a scalper, and the posted trades represent a days work which he / she can do consistantly, and the second represents a years work. Now we have one returning 87% in a year, not bad, but the other returns about 40% per month, about 480% p.a. Without context and background statistics are meaningless.

Yes valid criticisms.
The first set of results are for 6months to June this year.
My Fundie results are also for 6mths to July this year.
The Mechanical system results are over 3yrs
The last set of results are for 1yr.

The "twist" is what is responsible for the widely divergent returns between the three technical systems.

Methods one and two are using a diversified approach, viz a fixed amount of capital per trade, and holding numerous positions.

Method three utilises 100% of total available capital per trade, so only one trade open at any point in time. And the % returned per trade probably averages only 1.5%.

The % returns per trade are cumulative, as opposed to dilutive, but the risk is much, much higher..............potentially lethal.

cheers d998

 

[roguetrader]

Are the results simply due to individual skill, such as claimed by the Socrates camp?

I would say there is a fair amount of skill involved in technical trading. Having read all the books (figuratively speaking of course), and pretty much learned most of what there was to learn about charts, indicators, "methods of the masters" blah blah, and gone into the markets and reproduced textbook approaches, and got raped (figuratively again) Then going back to the beginning and approaching it as a practical skill rather than a theoretical one, that means hours and hours of real screentime, studying how different stocks move, how they react to different market conditions. Taking pieces of different approaches and putting them together, throwing bits out that caused problems, then altering criteria to allow the bits to fit together. And after all that more time playing with the method and learning to interpret what you are seeing To that end, I believe it's a skill.
Imagine you had to fight a sword fencing duel, never having held a sword before, and the only preparation you had was to read a few books. The man you faced was an expert in the art, how do you think you would do? That is the dilemma faced by all new traders, stage one is to survive long enough to learn something, most are wiped out before they realise how ill equipped they are.

or are there inherent advantages, disadvantages within the same methodologies?

Not sure what you mean, if by methodology you mean technical trading and are referring to advantage / disadvantage between styles, I couldn't really say without trading all styles, and even then, how would you know whether the problem was with the style or you. I can imagine there are different problems with different styles, the question is to what extent you can overcome them.

 

[roguetrader]

Methods one and two are using a diversified approach, viz a fixed amount of capital per trade, and holding numerous positions.

I could probably produce data for '04 with about 50% gross return on the account over 12 mnths, from a technical approach, purely chart based, and diversified similar to the first two.

 

[ducati998]

rogue

Imagine you had to fight a sword fencing duel, never having held a sword before, and the only preparation you had was to read a few books. The man you faced was an expert in the art, how do you think you would do? That is the dilemma faced by all new traders, stage one is to survive long enough to learn something, most are wiped out before they realise how ill equipped they are.

Which kinda brings us to the point of considering reward, and how its attained.
Reward will be attained through the assumption of Risk.

Now there are all types of risk, and various ways of managing it.
The first and foremost risk, and the one you have identified, is the risk of Knowledge & Experience

Many novice traders will only pay lip service to these, and invariably get blown out of the market.
Assuming however that they survive and have a modicom of both.

Reward then becomes more closely correlated to the risk assumed on an informed basis.
If you examine the numbers from the three technical systems, you will see on a daily basis they all probably return on average the same, viz. somewhere between 1% - 2% per day, viz. the average volatility of the market.

Therefore, on a 1 day basis, your 1% reward is linked to the %capital committed to the trade.
The higher the % committed, the higher the aggregate returns (in $$ terms & % terms)
Of course the downside, is if the trade loses, the greater the aggregate loss (in $$ terms & % terms if stops are not executed)

Thus, the tighter the stoploss needs to be, the higher the % capital used, and it can be looser, for diversified trades.

The next component that would need serious consideration, is the true probability, of the trades potential to succeed. Again from the figures, you can see that in the technical systems, you are coming periously close to that 50% figure.

That is despite chart patterns, mechanical backtesting, scanning, etc, etc.
Again regarding the stoploss, the higher the true probability, the looser, or further away it can be, at a 50% probability, it needs to be pretty tight, as the probabilities are pretty low.

Remember, on a 1day basis, they all return circa 1%.

Timeframe.
To shift the profitability in your favour, you need to assume greater risk.......here comes that correlation.
By increasing the risk.........market exposure in terms of time, you, if right, start to accumulate all those 1% per day returns, some you give back............

The largest return on the mechanical system was 190% and here is where exits are very important to generating the % returns that give high % profitability margins
The largest loss was consistently 10%
Over time, the winners returned to the tune of 16.9%, above the losses.

So we have three vital components..........
Stock selection
Time in the market
Defining profitable exits

Where does the Fundamental approach deliver................?
In stock selection, time in the market and in profit margin, or return on capital.
The data is thin, as it takes a bit of time to build up the trades, but in essence, and you'll just have to take my word on this currently...................

Probability.............90%
Profitability............73%
Timeframe............Maximum 2yrs

could probably produce data for '04 with about 50% gross return on the account over 12 mnths, from a technical approach, purely chart based, and diversified similar to the first two.

Which is excellent.
Cheers d998

 

[twiggytwo]

compounding profits

rogue



Which kinda brings us to the point of considering reward, and how its attained.
Reward will be attained through the assumption of Risk.

Now there are all types of risk, and various ways of managing it.
The first and foremost risk, and the one you have identified, is the risk of Knowledge & Experience

Many novice traders will only pay lip service to these, and invariably get blown out of the market.
Assuming however that they survive and have a modicom of both.

Reward then becomes more closely correlated to the risk assumed on an informed basis.
If you examine the numbers from the three technical systems, you will see on a daily basis they all probably return on average the same, viz. somewhere between 1% - 2% per day, viz. the average volatility of the market.

Therefore, on a 1 day basis, your 1% reward is linked to the %capital committed to the trade.
The higher the % committed, the higher the aggregate returns (in $$ terms & % terms)
Of course the downside, is if the trade loses, the greater the aggregate loss (in $$ terms & % terms if stops are not executed)

Thus, the tighter the stoploss needs to be, the higher the % capital used, and it can be looser, for diversified trades.

The next component that would need serious consideration, is the true probability, of the trades potential to succeed. Again from the figures, you can see that in the technical systems, you are coming periously close to that 50% figure.

That is despite chart patterns, mechanical backtesting, scanning, etc, etc.
Again regarding the stoploss, the higher the true probability, the looser, or further away it can be, at a 50% probability, it needs to be pretty tight, as the probabilities are pretty low.

Remember, on a 1day basis, they all return circa 1%.

Timeframe.
To shift the profitability in your favour, you need to assume greater risk.......here comes that correlation.
By increasing the risk.........market exposure in terms of time, you, if right, start to accumulate all those 1% per day returns, some you give back............

The largest return on the mechanical system was 190% and here is where exits are very important to generating the % returns that give high % profitability margins
The largest loss was consistently 10%
Over time, the winners returned to the tune of 16.9%, above the losses.

So we have three vital components..........
Stock selection
Time in the market
Defining profitable exits

Where does the Fundamental approach deliver................?
In stock selection, time in the market and in profit margin, or return on capital.
The data is thin, as it takes a bit of time to build up the trades, but in essence, and you'll just have to take my word on this currently...................

Probability.............90%
Profitability............73%
Timeframe............Maximum 2yrs



Which is excellent.
Cheers d998

Hi Ducati, what about compounding profits from short term trading over the 2 year period ?
Best Regards

 

[charliechan]

Soccy.............baby

I wouldn't bother scalping unless I had a seat, why, lets calculate why.

YM contract, $5 a tick.
Roundtrip costs $2

Therefore, buy @ 10,000, and Sell @ 10,001 so one point, two ticks = $10
Your profit margin = 0.0001%
Less expenses of 20% ($10 - $2)

Multiplied by 500 trades in a day = $5000 less $1000 = $4000 net profit
This of course assumes no losses, a 100% win rate.

Therefore, having a seat, and no trading expenses makes a significant difference. $1000 a day

Start adding in losses, and the zero costs bulk even larger.
And of course if your brokerage is higher than $1, the cut is even deeper, brokerages love scalpers though, commissions are their bread and butter.

cheers d998

as usual, your posts are completely daft and narrow minded. you only show select data to reflect what you want rather than being objective (like a good trader should)

instead of ym, where you could only get 20 lots off at a time, what about bonds?

$32 (ish) a tick, and you could get off 1000 clips off no probs.

or es at $12.5 a tick, and you could get 200 lots off no probs?

what about if you only pay $2 r/t?

DOH!!

and anyone could get these costs without a seat. run those figures through your abbacus.

ok so the size i quote are probably quite high for mr retail at home, but these sizes are being done my many in arcades around town, where only $20k is put down.

 

[charliechan]

it would appear that ducati (or is it ducatti - cant this guy even get his own name right!!) not only knows nothing about arbitrage as we have already seen, but also knows nothing of scalping or day trading.

why does he persist knocking methods he knows nothing about? how very odd. how very funny.it wouldnt be so bad if he was a little more humble in his approach, but he comes across like he thinks hes some authority figure.

 

[roguetrader]

Now there are all types of risk, and various ways of managing it.

The first and foremost risk, and the one you have identified, is the risk of Knowledge & Experience

Many novice traders will only pay lip service to these, and invariably get blown out of the market.

I would propose that this accounts for the bulk of the high failure rate of short term traders who trade technically. Now in truth we could point to all sorts of reasons why a technical trader may fail, but in a great deal of them they can be traced back at least in part to these two. There are very few skilled employments where an inexperienced exponent will be unleashed to practice what he has so diligently learned from his books without some form of experienced supervision, probation if you like. Yet everyday in the market fresh faced novices do just that.
In the probation period in a normal job most mistakes will be prevented before they happen, as the mentor intervenes to say "No no don't do that, cause this will happen." For the novice trader this is not the case, the mistake will be made and the price paid. The question then becomes, how many mistakes can he afford? Verses how fast can he learn.

The next component that would need serious consideration, is the true probability, of the trades potential to succeed. Again from the figures, you can see that in the technical systems, you are coming periously close to that 50% figure.

Ok, this I partially agree with, where I would diverge is in this consideration. Take the average technical style that appears to yield about a 50% probability and consider it along side a scalping method. I consider scalping to be a form of technical trading. Now scalping, done successfully yields a very high % win rate, but a relatively low per win return. Given that these two extremes exist I would suggest that there are all points in between dependant on exactly what you are doing and how you are managing that. Unfortunately I would not be prepared to discuss what lies between.

Again regarding the stoploss, the higher the true probability, the looser, or further away it can be, at a 50% probability, it needs to be pretty tight, as the probabilities are pretty low.

Ok, here I need to take a moment to try and understand what you mean by "true probability"
Again taking my old friend the successful scalper, are his trades high probability? I would say yes. To return a no would suggest that day in day out he defies probability, an unlikely concept. However that does not allow his "stops" to be loose, on the contrary, the first wiff of trouble and he vacates his position. That said, what your are saying does make sense, assuming you can accurately determine the true probability.

but in essence, and you'll just have to take my word on this currently...................

I never take anyones word for anything on such matters so we will just have to look at the statistics as they accumulate if you choose to continue posting such trades.

As for technicals, here is a random month's statistics from '04, very basic and common technical approaches, mainly intraday trades but some swing, circa 25%.
Unfortunately this method does produce a close to 50-50 win / loss rate, so not much argument there, it was one of the reasons I abandoned it.

Trades taken......................................95
Losing trades.....................................45
Winning trades...................................50
Gross% return on account...............16.13%

 

[SOCRATES]

it would appear that ducati (or is it ducatti - cant this guy even get his own name right!!) not only knows nothing about arbitrage as we have already seen, but also knows nothing of scalping or day trading.

why does he persist knocking methods he knows nothing about? how very odd. how very funny.it wouldnt be so bad if he was a little more humble in his approach, but he comes across like he thinks hes some authority figure.

No Charlie, it is not what you think.

It is a strain of a mental condition called information begging.

In this particular virulent strain the characteristics that identify it are very clear.

They involve persistent and closed loop arguing.

This is done in the hope that a knowledgeable member might, impulsively and unwisely, succumb to an ego trip and suddenly and unguardedly, spill all the beans.

I am not spilling any beans, and I hope you are not either.

 

[charliechan]

No Charlie, it is not what you think.

It is a strain of a mental condition called information begging.

In this particular virulent strain the characteristics that identify it are very clear.

They involve persistent and closed loop arguing.

This is done in the hope that a knowledgeable member might, impulsively and unwisely, succumb to an ego trip and suddenly and unguardedly, spill all the beans.

I am not spilling any beans, and I hope you are not either.

i see.

but he has been pointed in the correct direction a few times, yet he still holds his odd theories.

 

[ducati998]

rogue

Ok, here I need to take a moment to try and understand what you mean by "true probability"

Again taking my old friend the successful scalper, are his trades high probability? I would say yes. To return a no would suggest that day in day out he defies probability, an unlikely concept.

However that does not allow his "stops" to be loose, on the contrary, the first wiff of trouble and he vacates his position. That said, what your are saying does make sense, assuming you can accurately determine the true probability.

True probability simply refers to the actual results that have been displayed.
Technical traders have claimed areas or trades that are high probability this however has not really been substantiated by the results thus far.

We have two strategies that are discretionary, and one mechanical, and we could also include your results, all are showing approximately a 50% outcome.

This simply says that the belief in a set-up that is high probability, just is not supported by the numbers.

The Fundamentals, while I accept are very early days, will in the fullness of time show a true high probability outcome. Which is a very high return on capital employed.

This brings us back to a previous point. True high probability trades do not present in high numbers, that is, they are few and far between, unlike technical set-ups that present at least several a day.

Returning to the scalper, are they high probability trades...............no they are not.
Will the scalper make money, viz. be profitable?

Absolutely, for a variety of reasons, but not that he is trading high probability set-ups, his return on capital employed is still very low. His profitability is driven by volume of trades, by definition almost random, low costs, and our old friend the ubiquitous stoploss. The stop is tight because it has to be. By definition, it is a low probability system. (but profitable)

twiglet

Hi Ducati, what about compounding profits from short term trading over the 2 year period ?

What about them?
Not sure I understand your question.

cheers d998

 

[roguetrader]

Ducati, I think we have encountered a problem here, which is not uncommon when people attempt to prove a specific point, belief, or opinion, that they already hold. It is the reason I don't simply take "an individuals word for it" People out to prove a point are missing an important component, objectivity. This is why you did not post your own results, as you said, " they were too good, and would not support the point" you were trying to make.

I let the phrase True Probability ride as I wanted your definition. Probability is a mathematical calculation, it is neither true nor false. It is probability, plain and simple.

True probability simply refers to the actual results that have been displayed.

This statement represents confused thinking, disregarding the word "true", probability refers to the likelihood of a possible result. It may be calculated using past actual results, but it has no absolute determination of future results. It is a bad concept to use since most of us, myself included, do not truly understand the concept and its application.

Will the scalper make money, viz. be profitable?
Absolutely, for a variety of reasons, but not that he is trading high probability set-ups, his return on capital employed is still very low. , by definition almost random, low costs, and our old friend the ubiquitous stoploss. The stop is tight because it has to be. By definition, it is a low probability system. (but profitable)

This statement is contradictory, particularly in light of your definition of probability. As you have pointed out, "his return on capital employed is still very low." and since he has both costs of execution and the occurrence of loss he must by definition return a much higher % of wins than losses. Therefore his actual win / loss ratio must be high and hence by your definition the production of "actual high win rate" denotes high probability.

His profitability is driven by volume of trades

Incorrect, if a trader has 5 trades in a day, and they lose, then he loses money, adding another 200 losing trades (driving it by volume) will not improve his results. His profitability is driven by a high win rate.