If I refer to your equity curve, I can see some recovery from Sep 18. Your recent postings reflect a more positive tone and optimism in achieving a positive return in trading going forward. It is obvious that the more recent results were driving your attitude while ignoring historical draw downs. That is recency bias i.e. a much higher weighting based on more recent performance even though it is relatively short. Confirmation bias is essentially similar. You refer to your more recent results to support your preferred view but ignoring the totality of your track record. In other words, you are seeking data that supports your view and discounting those that are contrary.
The higher the risk you take the greater the scope is for drawdown. You can't ignore natural laws. The most important equation in trading is the ability to trade with a positive expectancy. Your equity curve is a reflection of that expectancy. For example, if your trading is in the negative zone the greater the risk you take, the steeper the angle of descent you will experience with your equity curve. If you take on less risk, that equity curve decline will be smoother but it will still continue to decline. The only way to turn it around is to be able to trade in the positive zone. Adding risk just accelerates the curve depending on which side of the zone you are in.
Thanks very much for the reply mate.
I still don't quite understand how drawdown works. Specifically, how my drawdown can be up around 55% even in recent times... I have been making money in recent times and my trades have not really been going much against me either...
I did have over 6 trades going at one time (last week or the week before) and that resulted in about 35-40% of my margin being used but this wasn't for long...I'm almost certain not for as long as my drawdown has been at 55% in recent times. So why my drawdown remains so high is beyond me.
While I appreciate your explanation of how I am exhibiting recency and confirmation bias, I do however have to bring a few things to your attention. Of course I am going to exhibit what seems like recency bias. I only started trading nearly 5 months ago, with the last month being profitable. You can call this recency bias but I call I common sense. I'm obviously going to put more weight in this final month because it's where I learned how to be profitable... before that I was making stupid mistake by the bucketload and losing money. In my eyes this is not recency bias. I am not disregarding the early months, I am just acknowledging that I was a bad trader then and that I am much better now. I have been very open about my losses. Not disregarding, underplaying or hiding anything.
This argument against confirmation bias is also similar to the above one about recency bias. I would even argue that it's simply confirmation, not confirmation bias. I was losing money because I was trading wrong... the more examples of right and wrong I accumulated the better I could judge what did and did not work out.
Maybe you're right...
I will be sure to keep an eye on it.
A psych degree definitely doesn't exclude me from making such errors. So I will watch out for it. Thanks for the heads up
In trading, the only thing that matters is your trading track record results. You can have a dozen Phd's to your name and it means zilch if you can't deliver. The most important piece is a smooth equity curve.
Yes, I understand that my friend.
What I am wondering is, what sort of record would be barely enough to get into a middle of the line prop firm?
Generally speaking of course
For example:
Would 5% annual growth be enough? more? less?
Does drawdown have to be no more than half the annual growth?