Tortoise and the hare

[wasp]

We all know risk management is sensible business practise and the lesser risk whilst allowing decent growth returns is the professional route to stress free, sensible, long-term success in trading.

There are always loads of threads on various boards where muppets come along and profess greatness and wonder on how they have a masterful strat and how they will turn $100 into a couple of mill by a week Thursday and naturally blow up.

Something FXScalper said on another thread made me think and ponder the billionaires and successes vs the ones we never here from again is their attitude and willingness to risk.

I'm not about to start a thread/journal for my '£1 to 1 billion dollars' but I have decided to run an account alongside the rest and try it out. See if I can turn nothing into something with stupid amounts of leverage and see what happens... You never know till you try and all that!

Just wondering if anyone else has tried it or even thought about it? I mean, once you have a method running nicely and you know the potential up and downsides, the worst case scenarios etc, etc, why not have something on the side just to find out?? Beats buying lottery tickets and you don't get the hangover you would at the casino!

Actually, I think I will post periodical updates on the account, just for those with morbid curiosity, whether it blows up or not. Of course, whether anyone believes the broker screen shots is your prerogative!

Just changed the screenshot so it shows the totals etc at the bottom.

PS This is by no way or means me trying to look good, I couldn't care less, just a bit of fun. It'll be at full potential leverage every step of the way.... :clap:

 

[Mathemagician]

You make some very good points and are taking a very sensible approach to this. I occasionally enjoy doing the same thing with a very small portion of my portfolio, and was actually considering beginning one and running a blog to track the progress. (Not sure what the interest would be for such a thing as I'm still new here.) If you'd like some company, give me a little while to get a separate account set up and I'll do mine alongside yours. If you prefer not, just say the word and I won't be offended.

Doing these side "lotto" accounts can be a lot of fun. My last such attempt struggled along for 4 months and finally cost me 80% of the initial amount. The attempt prior to that generated a 1033% return on the initial amount in almost exactly 5 months, meeting my target of 1000%. Both were tremendous learning experiences and were very refreshing, as I was forced out of my comfort zone. My advice would be to plan ahead for both success and failure. Decide what maximum drawdown on both initial capital and peak equity you're willing to accept before ending the experiment, and decide at what profit level you'll end it. When you get it right, an insignificant amount can become significant pretty suddenly and you want to be prepared.

Looking forward to the updates!

Enjoy!
jj

 

[wasp]

You make some very good points and are taking a very sensible approach to this. I occasionally enjoy doing the same thing with a very small portion of my portfolio, and was actually considering beginning one and running a blog to track the progress. (Not sure what the interest would be for such a thing as I'm still new here.) If you'd like some company, give me a little while to get a separate account set up and I'll do mine alongside yours. If you prefer not, just say the word and I won't be offended.

Doing these side "lotto" accounts can be a lot of fun. My last such attempt struggled along for 4 months and finally cost me 80% of the initial amount. The attempt prior to that generated a 1033% return on the initial amount in almost exactly 5 months, meeting my target of 1000%. Both were tremendous learning experiences and were very refreshing, as I was forced out of my comfort zone. My advice would be to plan ahead for both success and failure. Decide what maximum drawdown on both initial capital and peak equity you're willing to accept before ending the experiment, and decide at what profit level you'll end it. When you get it right, an insignificant amount can become significant pretty suddenly and you want to be prepared.

Looking forward to the updates!

Enjoy!
jj

Hi jj,

Definitely, join in, more the merrier! I was just curious at first to anyone who has tried it and good to hear someone else has, but it seems like a bit of fun on the sidelines to see how it turns out and figured it'll make the thread more interesting too.

The plan with the account is glory or bust simply. I'll keep trading the plan at full leverage with normal stops etc and just keep going till the broker or the balance tells me to stop, if it works out, then the milky bars are on me!

 

[rathcoole_exile]

will follow with great interest as the only time i tried this approach I blew the (small sized) account. But have been thinking lately of giving it another go. in fact I've just opened up a new account with a broker I've never used before, specifically for this activity (I don't want to shame myself in front of my usual broker if things go tits up)

 

[Trader333]

I'm not about to start a thread/journal for my '£1 to 1 billion dollars'

Is that because you have already blown your £1 trade ?


Paul

 

[wasp]

Is that because you have already blown your £1 trade ?


Paul

Give us a chance Paul only just started...! I'd say a week then I'll blow it! :cheesy:

 

[rathcoole_exile]

Is that because you have already blown your £1 trade ?


Paul

a quid already ? are you suggesting he's blown all 10 lots so soon ?

 

[shadowninja]

On my Oanda play account, I am more aggressive and take bigger risks. I'm down $3000. Was up $4000 when playing carefully. Of course, if I'd happened to pick one of the winning trades and bought 50,000,000 lots...

 

[bbmac]

Seems like a good experiment, Good luck with it.

Certainly risk and attitude toward it seem to be a distinguishing factor of very high net worth individuals.

The psychology at play in respect of risk is interesting and has been well discussed here and other places. Managing risk to a level you find comfortable/acceptable/are able to live with is of course very important not least because of the debilitating effects that the 'fear of loss' can have. For example someone using 10% risk/trade will in most cases find it difficult to place the next trade with impunity after say a consecutive losing run of 3 trades, because weighing in their mind is the fear of being 40% down. This fear of loss also distorts what we know about our trading edge, potentially causing doubt in it and alteration of it which in turn can compound the losses.

 

[Mathemagician]

FWIW, I decided to start a blog for this after all rather than clutter up this thread. Seems more appropriate.

jj

 

[wasp]

Well, all I can say at the moment is ouch! Up to £750 from £250 then back to £200 in just under 5 hours... not sure this is as much fun as I hoped!

 

[BSD]

If you know what your average loss, average profit, and hit rate are, you can play around with this to see how the amount you risk will play out on your equity curve:

Random Equity Curve Simulator of a trading system.

Thing is, there is a fourth component though, not to end results or net gains, but one that can have quite an effect on your psychological ability to hold on tight through difficult times, and that is the when part of the equation.

Assume you have a system with positive expectancy, with a real edge. However, when you are starting out trading this system, you start out during a time when the system goes through it's inevitable losing period, a period that may even entail an entire string of losses, one after the other, for quite some time.

If you had started out 3 months earlier or later you would have enjoyed a string of winners instead.

But because you start out with the string of losers, you get discouraged, question the validity of the approach, change the position sizing algorithm, etc.

And the more you risk per trade, the more you magnify the drawdown, and hence the psychological component, during tough phases that are part and parcel of trading.

I'm not a backtester, but if one is, and say you have a good, net profitable system, and you've backtested that for different position sizes.

I would assume that for many people it's one thing to realize in theory that if you want to achieve XYZ as your financial objective, the cost of getting there is going to be a drawdown of say 80, 90 %.

You've got those figures in front of you as a result of your vigorous backtesting, and you're fairly confident that they will hold up.

But, what happens in real life when you approach 50, 60, 70% drawdowns ?

Particularly if you realize that there are always outlier events that can and will occur, dramatically exacerbating your worst case scenario ?

Will one still be able to hold on tight, trading the system the way it's supposed to be, without counterproductive interfering, double guessing and fiddling around with vital components ?

Don't think there is a right or wrong answer to this, it's all about oneself, ones objectives, threshold for pain, and, if taken seriously, a willingness to face bankruptcy once or twice on ones journey.

But, just for the sake of discussion, let's say you can come up with anything between say 20 to a 100 K or so a few times in your life as start-up capital, depending on whether you maybe have a partner or a part time job or savings or whatever to take care of daily living expenses, and you're not afraid of betting the ranch and compounding as hard as you can, numbers don't start scaring you away from your plan as in "it's OK to bet 5% or even a gunslinging 10% with an account of a 100K or 1 million, but when I'm up to my first one hundred million I start seeing how much that could buy me now kind of nervosity", then there really is nothing to stop you from achieving even the wildest, craziest financial ambitions.

Always provided you're willing to accept one heck of a volatile ride and potentially starting out fresh if need be.

 

[DaxDestroyer]

If you know what your average loss, average profit, and hit rate are, you can play around with this to see how the amount you risk will play out on your equity curve:

Random Equity Curve Simulator of a trading system.

Thing is, there is a fourth component though, not to end results or net gains, but one that can have quite an effect on your psychological ability to hold on tight through difficult times, and that is the when part of the equation.

Assume you have a system with positive expectancy, with a real edge. However, when you are starting out trading this system, you start out during a time when the system goes through it's inevitable losing period, a period that may even entail an entire string of losses, one after the other, for quite some time.

If you had started out 3 months earlier or later you would have enjoyed a string of winners instead.

But because you start out with the string of losers, you get discouraged, question the validity of the approach, change the position sizing algorithm, etc.

And the more you risk per trade, the more you magnify the drawdown, and hence the psychological component, during tough phases that are part and parcel of trading.

I'm not a backtester, but if one is, and say you have a good, net profitable system, and you've backtested that for different position sizes.

I would assume that for many people it's one thing to realize in theory that if you want to achieve XYZ as your financial objective, the cost of getting there is going to be a drawdown of say 80, 90 %.

You've got those figures in front of you as a result of your vigorous backtesting, and you're fairly confident that they will hold up.

But, what happens in real life when you approach 50, 60, 70% drawdowns ?

Particularly if you realize that there are always outlier events that can and will occur, dramatically exacerbating your worst case scenario ?

Will one still be able to hold on tight, trading the system the way it's supposed to be, without counterproductive interfering, double guessing and fiddling around with vital components ?

Don't think there is a right or wrong answer to this, it's all about oneself, ones objectives, threshold for pain, and, if taken seriously, a willingness to face bankruptcy once or twice on ones journey.

But, just for the sake of discussion, let's say you can come up with anything between say 20 to a 100 K or so a few times in your life as start-up capital, depending on whether you maybe have a partner or a part time job or savings or whatever to take care of daily living expenses, and you're not afraid of betting the ranch and compounding as hard as you can, numbers don't start scaring you away from your plan as in "it's OK to bet 5% or even a gunslinging 10% with an account of a 100K or 1 million, but when I'm up to my first one hundred million I start seeing how much that could buy me now kind of nervosity", then there really is nothing to stop you from achieving even the wildest, craziest financial ambitions.

Always provided you're willing to accept one heck of a volatile ride and potentially starting out fresh if need be.

Very well said

BTW Do you have writers, who do that for you?
When do you trade?
I never could write so long posts as I have to watch the screens

:clap::clap::clap:

 

[BSD]

Thank you Carlos

Think my main problem is boredom...

I only have a few (if that) trades per week (trading off of 1hr charts and only looking at one or two of the most volatile instruments at the time), so that leaves me with far too much spare time on my hands to create mischief and just generally bum around, annoying our cat, bugging my wife, or just generally being a burden.

:cheesy:

 

[DaxDestroyer]

Thank you Carlos

Think my main problem is boredom...

I only have a few (if that) trades per week (trading off of 1hr charts and only looking at one or two of the most volatile instruments at the time), so that leaves me with far too much spare time on my hands to create mischief and just generally bum around, annoying our cat, bugging my wife, or just generally being a burden.

:cheesy:

I'm sure, your wife loves that

Understood :smart:

I'm looking at short term tickcharts. NOT scalping, but still SOME trades :whistling

 

[BSD]

Hehe ;-)

 

[wasp]

ah well.......

Well, blew that pretty quick! As promised, win or lose, heres the screenshot.

Part the problem with this I find, apart from the fact that with Alpari I had to put on a ton of small lots in order to go full leverage, was that I swayed from my cunning plan as it was only a play account. I certainly didn't treat it as seriously as other accounts and hey presto, its all gone!

Went from a ton to £780 then back to £1.50 in a week...!

Let that be a lesson kids, never risk more than 3%. MAX!

T'was fun!

 

[Mathemagician]

Well, blew that pretty quick! As promised, win or lose, heres the screenshot.

Part the problem with this I find, apart from the fact that with Alpari I had to put on a ton of small lots in order to go full leverage, was that I swayed from my cunning plan as it was only a play account. I certainly didn't treat it as seriously as other accounts and hey presto, its all gone!

Went from a ton to £780 then back to £1.50 in a week...!

Let that be a lesson kids, never risk more than 3%. MAX!

T'was fun!

Sorry to see it end so quickly! I got off to a bit of a luckier start, but I'm risking 20% of the account on each trade. Should be interesting to see how long it lasts...

Thanks again for the interesting thread and ideas!

jj

 

[JTrader]

Sorry to see it end so quickly! I got off to a bit of a luckier start, but I'm risking 20% of the account on each trade. Should be interesting to see how long it lasts...

Thanks again for the interesting thread and ideas!

jj

10% per trade sounds reckless enough for such a project :idea:.

 

[Mathemagician]

10% per trade sounds reckless enough for such a project :idea:.

Indeed. In all truthfulness, I chose 20% for a specific reason. I'm starting out with an older system (written and last modified in late 2004) that has shown fairly stable returns over time. This provides a prety good set of data for estimating optimal f, which turns out to be 24% over that time period. I figure 20% should keep us a bit below opt f to help out with short-term variations in the underlying return distribution while still being close enough to give the optimal f theory a fair go in real life. That is the most interesting part of this exercise to me.

My expectations are for the account to basically spike up and down between 2k and 20k for a period of months, always reverting fairly quickly to about 5-10k. This behavior is caused by short run-ups followed by shallow drawdowns If we're lucky, the system will catch a long enough run at some point before the account heads down to zero, and the equity curve will "break out" in a big spike. I have yet to determine specifically where to start dropping leverage (toying with fixed ratio), but I've got some time to figure that out as all reinvestment methods behave about the same when the account is small like this.

As I said, this account is pure risk capital -- an amount that is unimportant to me. I expect to learn a lot about risk and my attitude towards risk regardless of the outcome, and the risk of losing the capital in the account is a small price to pay for this knowledge.

jj