Ah!
I didn't check - T2W's link is to Amazon isn't it! Ooops... sorry Paul, I just rather assumed you linked to Global, who are allegedly publishing Ms Bouvier's Memoires, or something like that, somewhere along the way
Not an intentional plug... as Mark would say (and I frequently find I must) 'I'll get my coat....
I didn't check - T2W's link is to Amazon isn't it! Ooops... sorry Paul, I just rather assumed you linked to Global, who are allegedly publishing Ms Bouvier's Memoires, or something like that, somewhere along the way
Not an intentional plug... as Mark would say (and I frequently find I must) 'I'll get my coat....
cassiopeia
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Dave
you can avoid psychological problems if you set rules and follow them
Well you can certainly minimize them that way.
The problem is that most 'rules' in trading are not specific. ie. when is a trend not a trend, does that count as support?
These ambiguities then play on our minds. If you are dealing in spread betting or stocks then there are variable spreads and/or bias to contend with as well. Then you have to weigh up the combination of these uncertainties which makes it far more complicated since your back-testing doesn't allow for these practicalities, and self doubt creeps in.
This is the disadvantage of complex strategies involving a large number of indicators. Just working with the price and using money management with a minimum of TA is far easier. Even then there will be periods of losses, and you start to worry whether the characteristics of the market or the marketmakers pricing policy has changed.
I am firmly of the belief that strategies which use relatively simply methods are the best.
you can avoid psychological problems if you set rules and follow them
Well you can certainly minimize them that way.
The problem is that most 'rules' in trading are not specific. ie. when is a trend not a trend, does that count as support?
These ambiguities then play on our minds. If you are dealing in spread betting or stocks then there are variable spreads and/or bias to contend with as well. Then you have to weigh up the combination of these uncertainties which makes it far more complicated since your back-testing doesn't allow for these practicalities, and self doubt creeps in.
This is the disadvantage of complex strategies involving a large number of indicators. Just working with the price and using money management with a minimum of TA is far easier. Even then there will be periods of losses, and you start to worry whether the characteristics of the market or the marketmakers pricing policy has changed.
I am firmly of the belief that strategies which use relatively simply methods are the best.
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Cassiopeia
I don't disagree with any of that
I do however think that many people set rules, then go out of their way to find shades of grey at decision time when they're fully aware of what their rule is saying... it's as if they set a rule for themselves and then become barrack room lawyers when they don't feel like following their own logic later. That's where the psych creeps in, in my view, and is often then misapplied - it ought to have been applied at the start 'can I follow a plan Y/N - if N don't trade'
Dave
I don't disagree with any of that
I do however think that many people set rules, then go out of their way to find shades of grey at decision time when they're fully aware of what their rule is saying... it's as if they set a rule for themselves and then become barrack room lawyers when they don't feel like following their own logic later. That's where the psych creeps in, in my view, and is often then misapplied - it ought to have been applied at the start 'can I follow a plan Y/N - if N don't trade'
Dave
Zenda
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Money & risk managnent - Before you concentrate on trading with a specific plan for money managment - It sometimes requires you look at your personal finances first a good set of calculators for the UK - like a DIY financial advisor can be found at www.merlinsmoneymagic.com its free to download and try.
This is Dr. Van Tharp's Trading Forum:
http://mastermindforum.com/phorum/list.php?f=9
http://mastermindforum.com/phorum/list.php?f=9
nine
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Cassiopeia, while I agree with most of what you said I have to disagree that the small losers and small winners necessarily cancel each other out.
I do follow trading strategies where the ideal is winner = 3x loser but I also follow trading strategies where the winner is less than the loser. The key difference is that the first has a win ratio of 40% to 60% and the second has a ratio of 75% to 85%.
I would also like to support the "you havent read the book" school of thought. Many of the postings suggested that Van was writing about psychology ... but this book had very little psych in it. Others such as TBSs post on 13/3 oversimplified the content of the book dramatically and the insight that can be gained by thinking thru his models yourself.
I am first to agree that Van tends to the sell another course school of marketing but think that much of the criticism of the book Trade your Way to Financial Freedom (a misstitling i am afraid) is off base.
I would recommend the book but also suggest you look at the list of books Helenqu suggested on 11/3 and substitute Stan Weinsteins book on trends and phases in markets for anything on candlesticks
Kiwi
I do follow trading strategies where the ideal is winner = 3x loser but I also follow trading strategies where the winner is less than the loser. The key difference is that the first has a win ratio of 40% to 60% and the second has a ratio of 75% to 85%.
I would also like to support the "you havent read the book" school of thought. Many of the postings suggested that Van was writing about psychology ... but this book had very little psych in it. Others such as TBSs post on 13/3 oversimplified the content of the book dramatically and the insight that can be gained by thinking thru his models yourself.
I am first to agree that Van tends to the sell another course school of marketing but think that much of the criticism of the book Trade your Way to Financial Freedom (a misstitling i am afraid) is off base.
I would recommend the book but also suggest you look at the list of books Helenqu suggested on 11/3 and substitute Stan Weinsteins book on trends and phases in markets for anything on candlesticks
Kiwi
Money management is not just about how much of a loss you're willing to take on a given trade, it's about when you should add to a position, i.e...position sizing, as explained in TYWTFF. According to VT, position sizing is what separates the losers from the winners in trading over the long term. What VT says, but doesn't emphasise, is that you need lots of money, perhaps a million dollars, to take maximum advantage of position sizing.
nine
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I am at a loss to recall anywhere in the book that VT said that you need "perhaps a million dollars" to take maximum advantage of position sizing. I would be interested in having it explained to me.
For your example why not assume that I have a small 40,000 euro account and I am day trading the bund, estx and eurofx with a risk per trade of 5-7 ticks at 10 euros per contract per tick. I take 8-10 trades per session.
Kiwi
Position Sizing
Kiwi,
In Chapter 12 'What Do You Mean Position Sizing' of 'Trade Your Way to Financial Freedom', first edition, Tharp describes a 55/21 breakout system applied with various amounts of money. At the close of paragraph two, pg. 294, he says: 'essentially, you should now understand why you need at least a million dollars to trade this system'.
He doesn't come out and say that you have to have a million dollars to trade ANY system, but among long term trend following systems, assuming most of them are somewhat similar to the simple system he outlines, you apparently need a million dollars to ensure optimal results.
I'm a little unsure how to apply position sizing to shorter term systems. Does anyone know if Tharp addresses this in his other book, the one about day trading?
Kiwi,
In Chapter 12 'What Do You Mean Position Sizing' of 'Trade Your Way to Financial Freedom', first edition, Tharp describes a 55/21 breakout system applied with various amounts of money. At the close of paragraph two, pg. 294, he says: 'essentially, you should now understand why you need at least a million dollars to trade this system'.
He doesn't come out and say that you have to have a million dollars to trade ANY system, but among long term trend following systems, assuming most of them are somewhat similar to the simple system he outlines, you apparently need a million dollars to ensure optimal results.
I'm a little unsure how to apply position sizing to shorter term systems. Does anyone know if Tharp addresses this in his other book, the one about day trading?
nine
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OK. The reason I challenged you is that the statement:
is that it is essentially rubbish and could misslead people into thinking position sizing is only useful for very large accounts. What you have just said is that van says that for a breakout system on commodities where the risk on each position may well exceed 2500 usd requires a million dollars for optimal use of position sizing.
If u look at a short term system such as I defined where the risk can be constrained to 70 euro (lets say 85 dollars) then u would need approximately 1M * 85/2500 = 34,000. In fact at this level margin requirements rather than position sizing determine your maximum size for the positions.
The other thing is that the "maximum advantage" is somewhat missleading. All that means is that you can only get best results if you can get fine gradation of the bets (so u bet 2% say most of the time not 1%, 1.5%, 1.7%, 2%) but most people do not need fine gradation to get the benefits of position sizing.
Like I said, there is considerable insight to be gained from the book but you do have to work at it. To get it handed to you on a plate (nearly) you have to spend more money and buy his report on money management ... lol. You can learn everything that is in that report and more though by just spending some time on Curtis Faith's turtletradingsoftware site.
Kiwi
is that it is essentially rubbish and could misslead people into thinking position sizing is only useful for very large accounts. What you have just said is that van says that for a breakout system on commodities where the risk on each position may well exceed 2500 usd requires a million dollars for optimal use of position sizing.
If u look at a short term system such as I defined where the risk can be constrained to 70 euro (lets say 85 dollars) then u would need approximately 1M * 85/2500 = 34,000. In fact at this level margin requirements rather than position sizing determine your maximum size for the positions.
The other thing is that the "maximum advantage" is somewhat missleading. All that means is that you can only get best results if you can get fine gradation of the bets (so u bet 2% say most of the time not 1%, 1.5%, 1.7%, 2%) but most people do not need fine gradation to get the benefits of position sizing.
Like I said, there is considerable insight to be gained from the book but you do have to work at it. To get it handed to you on a plate (nearly) you have to spend more money and buy his report on money management ... lol. You can learn everything that is in that report and more though by just spending some time on Curtis Faith's turtletradingsoftware site.
Kiwi
cassiopeia
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I think Van Tharp's book is a good introduction to the basics of trading. However, I am sceptical of the emphasis he gives to the 'how much' issue which he defines as 'money management', at least the way he demonstrates it. In my opinion he doesn't prove this is any more important than, say entry, exit and the choice of instrument for many trading systems.
First he assumes there are few systems and instruments which provide a better than random entry signal, secondly, he thinks the reward to risk ratio should be high to get the best results. Indeed, if this was true one would have to accept relatively large drawdowns, then the 'how much' issue becomes paramount. But I have seen people with a 75% success rate and a 1:1 risk to reward, using less than 0.5% of their capital for trading. Drawdowns leading to the sort of catastrophic problems he envisages are very unlikely to happen with these systems.
Admittedly it is still sensible to have exposure proportional to the volatility or expected drawdown of instruments and to run various scenarios as he does. I am not saying the 'how much' is unimportant, only as important as these other factors.
The main risk in my view is not a predictable, statistical erosion of capital but an unforeseen incident leading to a massive gap, these are difficult to model. For that reason it may indeed be prudent to keep the exposure smaller than theory and backtesting dictates. Therefore VT may be right, for the wrong reasons, but this is not to say his book isn't useful.
First he assumes there are few systems and instruments which provide a better than random entry signal, secondly, he thinks the reward to risk ratio should be high to get the best results. Indeed, if this was true one would have to accept relatively large drawdowns, then the 'how much' issue becomes paramount. But I have seen people with a 75% success rate and a 1:1 risk to reward, using less than 0.5% of their capital for trading. Drawdowns leading to the sort of catastrophic problems he envisages are very unlikely to happen with these systems.
Admittedly it is still sensible to have exposure proportional to the volatility or expected drawdown of instruments and to run various scenarios as he does. I am not saying the 'how much' is unimportant, only as important as these other factors.
The main risk in my view is not a predictable, statistical erosion of capital but an unforeseen incident leading to a massive gap, these are difficult to model. For that reason it may indeed be prudent to keep the exposure smaller than theory and backtesting dictates. Therefore VT may be right, for the wrong reasons, but this is not to say his book isn't useful.
Position Sizing
Cassiopeia,
The examples at the end of Chapter 12 of 'TYWTFF', in which Tharp applies the simple 55/21 breakout system to the 30 stocks in the DJIA over 5.5 yrs, is meant to be some kind of proof. In it, he holds the other variables steady [entries, stops, exits...] and varies only the position sizing method. The difference in results in dramatic, though I'm not sure that I am completely convinced, since the first two methods, fixed amount and equal units, are obviously difficult methods in which to increase size in a trending market, and this would account for their poor performance.
There has to be a catch for your acquaintances who have 75% winners, a 1 to 1 W/L ratio, and risk only .5% per trade. A 75% W/L ratio would argue for a much larger trade size. Is it that they are using a very large amount of money, and can't trade larger size without moving the market? I can't imagine there would be a great enough frequency of opportunities even across a number of markets to make such a system practicable. (I presume it must be a short term system to have such a high W/L ratio).
Cassiopeia,
The examples at the end of Chapter 12 of 'TYWTFF', in which Tharp applies the simple 55/21 breakout system to the 30 stocks in the DJIA over 5.5 yrs, is meant to be some kind of proof. In it, he holds the other variables steady [entries, stops, exits...] and varies only the position sizing method. The difference in results in dramatic, though I'm not sure that I am completely convinced, since the first two methods, fixed amount and equal units, are obviously difficult methods in which to increase size in a trending market, and this would account for their poor performance.
There has to be a catch for your acquaintances who have 75% winners, a 1 to 1 W/L ratio, and risk only .5% per trade. A 75% W/L ratio would argue for a much larger trade size. Is it that they are using a very large amount of money, and can't trade larger size without moving the market? I can't imagine there would be a great enough frequency of opportunities even across a number of markets to make such a system practicable. (I presume it must be a short term system to have such a high W/L ratio).
cassiopeia
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bagherra
I viewed the examples at the end of Chapter 12 with astonishment when first reading them but would require the scenerios to be run in a variety of markets before being convinced. Essentially we are comparing imbalanced portfolios with balanced ones, where the imbalaced ones could concentrate equity amongst a limited number of instruments. It may be that the few instruments performed badly by chance.
When running similar scenerios I find the 'how much' concept only becomes critical if the strategy has large amounts of exposure and a poor profit potential in these cases it becomes difficult to recover as VT suggests, but I would never run the risk of putting that much on such strategies!
Yes these figures were for short term trading (of the order of days) but many 100s of trades per year. It would be interesting to hear of others who have calculated their win loss ratio using various risk to rewards for short/long term trades to see if the length of trade has an influence on the optimum risk reward, another thread suggests lower risk rewards are better for shorter trades, the success using tends to contradict VT, all very interesting.
I viewed the examples at the end of Chapter 12 with astonishment when first reading them but would require the scenerios to be run in a variety of markets before being convinced. Essentially we are comparing imbalanced portfolios with balanced ones, where the imbalaced ones could concentrate equity amongst a limited number of instruments. It may be that the few instruments performed badly by chance.
When running similar scenerios I find the 'how much' concept only becomes critical if the strategy has large amounts of exposure and a poor profit potential in these cases it becomes difficult to recover as VT suggests, but I would never run the risk of putting that much on such strategies!
Yes these figures were for short term trading (of the order of days) but many 100s of trades per year. It would be interesting to hear of others who have calculated their win loss ratio using various risk to rewards for short/long term trades to see if the length of trade has an influence on the optimum risk reward, another thread suggests lower risk rewards are better for shorter trades, the success using tends to contradict VT, all very interesting.
twiggytwo said:
Fine. Ask yourself (or Tharp for that matter) the following:
- If he's cracked it why doesn't he trade it. Instead I know he teaches it. Why trade when you can teach? ...
- He sells a USd600 'course' made up of 4 audio tapes and 5 books. Each book is USD100 if purchased separatly. Volume II is so terrilbe and incomplete that you can buy a far superior product for USD25.00. "Relaxation Workbook". Volume 5 is a compelte lie. This guy has a doctorate (from an American U of course!) in Psychology. Why does he propose "NLP" techniques which university research has disapproved under lab conditions?!
I think this about Tharp: he knows a few things which he's learnt froma few good traders. About trading he knows nothing. Is a vendor American style ...
nine
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I have to ask "what elements of what Van Tharp proposes have been disproved in a psych laboratory?"
Be interested to know what peers reviewed the research and replicated it as well.
As a non-american I'd be interested to know what marketing american style was vs marketing (name your own) style as that comment seemed to turn your post into a rant rather than something that others can rely on for help.
Be interested to know what peers reviewed the research and replicated it as well.
As a non-american I'd be interested to know what marketing american style was vs marketing (name your own) style as that comment seemed to turn your post into a rant rather than something that others can rely on for help.
Kiwi,
I think hylt is pointing out that NLP has not been proven effective in the laboratory. This doesn't mean, of course, that it doesn't work for some people some of the time. I have had extensive experience with NLP, and have found that it seems to work for some things--see the NLP threads on the turtletradingsoftware site. But hylt is correct that NLP has not been adopted by the academic psychology community.
On the other hand, other methods that have been around for a long time, and about which academic psychology has long been sceptical, such as hypnosis, have recently been the subject of lots of research. At the most recently American Psychological Association convention in Chicago there were quite a few presentations on hypnosis, including one on hypnosis and age regression presented by--and I hope I'm remembering this properly--Dr. Zimbardo, the former president of the APA. So what has been out can come back in style, in academics as well as fashion. (Incidentally, I'm not a psychologist or a member of the APA, but my girlfriend is, so I hear about these issues a lot).
Cassiopeia,
It would be very interesting to see, as you suggested, if lower risk/reward ratios are more effective with short term trading. I can think of two writers, Ari Kiev 'Trading in the Zone', and Marty Schwartz 'Pit Bull', who would argue that most money is made in a few high return trades, even for short term traders.
I think hylt is pointing out that NLP has not been proven effective in the laboratory. This doesn't mean, of course, that it doesn't work for some people some of the time. I have had extensive experience with NLP, and have found that it seems to work for some things--see the NLP threads on the turtletradingsoftware site. But hylt is correct that NLP has not been adopted by the academic psychology community.
On the other hand, other methods that have been around for a long time, and about which academic psychology has long been sceptical, such as hypnosis, have recently been the subject of lots of research. At the most recently American Psychological Association convention in Chicago there were quite a few presentations on hypnosis, including one on hypnosis and age regression presented by--and I hope I'm remembering this properly--Dr. Zimbardo, the former president of the APA. So what has been out can come back in style, in academics as well as fashion. (Incidentally, I'm not a psychologist or a member of the APA, but my girlfriend is, so I hear about these issues a lot).
Cassiopeia,
It would be very interesting to see, as you suggested, if lower risk/reward ratios are more effective with short term trading. I can think of two writers, Ari Kiev 'Trading in the Zone', and Marty Schwartz 'Pit Bull', who would argue that most money is made in a few high return trades, even for short term traders.
donaldduke
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Hylt has give out his password on the following site:
http://www.mastermindforum.com/phorum/read.php?f=9&i=6624&t=6612
Now i dont know if he the above messages are by hylt or
by someone else using his password (i think the latter).
Hylt is very stupid for posting his password at that site and
should be banned.
http://www.mastermindforum.com/phorum/read.php?f=9&i=6624&t=6612
Now i dont know if he the above messages are by hylt or
by someone else using his password (i think the latter).
Hylt is very stupid for posting his password at that site and
should be banned.
