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Old 10-26-2012, 11:56 PM   #25

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Re: Position Sizing or Diversification?

Originally Posted by MightyMouse »
An edge is within you. It is your ability to take money from other traders. It is the mental game. More specifcally, it is knowing when others are going to be wrong. You won't find it on a chart or a spread sheet. Do statistical arbitrage opportunities exist? Yes, if you are fast enough to find them. An edge does not occur when line A crosses over line B.
NOW we are getting somewhere!! Yes, absolutely. You put into words what I've been thinking about off and on for a long time now, but have not been able to articulate. It's also why I personally don't have any sort of set trading plan that says "step 1: do this, step 2, do this, etc". I don't even have a specific "setup" that I look for. I don't even have any risk management rules other than "don't crash your account today". But your correct when you say "it is knowing when others are going to be wrong". That IS my edge. I use a lot of tools to do it, but it's all about finding a price point where I believe the most amount of traders are going to realize they are wrong in the shortest amount of time, and I put an order at that price.

Damn Mighty. Your name suits you.

That's why I trade with and against the trend now that I think about it... I didn't know why really until this moment. It's because either with, or against a trend, there will be a point when price stops moving up and starts moving down, or visa versa. That point is always somewhere, regardless of trend. And it's that point that my entire career is devoted to identifying. If i'm right, i'm paid. If i'm wrong, I pay out. Simple as that. I know what types of traders tend to be losers, and how they act in general and how they execute orders going in and out of the market. and I also know how other groups of more sophisticated traders look to identify how losing traders usually place their orders, and they look to trade against them so that they can profit from the other guys losses.

That's my edge. It's not always right about it, and that's why I never bet the farm. But i'm right more than i'm wrong, and make a bit more when I am right, than I lose when I'm wrong.

And this is why "diversification" in a general sense doesn't make any sense to me. My edge is in finding large clusters of losing traders and bad decisions and rapidly shifting emotions over a relatively tight range of prices. I suppose "diversification" lets me find more of those spots, because different markets have those spots at different prices and are touched at different times. SO in this way, trading more than one market DOES help me make more money. But it does absolutly nothing to reduce my chance of a loss. My ability to find lots of losing traders in a very tight price range is what defines my success and failure.. And my success or failure at meeting this particular objective is completely independent of how many or how few markets or groups or markets or whatever that I"m involved with.

My edge is in finding a price where the most amount of people will likely realize they are wrong. My method is any tool that gives me insight as to what price this is most likely to be in any given market, on any given day. The only form of "risk management" that even applies to me is how much I bet on each trade, and how well I'm in control of my actions and in sync with my emotions.

In my trading, diversification helps me reduce risk about as well as watching survivor on TV will help me play basketball better. And any other "traditional" form of risk management would really just be a useless distraction.

Great summation tho of a real edge. FInally something I can tell people when they ask "how do you make money trading?" I can tell them "I identify a price that I have reason to believe that the greatest number of traders are going to realize that they are wrong, and I take the other side of their trade"

My Live Trading Track Record -
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BlueHorseshoe (10-27-2012)
Old 01-20-2013, 10:32 PM   #26

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add or reduce share allocation, spreading the wealth

Just completed a back test on a simple code that reduced available trade equity by 30% next trade if previous trade failed to profit , also added to that, if the second closed trade back failed to produce a profit a further 30% reduction on available equity, from 20k to 14k less loss, lets say to 10k . the result without money management was 19k profit , test 1, 1 negative trade equity reduction resulted to 12k profit and test 2 - multi string loss reduction resulted in a 5k profit , not the way i thought, researching anti martingale. on the flip side , I added shares by 30% on a loss "martingale" , and produced almost 60k in the test. The martingale, similar to averaging down, is outside my donald trump budget and against my buying on the way down. A promising test came from a re invest code that took the equity allotted to that particular symbol and added the profit/loss and divided by the previous bar close verses straight 20k trades over the same period produce 2x the profits. bottom line will be testing the reinvest code over the next 30 days on the 9 xl spyders and will post the results in the traders log, One thought on profit preservation is to step aside when something doesnt add up as i will with the anti martingale for now. further reserch on anti martingale will contine outside of fixed fractional or volatility expansion, would be to add dynamics "push and feel" into the equity reduction.equation. I firmly believe in diversification, yet diversify on leading indicators within each sector. drilldown is the term. cheers
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BlueHorseshoe (01-22-2013)
Old 02-10-2013, 01:48 PM   #27

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Re: Position Sizing or Diversification?

Originally Posted by BlueHorseshoe »
Suppose you have a limited amount of capital and trade one contract in one market. You're a good trader, and after a certain amount of time you have doubled the account. What's the best thing to do next . . .
  1. Increase your position size and trade two contracts?
  2. Diversify by trading a single contract in a second market and continuing to trade a single contract in the orignal market?
In other words, if you don't have the luxury of a portfolio sized account to begin with, how do you subsequently reconcile the allocation of capital to secondary markets with position sizing in the first?

I'll go with diversification for i'll be giving me even lower risk on a single trade/contract...Risk reduction is the main priority for me, increasing the amount gained from winners comes later.....
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