Survivorship Bias

Discussion in 'Prop Firms' started by Dreadsen, Dec 17, 2020.

  1. Dreadsen

    Dreadsen

    Survivorship.Bias.And.Trading.Verification.png


    1.Professional Investment firms who are looking to hire experienced traders require between 12 to 24 months of Financial statements from a Brokerage or from another trading firm. They require such a long period of time because the industry knows that. A bad trader who doesn’t know what they are doing can get lucky for 1 day, or for 30 days. Even an inherently flawed trading system can produce one month of successful trading results. But a bad system or a bad trader can NOT get lucky for an entire 2 years.

    2. A Good trader who knows what they are doing can have a bad trading day, a bad trading week and even a bad trading month. But they will not have a bad trading period that spans over 1 to 2 years. This is why a professional trader is not judged on how they traded over 2 weeks or a month. They are evaluated over a 1 to 2 year period by a firm who is interviewing them. Because they know 1 bad month or 1 good month is not an indication of whether or not a trader’s analysis and execution is reliable or not.

    3. This is done to control for "Survivorship Bias" . Anyone who has managed a team of traders or has done systematic back testing of certain trading protocols has seen countless bad systems that were successful for one month but completely failed for the remaining 11 months. A longer period is needed to rule out survivorship bias. Look at the "world wide futures trading competition". It's held over a 1 year period. This is to also control for survivorship bias.

    4.In this study lets look at Earn2Trade which is one of these “try out firms”. Which means you pay a fee to take a test and if you pass the test they will give you a “funded” account to trade from. They suggest on their website that they are giving segregated funded accounts only after a 2 week trading evaluation.

    5. But if you look at Helios trading partners which is supposed to be the “funding arm” firm that backs the traders who pass the Earn2Trade evaluation. They require 12 months of trading evidence if you want to bypass the earn2trade evaluation test and get hired in directly. Why don’t they allow applicants to show 2 weeks of trading statements ? Or just one month? If Earn2Trade is giving people funded accounts after 2 weeks then shouldn’t the funding firm also allow someone to show proof of trading success after 2 weeks as well? Why 12 months? I submit this as their reasoning. They know 2 weeks is not a large enough sample size of a trader’s performance to consider going through the paper work process of giving them a segregated funded account.

    6. Look at other firms like DV trading, Chimera Securities, Marquette Partners,etc, contact them about their direct hire requirements and you'll see that they require 1 to 2 years or more of trading history so they can review your track record. Not 2 weeks. Everyone knows 1 day or even 2 weeks could be pure luck.

    7. If you look to hire a mentor or hire someone to teach you how to trade. Do not accept a video of one trade, or their results after 1 day of trading. Require the same level of verification from a trading educator or mentor that a professional firm would require for hiring an "experienced" trader. So you can rule out "survivorship bias" or "randomness" in their trading examples of success. No one in the industry would accept cherry picked data samples of someone's trading success. Even if you were already employed by the firm. If you presented your trading team a singular example of a successful trading idea they would have all assumed that you have 6 to 12 months of back tested data to rule out randomness.
     
    murray t turtle likes this.
  2. Turveyd

    Turveyd

    E2T risk X amount $1500 on a 25K using the money people spend trying to get funded in short, so they've got a source of income to cover the loser traders that get through, and it's 15 trading day so 3 actual weeks to get funded.

    Haven't got 12months, too many months off work / issues and not been profitable for that long, hence giving E2T a shot for experience even if not funded, it's cheap compared to my real profits / losses.
     
  3. JSOP

    JSOP

    NOT TRUE:

    https://www.marketwatch.com/story/x...rs-of-work-and-other-peoples-money-2018-02-06 The guy made $3.95 million over THREE years, that's 36 months and lost all of it in ONE day.

    https://www.tampabay.com/business/h...be-apology-after-losing-150-million-20190206/ The guy had 10+ years trading in options, that's 120 months of track record and still lost $350 million, pretty much all of his clients' money.

    Moral of the story: There is no "survivorship bias" in trading. You take it one day at a time. Yesterday's profit is gone. Today, you start with zero. Today's profit is today's profit. By tomorrow it will be gone and you start tomorrow with zero. Just because you survived for ten years, one hundred years, that still does not mean one day you will lose it all and go bankrupt. Risk management is the key.
     
    LCK2000 and Specterx like this.
  4. Dreadsen

    Dreadsen

    From the first story.

    "
    If he’s to be believed, wow. Brutal. How did it happen?

    “I started with 50k from my time in the army and a small inheritance, grew it to 4 mill in 3 years of which 1.5 mill was capital I raised from investors who believed in me,” Lilkanna explained, adding that those “investors” were friends and family."


    The investors were friends and family. This was not a professional trader who worked for a trading firm. But the does suggest that while it is POSSIBLE that someone who may not have a good strategy or grasp of the market was able to be successful for a 3 year stretch. This is not typical and it's an anomaly. Exceptions do not disprove the rule.

    Again we are looking at and talking about institutional trading and the criteria some of them use for direct hires and the reasoning for that. You can be an educated gambler or someone who is just flipping coins and looking for astrological signs for your signals.

    Any system or strategy has to be falsifiable. If it's not falsifiable then it is pseudoscience.
     
  5. JSOP

    JSOP

    Read the story. He traded in XIV. To me a trader is a trader, whether he trades for an institutions or for himself. His family and friends were his clients. Just because they don't pay a fee and may not have drawn up any contracts don't make them less of a client.

    All I am saying is, track record doesn't mean a thing. Anything can break and it's just a matter of time. That's the brutal reality of trading. Bears & Stearns and the Lehmen Brothers were both 100+ years of brokerage firms, the "institutions". They still went bankrupt just the same.

    The key is risk management. This is the only way to maintain survival. All traders throughout history, whether institutional or individual, all fail because of risk management. If you are really looking for a "survivorship bias", look for traders with sound and prudent risk management practices. See how they handle their trading capital when they are winning and how they handle their capital when they are losing. That's the only way you will be able to tell whether they will survive in the long run.