Trading Math - Part I

Discussion in 'Strategy Building' started by intradaybill, Nov 1, 2011.

  1. Statement 1:

    For any trading system, with any parameters, if there is no target quit time or target profit after which it quits, eventually there will be total ruin.

    I invite all the brains here to either prove or disprove Statement 1.

    ...and learn something...
  2. Is this a correct paraphrasing:

    "If you stay in a trade forever, you will eventually lose everything."

    Which itself is a paraphrase of:

    "Everything goes to zero, eventually."
  3. msx7000


    U don't need a target profit when u're using trailing stop loss in a circumstance in which the price moves smooth. Anyway, each tactics should be used to deal with different situations. I think it's essential to have a target time and/or profit in a much volatile market.
  4. No, not even close... you should quit trading - if you ever did any -and become a poet. You got more future doing that it seems...
  5. Here's my guess, I think it's true but not sure how to formally prove it:
    To Prove Statement 1 - the system's equity balance will go up and down, eventually crossing all points an infinite number of times, from the starting point to positive infinity to negative infinity. Let Total Ruin be defined as equity balance crossing $0. Total Ruin ($0) is the escape point on the negative side; with no target quit time or target profit time, there is no escape point on the positive side. The result is no matter how high it goes, if it does not exit and stop the system, it will continue running and eventually cross the Total Ruin ($0) point.

    Assumes -- system enters and exits trades
  6. False. Example: SPY nonleveraged investor with no exit time, and no profit target. No ruin as long as there is a market.
  7. Lucrum


  8. shit man, I bought gold at $35 an ounce. I better come up with an exit strategy. Thanks for the warning. (well, actually I didn't buy it, I just inherited it.)
  9. I'm not a poet but here's a haiku (first attempt)

    you stay in a trade
    eventually you will lose
    zero to zero
  10. I have an exit strategy. It's based on the actuarial tables. Since I smoke and drink a lot I have a very good margin of error. Backtesting shows it won't go to zero until the day I die. The only way to lose is to live too long.
    #10     Nov 1, 2011