Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : DAYTRADING Fundamentals -- Ignore unavailable to you. Want to Upgrade?

To: fut_trade who wrote (14243)	9/23/2001 2:44:22 PM
From: KymarFye	Read Replies (1) \| Respond to of 18137

I like to have an estimate for how much pain (drawdown from equity peak) I should expect to undergo in pursuit of how much gain (net profit) over the course of trading for, say, a year. If I then encounter a significantly worse drawdown in actual trading, then I know that there's something wrong somewhere - either the market may have changed, or the tradable may have changed, or I'm not executing appropriately, or some other calculation or expectation was wrong. I also want to know what's going to happen if I just happen to start trading my system at what would have been a peak, and if I'm therefore going to start out at a significant disadvantage. Experience has shown me that there's something about trading, analysis, and testing that increases the likelihood of this occurring: There's not a poor chance that whatever new market perception or analysis has led you to re-tool is based on some relatively extreme or at least extraordinary set of conditions that are likely, for a time, to regress or revert to or toward some other mean. When the market is collapsing, both your mind and your data are likely to become more open to enhanced short-selling tactics. When it's in a range, you focus on countertrend trading, and so on. By the time you've worked out how you might have traded that period most effectively, you're suddenly in the middle of a big counter-move or breakaway or whatever. It takes an act of will to think hard about and to research trend-trading tactics amidst a range-bound market, and vice versa. I've also found, by the way, that the long-side bias in equity trading still seems to show through. Part of it also has to do with the role of gaps and counter-trend trading. In any event, under diverse strategies and even in stocks that have fallen 80% or more over the last year, it can still be as easy or even easier to accumulate profitable long-side day-trading testing results as short-side ones. Even using a very long time frame such as 20 years doesn't save you from such a problem: The last 20 years have been, after all, a major bull market in the S&Ps.