Losing Streaks - How Professionals Deal With Them

[lmf21734]

Dear Community

I wanted to share with you extracts from 2 interviews which I believe will help all of us who experience losing streaks at some point in our trading journey. Just last night I was talking to a friend who trades and he was having a rough time with 4 consecutive losing days and the emotional trauma that comes with having the confidence to continue taking the next trading set up.

When I was getting into trading a number of years ago I was always looking for strategies with high win rates like 78% or greater. Now I realize it was pain avoidance mechanism because I was so emotional about losing money that I felt this was my best defence. Needless to say a lot of the high win rate strategies either fell flat in a live trading environment or were strategies with terrible reward to risk ratios i.e. risking £30 to make £10.

In the end I realized I had to completely change my mindset and trading approach even though it meant a higher exposure to extended losing streaks because now my strategy win rate dynamically fluctuates between 50 - 60% but where my reward is almost twice the size of my risk.

The 2 interviews are a good idea about how professional traders deal with losing streaks.

http://www.scientiatrading.com/battle.mp3

http://www.scientiatrading.com/battle2.mp3

The following is a good article written about the subject too from tradeciety who produce a lot of decent articles around trading discipline and risk management.

https://www.tradeciety.com/dont-change- ... g-strategy

Hope you enjoy.

Mel (The Scientia Trader)

[northbound]

Thanks for sharing.

When I was getting into trading a number of years ago I was always looking for strategies with high win rates like 78% or greater. Now I realize it was pain avoidance mechanism because I was so emotional about losing money that I felt this was my best defence.

It was the same for me at the beginning. Now, after about a year of trading, I accept losses, don't blow banks anymore and am into the "break even grind of death" phase. A step in the right direction.

[wearthefoxhat]

Thanks for the info.

Like the analogy with poker. Playing Aces/Premium Holdings.

[ShaunWhite]

Thanks for the info.

Like the analogy with poker. Playing Aces/Premium Holdings.

Aces aren't much to get excited about, it's just a pair and they only win as little as 31% of the time (admittedly 85% vs one random hand). Poker teaches you that nothing is a premium holding until the action starts.

Pocket Aces are like pocket Jacks, there's 3 ways to play them, and they're all wrong.

[ruthlessimon]

In the end I realized I had to completely change my mindset and trading approach even though it meant a higher exposure to extended losing streaks

Not that simple though. Here's why

Two equal backing strategies (with a decent sample size). Only difference with each the strategy is I've varied the stop & target.

Basically, it's piss easy to find something that works almost 100% of the time - but it's not necessarily an edge

& the same applies to a 50% strike-rate strategy (with no edge)

The 0 expectancy will always be achieved.

To break it (the "breakeven grind of death"), requires a complete shift in understanding of what an edge is & how it's generated

[ruthlessimon]

Look at the losing streak in my example, (8, I believe).

The computer that ran this simulation, couldn't make money with it - even beating through the losing streak & no amount of "loss aversion" psychology advice would've helped

The difference between human & computer, is that a human will get fed up - rightly - of the variability/lack of consistency of returns; realise the edge has a problem & stop trading.

If they don't, I think they do have a psychological error; & it's not a good one:

[ShaunWhite]

...and appropriately a picture of a guy who's lost his shirt.

[ruthlessimon]

The following is a good article written about the subject too from tradeciety who produce a lot of decent articles around trading discipline and risk management.

https://www.tradeciety.com/dont-change- ... g-strategy

Not sure you've looked at that critically.

Peter Webb: Happy to share his verified track record

Rolf: Not happy to share

Says everything & why people have to be so so careful.

[lmf21734]

most strategies in financial trading have a win rate which is between 40-60%..what the author of the article is saying is that its possible to expererience an extended losing streak of 10 losses which is within the norm and doesnt mean the strategy is flawed.......obviously losing streak length is a function of win rate so the article wouldnt apply to scalpers who require higher win rates etc.....

[ruthlessimon]

You've assumed the strategy generates alpha/has edge (the hardest part of trading).

Yet the author (educator) isn't willing to share a verified track record - which any educator should be obliged to do. Which tells me, he can't generate alpha - hence why he offers advice which is true, but what I call irrefutable "pusedotrading".

I could create thousands of (automatable) trade strategies that have a strike in the region of 40% - 60%, which could be executed forever. It has no bearing on whether they beat the 0 expectancy threshold.

[wearthefoxhat]

Thanks for the info.

Like the analogy with poker. Playing Aces/Premium Holdings.

Aces aren't much to get excited about, it's just a pair and they only win as little as 31% of the time (admittedly 85% vs one random hand). Poker teaches you that nothing is a premium holding until the action starts.

Pocket Aces are like pocket Jacks, there's 3 ways to play them, and they're all wrong.

You can either win a small pot or lose a big one too.

[lmf21734]

At least we both agree that the content of the article is sound.

Not sure what the authors track record in trading has to do with the article.

For instance when I read an article from a professor of statistics about how probability theorem and random distribution applies in trading its of no relevance to me whether the professor has traded or not traded. What I am interested in is whether the information he is providing is sound and has substance.

Unless I have missed something I don't think the author was talking about his own results. I sensed he was talking generally about how long losing streaks for a working strategy can cause people to jump ship.

Yes you are right its not about just win rate but also the risk to reward so I was making assumptions reading the article that he was talking about strategies which had a positive expectancy which with a possible 10 run losing streak would mean a strategy less than 60% but with a reward that is higher than the risk.

[ruthlessimon]

At least we both agree that the content of the article is sound.

& that is such a big danger. It comes across that he's legitimate; therefore the poor newbie goes & buys his $500 course etc..

Offering advice to traders who are desperately trying to get profitable - by citing advice from traders who aren't profitable.

can you see the contradiction?

I must only push through a losing streak, if I have edge. The automated strategies above are proof of this. The computer (which doesn't have emotions - yet) pushed through & remained at 0 - & will stay at zero to infinity!

It's psychotic to think "my fortune will change" by doing the same old thing day after day. & if I don't notice the lack of edge quickly enough, I'll have bled out a significant portion of my account through the many frictions of trading (software, data, commision).

[lmf21734]

ohhhhh its the bit about buy selling a course..OK then you have point..

Sorry when it comes to websites selling courses I have an immediate mental block where I don't even read that information unless its an industry recognized and proven trainer who provides the proofs etc....I was just focused on the article than any sales pitch that was on the site.

Sorry..I didn't realize that was what you were referring to.

[lmf21734]

Just one final point in regards to an edge.

Do you believe that Monte Carlo simulations are useful in providing some verification of whether a strategy has an edge based on its win rate, reward to risk ratio and sample size. It wasn't clear whether the computer simulations you were referring to were Monte Carlo or something else.