Trading strategies without StopLoss - page 8

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Vitalii Ananev:

To clarify, (I didn't say that the ratio of profitable trades to losing trades is any indicator) the volume of the trade is regulated so that in any trade the amount of loss does not exceed a given percentage of the deposit. For example: stop 10 pips in case of triggering you lose 1%, stop 30 pips again in case of triggering the loss size is not more than 1%. And as take profit is 3 times bigger than stop loss (stop - 10 pips profit - 30 pips. Stop - 30 pips profit - 90), even if you have more losing trades than profitable ones (for example 60% losing and 40% profitable), you will anyway be in the plus, as in one trade in case of stop loss you lose 1%, and in case of profit you gain 3%.

And when you don't have any loss limits, that maths doesn't work anymore.

The probability of achieving a given deviation from the price is about inversely proportional to the deviation value, i.e. your stop loss is three times more likely to be reached than your take profit. Therefore, in order to achieve profitability, even without overhead (spreads and commissions), the initial algorithm must yield at least 3 "guesses" for one "no guess". At the same time no one has canceled the situation of "didn't guess a hundred times" - with absolute failure of the deposit. I must note that the reverse situation - "guessed a hundred times in a row" - does not guarantee a total victory. :-)
 
Yury Kirillov:
Actually not exactly in a row, unguessing can accumulate gradually, e.g. 5 unguesses + 4 guesses. If the expectation is negative, then the total of 100 times is sure to be a matter of time. If you flip a coin, and give for example every hundredth guess as a spread or commission, then play for a long time will not work.

Total, but not in a row. The loss is compensated by the fact that the profit is bigger. Let's say 1% Take Profit limit is 3%, 5 times failed to guess -5%, 4 times failed to guess +12%, total plus 7%.

...

I'm not trying to convince you that you have to use stop loss, it's up to everyone. I'm just answering the starter's question why the "gurus" advise to use stop loss. That's because it's based on simple mathematics that even if you just guess the direction with a 50/50 chance, with a reasonable loss limitation and if the loss+spread+comission is much smaller than the profit you end up winning. This only works if you have a take profit several times the stop loss, otherwise it won't work and only increasing the number of guesses of the right direction will help.

 
Vitalii Ananev:

Total, but not in a row. The loss is compensated by the fact that the profit is bigger. Let's say 1% Take Profit limit is 3%, 5 times failed to guess -5%, 4 times failed to guess +12%, total plus 7%.

...

I'm not trying to convince you that you have to use stop loss, it's up to everyone. I'm just answering the starter's question why the "gurus" advise to use stop loss. That's because it's based on simple mathematics that even if you just guess the direction with a 50/50 chance, with a reasonable loss limitation and if the loss+spread+comission is much smaller than the profit you end up winning. This only works if you have a take profit of several times the stop loss, otherwise it won't work and only increasing the number of guesses of the right direction will help.

A 50/50 guess will always lead to a loss, all other things being equal, on a sufficiently long time interval. No MM can help here.
 
Yury Kirillov:
The probability of reaching a given deviation from the price is roughly inversely proportional to the deviation value, i.e. your stop loss is three times more likely to be reached than your take profit. ....
Now this is another issue. It depends on the trader, on how he correctly evaluated the market situation (to increase the probability of taking profit trader uses different types of analysis), on the trading system and even psychological factors, because the further take profit, the longer it takes to get there and we have to have patience waiting till the price reaches it.
 
Yury Kirillov:
A 50/50 guess, all other things being equal, will always result in defeat over a long enough time interval. No MM can help here.
I have not personally checked, but probability theory says otherwise. Again, this is exactly the reason why they advise to use loss limitation. There are plenty of books on this subject, R.Vince, for example.
 
Vitalii Ananev:
I have not personally checked, but probability theory says otherwise. Again, that is why they advise you to use loss limitation. There are plenty of books on this subject, R.Vince for example.
В отношении управления капиталом очень важно понимать, что при игре с
отрицательным ожиданием нет схемы управления деньгами, которая может
сделать вас победителем. Если вы продолжаете играть, то независимо от
способа управления деньгами вы проиграете весь ваш счет, каким бы большим
он ни был в начале.
Эта аксиома верна не только для игры с отрицательным ожиданием, она
истинна также для игры с равными шансами. Поэтому единственный случай, когда у
вас есть шанс выиграть в долгосрочной перспективе, — это игра с положительным
математическим ожиданием.
Р. Винс "Математика управления капиталом"
It goes something like this...
 
Yury Kirillov:
A 50/50 guess, all other things being equal, will always result in defeat over a long enough time interval. No MM can help here.
What is this nonsense? The casino system is built on nothing other than 50/50 guessing over a long distance. For example, in roulette, when you bet on an event with 2 outcomes. If that wasn't the case, they wouldn't have introduced zeros, as it's the entry of zeros that gives the casino a minuscule advantage over the player, which grows into millions over the distance.
 
Yury Kirillov:
В отношении управления капиталом очень важно понимать, что при игре с
отрицательным ожиданием нет схемы управления деньгами, которая может
сделать вас победителем. Если вы продолжаете играть, то независимо от
способа управления деньгами вы проиграете весь ваш счет, каким бы большим
он ни был в начале.
Эта аксиома верна не только для игры с отрицательным ожиданием, она
истинна также для игры с равными шансами. Поэтому единственный случай, когда у
вас есть шанс выиграть в долгосрочной перспективе, — это игра с положительным
математическим ожиданием.
Р. Винс "Математика управления капиталом"
Somehow...
And why have you decided that a 50/50 chance of winning at a profit of three times the stop has a negative mathematical expectation?
 
Yury Kirillov:
A 50/50 guess, all other things being equal, always results in a loss over a long enough time interval. No MM can help here.

The probability of winning doesn't matter at all.

It is the value of MO - you yourself quoted Vince.

If you have a 10% probability of winning $1,000 and a 90% probability of losing $1, then the MO is positive.

Even though the probability of winning is only 10%....

 
Yury Kirillov:
В отношении управления капиталом очень важно понимать, что при игре с
отрицательным ожиданием нет схемы управления деньгами, которая может
сделать вас победителем. Если вы продолжаете играть, то независимо от
способа управления деньгами вы проиграете весь ваш счет, каким бы большим
он ни был в начале.
Эта аксиома верна не только для игры с отрицательным ожиданием, она
истинна также для игры с равными шансами. Поэтому единственный случай, когда у
вас есть шанс выиграть в долгосрочной перспективе, — это игра с положительным
математическим ожиданием.
Р. Винс "Математика управления капиталом"
So...
I'm sorry but if we have outcomes of 3 3 3 -10 3 3 3 -10 3 3 3 -10... ...for example, the MO is negative, but we'll get the MM in the + with these statistics. It's just an example.
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