The most important chart for trading - page 5

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Sergiy Podolyak:

Dimitri, you have one sentence on the same page which fundamentally contradicts the other. You yourself have just written that diversification is WANTED to limit risk. So answer yourself (and us) how in your example diversification proved to be "necessary" and "limited" the risk.

Where is your logic?

The logic is as follows:

1. there is no requirement under US law for PROSIDING funds. Otherwise there would be no bankruptcy of funds.

2. US law cannot have drawdown requirements in principle, because the funds' portfolios include derivatives, some of which are NOT quoted on the stock exchange. And since they are NOT listed, it is impossible to determine their current rate and calculate the drawdown.

3. Diversification is the right thing to do to reduce portfolio risk. The only problem is that a diversified portfolio is formed at time t0 - the opening of all 20 (for example) positions, and the RISK is the price movement at time t1- infinity.

 
Дмитрий:

The logic is as follows:

...... and PROSADC is the price dynamics at time t1- infinity.

I tell you - you are inadequate to trading. No one in the financial world would ever think of talking about drawdown as a price.

Drawdown is a drop in equity (or balance), but not price.

Maybe you should study somewhere before posting anything here?

I, for example, back up all my posts with quotes and links, but you just throw in some personal "revelations" without any confirmation whatsoever.

А?

 
Sergiy Podolyak:

I'm telling you - you are inadequate to trading. No one in the financial world would ever think to talk about drawdown as a price.

Drawdown is a drop in equity (or balance) but not price.

Maybe you should study somewhere before posting anything here?

I, for example, confirm all my postings with quotes and links, while you just throw in some personal "revelations" without any confirmation.

А?

And I didn't say that drawdown is a price.

I said drawdown is price DYNAMICS.

Why does equity or balance change? Because of the price movement of the asset, for which a position has been opened? Or because it rained and two students?

P.S. I will not post wikipedia here

 
Дмитрий:

I was saying that drawdown is about price DYNAMICS.


Why so sluggish? Come on, Dimitri, don't be shy!

Then the drawdown is the dynamics of rainfall in Brazil affecting the price of orange juice in Chicago.

These perls of the anonymous Dimitri should be entered into the "Annals of the forum" as an anecdote.

Note that he speaks so confidently about the absence of anything in US law (there is no case law in the US, and it is unlikely that a lawyer would claim that there is "nothing there" in US law), as only a Russian-speaking employee of a large US bank would say. For example, from Goldman Sachs, or Morgan Stanley.

By the way, Dimitri, no one here expects you to provide links, not even to Wikipedia. You NEVER give links or quotes at all. Notice? That's not what you get paid for. It's not your job to do any explanatory work on this forum. Quite the opposite, in fact.

In a word - a Cossack. Go ahead, Dimitri. You make my day.

 
Sergiy Podolyak:


Joining me on the second post of this thread - thanks, Cap!

It's a good thread.

 
Дмитрий:

Joining me on the second post of this thread - thanks, Cap!

It's a good thread.

This is where I really got scared.

Seriously. Not much scares me. Hey, what are you guys up to in GS? You can't fool me with flattery. I'm a tough guy.

 
Sergiy Podolyak:

Well, do the math yourself. I don't work for you, thank God.

A trader with even his entire depot can't get to a margin call by trading at 1:1 leverage.

You have 100K dollars and you buy 100K pounds on spot forex. You now have £100K in your account. The pound falls and rises by 10% per year, and then, with 1:1 leverage, your equity (and balance) - in dollars - cannot change by more than this 10%. What, where is the margin call?

Guys, this is 5th grade high school.

Thank the gods you don't work for me. However, what does this have to do with work?

I gave you a simple example, taken from the first chart I saw, which shows that you are not telling the truth:https://www.mql5.com/ru/forum/166224#comment_3985398

Based on my example, it is clear that not only would the "trader" encounter a warning visit from Uncle Kolya, but he would also meet a stop-out.

At the same time, the one with higher leverage, but who trades with a small lot size (and low risk for the deposit as a whole), would not have incurred the enormous losses that the reckless one, who believes you like that and "trades" with a 1:1 leverage, would have incurred.

And by the way, now that you mention the pound and the dollar:

for 2016 GBPUSD has gone down over 35,000 pips on a five-digit basis (3500 on the old one).

Trading the entire depo, buying at the high, the "trader" would have faced a stop out (irretrievable loss of funds) well before the end of 2016.

/*and yes, sorry, if anything, for my grammatical and punctuation errors - I am not a philologist or political scientist*/.

Sergiy Podolyak:

... This happens because with more leverage your share of your depo to open one lot - may be LESS, but no one makes less of a position, and everyone gets greedy - for higher profit percentages.

That's the point of MM - to calculate the size of the position so that the RISK (i.e. drawdown) does not exceed a certain PERCENTAGE of the deposit. It is a basic rule and even in the USA it is legislated for fund managers.

Leverage is an EXPENSIVE PERCENTAGE of your equity fluctuations depending on price fluctuations. This is the flip side of the effect of leverage. On the one hand it reduces the margin required for trading, and on the other it increases profits AND the percentage drawdown. Except that the drawdown, which with 1:100 leverage can be the same as growth (that is 20% and 100% per month), beginners forget due to their greed or ignorance, or arrogance.

It is a double-edged sword.

Sergey, you cannot know how everyone trades; and that no one makes small positions; and that everyone is greedy.

In trading there are uncomplicated things:

  • With less leverage, the margin is higher.
  • A higher leverage has a lower collateral.
  • The value of a point of profit/loss is the same for different leverage sizes, but all other things being equal. At the same time, at different leverage sizes the profit/loss on trading results is the same < - of course, with equal conditions of all other related things (opening/closing marks, lots, etc.).
  • Differences in profits and losses arise from differences in conditions other than leverage: lot size; stop and profit marks; early/late closing/opening; etc., etc., etc. Also, it depends on personal psychology.
I.e. the differences depend not only on MM, but also on various other factors. Where the loan shark, on accusations against him, is left with only a heavy sigh, like: "... You should put them on your eyes, not on the back of your head before pointing at them. And you have to put them on where they should be: for some specific farsightedness - with one lens, for another - with another, for some specific myopia - the third, powerful sunglasses - in a clear day, but not in the deep black night in a room with no light.
  • Higher lot size - higher point value of profit/loss and higher deposit amount. Different profit/stop marks - different profit/loss amounts. And so on.
  • When trading, it is extremely important to use low risk for the deposit: small lot sizes for the deposit and strict observance of other MM rules. Drawdowns that exceed the risk, or in simple terms, over-leveraging, instead of limiting losses, may be more dangerous with smaller leverage. There is a difference between trading with small lots and large lots with little leverage.
That said, trading the entire depo or with giant overdrafts is, imho, reckless extreme trading, not trading. Regardless of the size of leverage.

If one does not observe MM and trades the whole deposit or up to critical overbearing levels - then with stop out at smaller leverage there is a chance that a little more deposit may not be lost.

But with the same probability the opposite can also happen. That is, when with less leverage the trade will be closed using stop out due to insufficient funds (the moneys will be taken away irretrievably), then with more leverage there will still be some "hope", including the one that adds some gray in the hair, that the price will reverse in the desired direction before reaching the stop out.

And it may not reach the stop out with greater leverage.

However, from my point of view: a trader will not trade the entire deposit; traders ("real" traders) strive for objectivity; a trader will not trade huge lots for the funds spent on trading in general. Footnotes from exceptions that may create an illusion to the contrary: not everybody keeps, imho, allotted for trading amounts on trading accounts in full. Probably, there are not few people who keep on trading accounts only a part of amounts allocated for trading. Keeping in mind that different offices may close for one reason or another.

Therefore, someone may keep on trading accounts only a part of funds allocated for trading. Thereby creating illusions of trading with higher risks than it is implied in fact.

P./S.: I assume why you did not want to answer the questions you were asked. I assume why you persist in trolling others here (on the subject of leverage).

The bad thing is that those who believed and will believe you and your kind have paid and will pay dearly for it. However, imho, what is worse is that others have paid and will pay dearly for it as well.

So let it be a hundredfold back to you and your kind. This applies not only to the bad, but also to the good.

"...The road to hell is paved with good intentions."


P./S.: Before I wrote this post I had concretely specified my other one. Not for you already, but so in general for myself (that more precisely expressed what I tried to tell).

Instead of:

How much did the swap on the long position eat up before the "trader" faced a stop out (irrevocable loss of funds)?

more accurately conveys what the following question aims to say:

How much did the swap on the long position before the "trader" encountered a stop out (irretrievable loss of funds)?

That is, what I was saying: if the "trader" believed statements like yours: "...If you open a position with your entire deposit at 1:1 leverage, your deposit will only fluctuate by 1-2% per day (normal market volatility). No "Uncle Kolya", i.e. no margin call there for a couple of months..."If I had done that and traded my entire deposit, then before the New Year I would have already met not only with a margin call, but also with a stop-out.

Because, the excess risk and drawdown overdraft would have been beyond anything acceptable.

 
Dina Paches:

And by the way, now that you mention the pound and the dollar:

for 2016 GBPUSD has gone down more than 35,000 pips on the five digits (3500 on the old).

Trading the entire depo, buying at the high, the "trader" would have faced a stop out (irrevocable loss of funds) long before the end of 2016.

/*and yes, sorry, if anything, for my grammatical and punctuation errors - I am not a philologist or political scientist*/.

Oh, it's just some kind of holiday today.

Deena claims that if I take a wad of dollars, exchange it for a wad of pounds, put that wad of pounds on my shelf, within a year a certain Uncle Kolya will come to me and take that wad of pounds from me. Oh, my God!

If that's not bullshit, I don't know what "bullshit" is.

We could be writing Uncle Kolya's movie scripts on this forum soon.

Shit.

 
Sergiy Podolyak:

It's quite a celebration today.

Dina claims that if I take a wad of dollars, exchange it for a wad of pounds, put that wad of pounds on my shelf, within a year a certain Uncle Kolya will come to me and take that wad of pounds away from me. Oh, my God!

If that's not bullshit, I don't know what is "bullshit".

You could be writing out Uncle Kolya's mooo-strash scenarios on this forum soon.

Shit.

Would you kindly link to where I claimed that.

I didn't correct you, considering your spot as a typo (in lieu of forex swap). Because what does spot(swap with live delivery) have to do with it if you were originally talking about leverage? Would you please re-read yourself:https://www.mql5.com/ru/forum/166224

Forum on trading, automated trading systems and testing trading strategies

The most important chart for trading

Sergiy Podolyak, 2017.01.10 04:47

Here it is, the most important chart for trading.

It's not a currency pair chart, or a testing or optimization chart.

It is a graph of the exponential dependence of the required return after a drawdown, a recovery graph.

This dependence is non-linear, i.e. roughly speaking, it is asymmetrical. The larger the drawdown, the larger the subsequent profitability should be. This is a graph of "ultra-optimism" required after careless use of leverage.

Drawdown to growth ratio. Drawdown to profitability.

More explanatory tables:

Drawdown recovery

Years to recover from drawdown.

References:

https://www.hedgeable.com/hedgeable-investment-philosophy-white-paper

http://www.financialtrading.com/cfds/drawdown-recovery/

http://www.bsam.com/research/whitepapers/the-importance-of-managing-risk-in-retirement/

And please tell me more about spot forex and the careless handling of leverage with it...
 
George Merts:

Thanks Cap.

Who would have thought that it turns out that the Volga flows into the Caspian Sea after a 50% drawdown, you have to earn 100% in order to get your deposit back...

You're blessed with sacred knowledge... Well, now everyone will be happy...

A dissertation, no less!
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