Jan

21

 I just read the book Contrary Opinion by R. Earl Hadady. Aside from his point on bullish consensus, I found the following very interesting (I call it theorem of winning and losing). We all know that the majority lose trading futures. So, say 80% traders lose, and let T denote the total number of traders, NW the average number of contracts held by winning traders, and NL the average number of contracts held by losing traders, then the following equation holds:

0.2 * T * NW = 0.8 * T * NL

From the above we get: NW = 4 * NL

Which mean the average number of contracts by winning traders is 4 times the average number of contracts by losing traders.

If 90% traders lose, then we have

NW = 9 * NL

So, the theorem says the deep pocket traders have a natural advantage to win. It begs the question of how traders with not so deep pocket can survive and win. What are the good strategies? I wonder if this also implies that one may increase the chance of winning by not diversifying funds.

Stefan Martinek writes:

"It begs the question of how traders with not so deep pocket can survive and win. What are the good strategies?"

Trading can create such an addiction that sometimes addicts do not realize that the world is full of opportunities outside of trading. Good business strategies match our pockets, or our pockets + pockets of family/friends (initially). Trading with a small account frequently makes no economic sense if we consider opportunity costs. It's better to go kitesurfing.


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  1. Matthijs Sypkens Smit on January 25, 2015 8:59 am

    Having ‘deep pockets’ is not an absolute measure. The capital of even the richest trader is insignificant to the total volume traded. Being a winner in trading in the end is not about deep pockets at all, but rather a characteristic of the strategy itself. In other words; only 1 out of n people are able to successfully execute a winning strategy. Of course this naturally skews the statistic such that the frequency of winners amongst people with a large capital is higher than over the total.

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