But we started out thinking we were trading a system with
defined risk based on 16 years of backtested history. The
largest loss was 3.6% and that was called an outlier. Good
enough. Then with that 8%+ loss which was almost triple the
largest historical loss -- and with no defined stop built into the
system, we were suddenly trading a system with undefined
risk. I know for me personally it caused me, rationally, to
cut way back on position size, since I have no idea what my risk
is, and this will now mean it takes much longer to recoup that
loss.
Thanks for sharing Michael. My point regarding risk when
responding to that specific post was, IMO, you cannot compare
following a system or trading in the markets in general to shoving
money under the mattress, that is not apples to apples. When
I buy a car and it becomes a lemon I might think back about the
other car I test drove and should have bought but I would not say
"man I knew I should have just walked".
Tom -- I've been at BPT for many many years. I like Matt a
lot and I respect his work. But I don't think you are really
answering what people are saying.
In response to copycat you are saying that deciding to take risk
is not the same as not taking any risk. I am saying that risk
that we are taking turns out to be different from the risk we
thought we were deciding to take. And actually, right now, I
do not even know what the risk is. Do you? what's the
defined risk of trading the system?
Well technically I don't believe either of you asked me a
question or I didn't see it so I was commenting more on your
comments.
The SPY System has had the same risk it always had, nothing
changed. Maybe some people used past performance as an
indication of future performance. The way I handle risk is
through allocation. I generally look at a system as
potentially going to zero (maybe not in one trade especially since
it is a large ETF but that's how I handle it) and then start with
an appropriate allocation and work from there and then increase or
reinvest profits. Now I am slightly conservative but I start
with my net worth and then allocate savings and then investing and
trading and the SPY is apart of my trading etc. I am also
young, or at least I am told I am
. But what would I say the risk for
the SPY System is, I used zero and allocated accordingly but
decided I would always reinvest profits. I also trade other
strategies and styles so there have also been cases for me
personally where I may already be long or short when the system
might want to go long or short etc. and then I have to evaluate
what works best for me. Do I ignore the signal, double up,
hedge etc.
How did you first decide what to allocate? Did you trade
the SPY or leveraged vehicles?
Tom -- once aqain, you know I am a very long term guy here, and
I don't mean to beat a dead horse - but are you saying that you
approach the spy system assuming that the trade could in theory go
to zero, and you allocate accordingly? That makes no
sense. What would be a rational allocation for a trade with
the risk of losing all your money? I really don't get it. The
basic mantra of trading everywhere, including this site, is to set
stops, know your exits when you enter the trade, define risk.
If the risk is 100%, I don't know - seems to me there would have to
be an awful lot of reward.
If you assume the trade could go to zero, the only answer I come
up with is that the allocation has to be so small relative to
account size, that it won't bother you to lose it all. What
would that be -- 2%? So with a $200,000 trading account, one
could put 4000 into the system, un-levereged. With a 100,000
account it would be 2000 per trade. Just thinking out loud
now, I haven't thought about it until I read your post -- I just
don't know if its worth bothering with it for that amount of
money.
Did I misread your post?
And don't get me wrong -- I'm trading the system, I've never
complained about a trade, and I imagine there is every chance that
the current trade could end up very profitable. I'm not being
emotional here, I'm just trying to understand the answers that you
are giving.
It does seem like if members voice their displeasure with the
system, they are told they are being emotional or they are over
leveraged....I don't think that's a fair response since subs are
just stating that they sub'ed to something that didn't deliver...at
the same time I will be the first to say I did not support the subs
who were griping about trades...In fact I made a comment in the
past that subs should stop whining about the trades and just have
faith in the system...but now that the system sub is coming to an
end and the performance has been poor---I don't think the subs got
what they paid for or what they believed they were going to get
when they looked at years of historical trades initially...
Newsletter
Subscribe to our email list for regular free market updates
as well as a chance to get coupons!
risk
SPY System Performance vs. Market since first trade
Posted by Michael on 21st of Oct 2011 at 12:41 pm
Tom -
But we started out thinking we were trading a system with defined risk based on 16 years of backtested history. The largest loss was 3.6% and that was called an outlier. Good enough. Then with that 8%+ loss which was almost triple the largest historical loss -- and with no defined stop built into the system, we were suddenly trading a system with undefined risk. I know for me personally it caused me, rationally, to cut way back on position size, since I have no idea what my risk is, and this will now mean it takes much longer to recoup that loss.
Thanks for sharing Michael. My
Posted by tom on 21st of Oct 2011 at 01:40 pm
Thanks for sharing Michael. My point regarding risk when responding to that specific post was, IMO, you cannot compare following a system or trading in the markets in general to shoving money under the mattress, that is not apples to apples. When I buy a car and it becomes a lemon I might think back about the other car I test drove and should have bought but I would not say "man I knew I should have just walked".
Tom -- I've been at
Posted by Michael on 21st of Oct 2011 at 02:57 pm
Tom -- I've been at BPT for many many years. I like Matt a lot and I respect his work. But I don't think you are really answering what people are saying.
In response to copycat you are saying that deciding to take risk is not the same as not taking any risk. I am saying that risk that we are taking turns out to be different from the risk we thought we were deciding to take. And actually, right now, I do not even know what the risk is. Do you? what's the defined risk of trading the system?
Well technically I don't believe
Posted by tom on 21st of Oct 2011 at 03:37 pm
Well technically I don't believe either of you asked me a question or I didn't see it so I was commenting more on your comments.
The SPY System has had the same risk it always had, nothing changed. Maybe some people used past performance as an indication of future performance. The way I handle risk is through allocation. I generally look at a system as potentially going to zero (maybe not in one trade especially since it is a large ETF but that's how I handle it) and then start with an appropriate allocation and work from there and then increase or reinvest profits. Now I am slightly conservative but I start with my net worth and then allocate savings and then investing and trading and the SPY is apart of my trading etc. I am also young, or at least I am told I am
. But what would I say the risk for
the SPY System is, I used zero and allocated accordingly but
decided I would always reinvest profits. I also trade other
strategies and styles so there have also been cases for me
personally where I may already be long or short when the system
might want to go long or short etc. and then I have to evaluate
what works best for me. Do I ignore the signal, double up,
hedge etc.
How did you first decide what to allocate? Did you trade the SPY or leveraged vehicles?
Tom -- once aqain, you
Posted by Michael on 21st of Oct 2011 at 08:54 pm
Tom -- once aqain, you know I am a very long term guy here, and I don't mean to beat a dead horse - but are you saying that you approach the spy system assuming that the trade could in theory go to zero, and you allocate accordingly? That makes no sense. What would be a rational allocation for a trade with the risk of losing all your money? I really don't get it. The basic mantra of trading everywhere, including this site, is to set stops, know your exits when you enter the trade, define risk. If the risk is 100%, I don't know - seems to me there would have to be an awful lot of reward.
If you assume the trade could go to zero, the only answer I come up with is that the allocation has to be so small relative to account size, that it won't bother you to lose it all. What would that be -- 2%? So with a $200,000 trading account, one could put 4000 into the system, un-levereged. With a 100,000 account it would be 2000 per trade. Just thinking out loud now, I haven't thought about it until I read your post -- I just don't know if its worth bothering with it for that amount of money.
Did I misread your post?
And don't get me wrong -- I'm trading the system, I've never complained about a trade, and I imagine there is every chance that the current trade could end up very profitable. I'm not being emotional here, I'm just trying to understand the answers that you are giving.
It does seem like if
Posted by chlo888 on 21st of Oct 2011 at 03:43 pm
It does seem like if members voice their displeasure with the system, they are told they are being emotional or they are over leveraged....I don't think that's a fair response since subs are just stating that they sub'ed to something that didn't deliver...at the same time I will be the first to say I did not support the subs who were griping about trades...In fact I made a comment in the past that subs should stop whining about the trades and just have faith in the system...but now that the system sub is coming to an end and the performance has been poor---I don't think the subs got what they paid for or what they believed they were going to get when they looked at years of historical trades initially...