1% return on your money in about a month

Discussion in 'Stocks & Derivatives' started by Caneorange, Feb 12, 2016.

  1. Caneorange

    Caneorange Member

    Joined:
    Jan 26, 2015
    Messages:
    96
    Likes Received:
    0
    Trophy Points:
    6
    Those were some great charts from back in 2013 and earlier. I would guess you to be worth about $9 million dollars by now(this is assuming you successfully made 10 trades at the lowest rate of return shown and you started with your original $150 back in 2012). Or could you not make 10 correct in a row?

    I on the other hand am not going to get rich quick. I will slowly and methodically take my 1-2% return every month for the next 20 years and retire at 50. I follow Phil Towne's Rule 1 Investing book and David Swenson's Sandbox Lockbox strategy.


    What model do you use if black scholes is no good?
     
  2. Caneorange

    Caneorange Member

    Joined:
    Jan 26, 2015
    Messages:
    96
    Likes Received:
    0
    Trophy Points:
    6
    You are multiplying the ratios when you need to divide them :)
    Multiplying ratios: (a/b) * (c/d) = ac/bd
    (1/3) * (1/76) = 1/228 just like (1/76) * (1/3) = 1/228 so which one is the 228 times better?

    You must divide to find something to be a certain times better.
    Dividing ratios: (a/b) / (c/d) = ad/bc

    (1/3) / (1/76) = 76/3 or 25.33 that would be 25 times better
    (1/76) / (1/3) = 3/76 or 0.04 that would be 0.04 times better? (worse)

    Thinking about from a GSR may help you Gold is currently (1205.22/15.35) = 78.5 times better than silver or silver is (15.35/1205.22) = 0.012 times worse than gold Gold is not however (15.32 * 1205.22) = 18,500 times better.

    Risk:reward while something to look at is not a great metric to solely base a trade on simply because I have a risk of $1 and a reward of $XXXXX doesn't amount to crap if the probability of it happening is 0%.

    I will gladly risk XXXX to make $1 if the 1% per month goal is met and the expected return (which must have a probability to calculate) is positive.

    Your risk:reward on all those is a little off. CFD's margin 0.5% therefore true risk on $1= $200. Therefore, true risk reward calculation on your 1:7.5 is 200:7.5 or 27:1.
     
  3. DanielM

    DanielM Active Member Silver Stacker

    Joined:
    Oct 23, 2012
    Messages:
    2,889
    Likes Received:
    29
    Trophy Points:
    38
    Location:
    Melbourne
    It's all about perspective. If you had to 'smuggle' $10,000 in gold OR silver across the border I could bet almost 100% of people would say gold is 18,500 times better than silver
     
  4. wrcmad

    wrcmad Well-Known Member Silver Stacker

    Joined:
    Jan 2, 2012
    Messages:
    6,644
    Likes Received:
    1,502
    Trophy Points:
    113
    Location:
    Northern NSW
    Thankyou, but please don't assume. :)
    I didn't start with $150 - not sure where you got that from?
    No. I wouldn't (often :p ) make 10 cracking trades in a row. Not sure where that is from either?

    Ahh - you have someone else's strategy. Good luck. I suggest you try and understand what they have sold you.
    I don't use a model - I don't trade options anymore - like I said above, the premiums are too expensive, and there are better returns using other instruments.

    You are nearly there. :)
    But you are still incorrectly using 1:76, as pointed out above, rather than 76:1.

    Ratios can be written like a fraction, so.
    76:1 = 76/1 = 76
    1:3 = 1/3

    76/(1/3) = 228 :)

    Here is a link to help you out https://www.mathsisfun.com/numbers/ratio.html

    Correct. Risk:reward must be used in conjunction with strike-rate to obtain a positive expectancy.
    If you do not know any of these, especially your expectancy, then you are punting.

    My risk:reward on the listed trades are not off at all. Not one little bit. :)
    CFD margin has nothing to do with true risk - it is merely the margin.
    True risk is total exposure, which in these cases were defined by the stop-loss points.

    I sincerely hope, for your own financial sake, that you follow up some of this dialog, and get a better understanding of these trading concepts and the maths behind it. :)
     
  5. Caneorange

    Caneorange Member

    Joined:
    Jan 26, 2015
    Messages:
    96
    Likes Received:
    0
    Trophy Points:
    6
    I love the contradictions.

    If options are expensive sell them. That is what I did. (Doubt you know how to tell if an option is expensive or cheap because they change daily)
    Yes. I am not too bold brash.... to admit that I am learning how to trade from people that have been successful doing it.

    What expectancy do you have on your trades listed? I never saw anything about probabilities and in order to calculate expectancy you must have probabilities. Like you said without expectancy you are punting.
    I quoted a positive expectancy on my trade yet it was bad?
    How do you calculate probability without a model?

    Margin is capital required to put on the trade, but rarely is it the same as your max loss. Stop-losses don't protect if the underlying stock gaps up or down.
    If a stop-loss won't protect from gapping your risk is undefined. No defined risk. No defined risk:reward.

    Don't understand the cracking term (not Australian) You don't have to make those trades necessarily in a row just 10 of them without losing large sums of money over the last 4 years. And the $150 was the margin required for the first trade you posted.

    I have made more than 10 of my trades in a row with positive results and am currently 1 for 1 documented here. In fact, I have been successful with this strategy since I started it a little over a year ago. In other words I am up about 16% on my money in just over a year. I am sorry you had bad luck trading options and thus stopped using them. I appreciate your concern for my financial being, but until you can show me in action (open the position while markets are open and others could initiate the trade) I am unable to recognize your amazing system.
     
  6. wrcmad

    wrcmad Well-Known Member Silver Stacker

    Joined:
    Jan 2, 2012
    Messages:
    6,644
    Likes Received:
    1,502
    Trophy Points:
    113
    Location:
    Northern NSW
    Like I said in the first place, the expectancy is usually quite poor, even when selling, and the greeks make for unnecessary headaches - there are better instruments available now.

    My expectancy is >2.0.
    However, don't confuse expectancy with strike-rate... they are not the same.
    Positive expectancy is the most important element in trading. It is a priority in trading to understand what this means, and it is this understanding that separates those who make money and those who lose it.
    Expectancy is defined as, how much money, on average, we can expect to make for every dollar we risk.
    Positive expectancy and the likelihood of winning (system accuracy) are not the same thing! Most people confuse the two and chase high accuracy it is instinctive to equate successful trading with the accuracy of trading. It is our social conditioning.

    Expectancy = (probability of winning x Ave win) (Probability of losing x Ave loss).

    So, to increase your systems' positive expectancy, you can either increase the probability of winning (accuracy), or increase the average win size, or decrease the average loss size.
    The probability of winning can be increased by entering higher probability trades.
    The average win size can be increased by only taking trades that have a better potential pay-off, ie increase the risk:reward ratio.

    A model will not give you probability - a model gives you a system to trade by. The only way to measure the expectancy of your system is to measure the strike-rate performance over a statistically significant time-frame - say at least 25 trades, and combine it with the risk:reward of the trades.

    CFD's offer a guaranteed stop-loss, so gapping is irrelevant, as you are still protected. :)

    10 in a row is excellent - that is promising, but as pointed out above, your original ratios suggest you have to maintain a perfect trading record to stay profitable, and there is no one on earth who can do that.
    I didn't have bad luck in options - I just moved on to easier, better returns.
    And my system is not amazing. IMHO there is no amazing system in existence. It is all about trading the expectancy, and using the ratios to increase it.
    I just use the maths to my full advantage.
    Yeah, I could post more trades, but as pointed out above, the ones I posted were able to be followed, if you look back at the preceding dialog. :)
     
  7. Caneorange

    Caneorange Member

    Joined:
    Jan 26, 2015
    Messages:
    96
    Likes Received:
    0
    Trophy Points:
    6
    A model (black scholes) does give you the probabilities of a stock moving to a specific price.
    So I do high probability low reward trades with a positive expected return.
    You do low probability high reward trades with a positive expected return.

    Neither is better than the other if the expected return is the same. If you disagree with this logic then we will have to agree to disagree and call it a day.

    I came to this site because I wanted to learn things not because I have all the answers.

    I hope for your sake the CFD thing is legitimate and they can actually perform what they claim with regards to guaranteed stop-loss.
    Because margin is not for your safety it is for the brokerage firm's safety and it would be awful if someone other than yourself bet a large sum with 0.5% margin and the stop loss didn't work and that person caused the brokerage firm to collapse. Brokerage houses have collapsed and good investors lost their money because bad investors couldn't cover their margins.
     
  8. long88

    long88 Member

    Joined:
    Jun 19, 2012
    Messages:
    755
    Likes Received:
    12
    Trophy Points:
    18
    Location:
    Melbourne
    caneorange:

    how about long gld options, say buy 1 year ahead options. and short the spx or spy index options.
     
  9. Caneorange

    Caneorange Member

    Joined:
    Jan 26, 2015
    Messages:
    96
    Likes Received:
    0
    Trophy Points:
    6
    I don't like going long Gld and short spx or spy because I don't think they are causative of each other. Also, I am not a fan of buying or selling long term options because they need a huge price movement in the underlying stock to make any kind of gain. So I typically buy the underlying instead.

    I typically try to run a few different option strategies based on volatility. I feel volatility is easier to predict than actual stock prices. When volatility is high options are "expensive" and when volatility is low options are "cheap". So, I use option buying strategies when volatility is low and selling strategies when it is high.

    Gld I don't mess with much because I find vix and spx easy to follow and if I want gold I usually get physical.

    Vix is the 30 day volatility of the spx.

    So if I wanted to go short spx I could do this 1 of 2 ways with options. I could wait for a low vix and buy a put or wait for a high vix and sell a call. If I am selling the call I try and do it about 20-25 days before expiration (remember vix is a 30 day measure). If I am buying a put I try and do it about 27-30 days before expiration and close before 18-20 days. Time decay or Theta is the Greek to watch on both of these. Theta decays slowly until about 21 days out and then picks up steam this works in favor of the sell and against the buy.

    This trade structure tries to make money in 2 ways 1. Me being correct on the spx moving down or 2 me being correct on the volatility moving closer to its average.

    Would recommend doing either of these as a vertical spread to guarantee max loss is acceptable. Sorry so long. Hope it makes sense. I tend to have a hard time explaining things.
     
  10. wrcmad

    wrcmad Well-Known Member Silver Stacker

    Joined:
    Jan 2, 2012
    Messages:
    6,644
    Likes Received:
    1,502
    Trophy Points:
    113
    Location:
    Northern NSW
    OK. I agree to disagree on black-scholes - I have given my explanation as to why it doesn't give the probabilities you claim it does. Can't do any more with that.

    However, I do not "do low probability high reward trades with a positive expected return".
    An expectancy of better than >2 cannot be achieved by entering low probability trades.

    Also, our returns, or expectancies are nowhere near the same.

    Based on your 76:1 risk:reward figures, I have shown you mathematically why this is so. There is no logic to disagree with.
    Your expectancy, with a strike rate of 100% (impossible to achieve), is +0.013.
    Your expectancy, with a strike rate of 95% (near impossible to achieve), drops to -3.79.
    The blow-up is inevitable, so be careful.

    Mmmmmm......????
     
  11. Caneorange

    Caneorange Member

    Joined:
    Jan 26, 2015
    Messages:
    96
    Likes Received:
    0
    Trophy Points:
    6
    What probabilities did you use to calculate these and how did you get them?
    Same question with avg win and loss?
     
  12. wrcmad

    wrcmad Well-Known Member Silver Stacker

    Joined:
    Jan 2, 2012
    Messages:
    6,644
    Likes Received:
    1,502
    Trophy Points:
    113
    Location:
    Northern NSW
    Probability of 100% and 95%, as stated above.
    Then plugging Avg risk:reward of 76:1 into this:
    Expectancy = (probability of winning x Ave win) (Probability of losing x Ave loss).
     
  13. Caneorange

    Caneorange Member

    Joined:
    Jan 26, 2015
    Messages:
    96
    Likes Received:
    0
    Trophy Points:
    6
    Avg win and loss?
     
  14. wrcmad

    wrcmad Well-Known Member Silver Stacker

    Joined:
    Jan 2, 2012
    Messages:
    6,644
    Likes Received:
    1,502
    Trophy Points:
    113
    Location:
    Northern NSW
    Yep.
    The discussion is based on 76:1, so I have nothing else to use.
     
  15. Caneorange

    Caneorange Member

    Joined:
    Jan 26, 2015
    Messages:
    96
    Likes Received:
    0
    Trophy Points:
    6
    I have said that I do not trust your analysis with regards to probabilities and expected return and the following explains why.
    76:1 = 3,355.65 : 46.35
    Based on the above quotes.
    Average win = $46.51 or stock price of 36.00
    Probability of T being at or above 36.00 on 3/18/16 95%
    Average loss = $3,355.65 or stock price of 0
    Probability of T being at or below 0 = 5%

    ER = (.95 x 46.51) - (.05 x 3,355.65) = -123.60 expected return (horrible trade)

    In my opinion probabilities of a stock hitting a price doesn't change based on the strategy used. So, can we turn this trade into a good trade?
    If a neutral to bullish strategy doesn't work would a bear strategy?

    Cost of a 3/18/16 35.00 put on T is currently at 0.33 or $33 dollars.

    Risk: reward of put trade 33 : 3,467 = 1:105

    Passes first test.

    So new average win is 3,467 or stock price of 0
    Same probability of 5% of T being at or below 0 = 5%
    Average loss is $33
    Probability of T being at or above 36 = 95%

    ER (on buying a put) = (.05 x 3,467) - (.95 x 33) =$142 or 430% return on my money!!!!!

    Passes test 2.
    So, how many puts will you be buying today?
    I will guess you will buy 0 and your logic will be that the probabilities are not accurate. To which I would agree and encourage you to reread the first sentence of this post.

    Sometimes in posts we opt to make them a little shorter or over simplified because we don't want to use big jargon that runs people away from learning about the concept or type 30 pages because that is what it would take to fully explain the trading strategy.

    If you would have asked me why no stop-loss or advised me to use a stop-loss. I would have thanked you for your advice and probably said you are right a stop-loss costs nothing and helps manage the risk. I failed to put one on because I was going to be at my computer during trading hours for the next few days at which point I would have (but still should have put a stop-loss on).

    Good luck with your CFD trades.
     
  16. wrcmad

    wrcmad Well-Known Member Silver Stacker

    Joined:
    Jan 2, 2012
    Messages:
    6,644
    Likes Received:
    1,502
    Trophy Points:
    113
    Location:
    Northern NSW
    Exactly! ;)
    You have just reinforced my point, and are hopefully starting to understand what you have just illustrated.
    You are assuming unrealistic probabilities in your belief of these ratios ever being profitable, in either a bullish or bearish scenario... the assumed probabilities (strike rate) of 95-100% are unachievable fantasy.
    It therefore logically follows that the long-term profitability of a strategy using a risk:reward ratio of 76:1 is also pure fantasy. :)

    Honestly, there is no personal benefit for me in whichever way you chose to trade - I just thought you were after some help, and, as a trader, I tend to gravitate towards helping other traders where I can. :)
    When you asked the question of me, I wasn't after an argument over these simple calculations... that would be irrational. Just thought I could give you a couple of pointers, that's all.
    It's a shame, because not many people have the self-motivation of yourself to actually start trading, and make a go of it. I commend you for this. :)
    However, mathematical fact is impossible to argue, and successful trading is not so much a price-forecasting game, but an emotionless play on probabilities.
    Sadly, many new traders don't understand this until it is too late - they are blind-sided.... seeing only what they want to see.
    Maybe that is why 95% of all traders blow-up their accounts? :(

    If you don't believe the numbers, and deny what is mathematical fact, then I can't really help you anymore.

    Anyway, I wish you good luck with your trading as well... I think you are going to need it.
     
  17. phrenzy

    phrenzy In Memoriam - July 2017 Silver Stacker

    Joined:
    Oct 19, 2014
    Messages:
    2,493
    Likes Received:
    15
    Trophy Points:
    38
    Location:
    R.I.P
    Shame about this one, dropped to under $35 but just fot a min, otherwise a god buy and met the specs. Very close but no cigar.

    [​IMG]
     

Share This Page