Warren Buffet is right as always or Let's share good ideas for MM and RM

Trading and Markets
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The first rule is not to loss… The second rule is not to forget the first rule… (https://www.brainyquote.com/quotes/warren_buffett_138166)

Many leaders and especially the new ones, forgetting this idea and create big losses to their subscribers and sometime they do that very fast…:disappointed_relieved:

We need here a happy subscribers which will increase their funds and will subscribe to more and more strategies in order to reduce their DD and to increase their profits… If they will lose big money, we will lose them…

Most of the subscribers need time in order to test and decide which strategy they want to subscribe to, to decide how much money they are willing to risk and after all that they are still need to insert credit card details to start…

If they will lose significant part of their account, I think that most of them will unsubscribe and will not come back again to C2 for many years… As a result, not only the developer and C2 will lose a subscribe, also all the other leaders around will lose this potentiality for their strategies…

A new year is coming and I would like to offer to all us to try not to forget Buffet quote…

Every strategy may lose money from time to time and every strategy has a DD but let’s try in 2018 to minimize the subscribers losses as well as the DD… This will do good for everybody around…:wine_glass::slightly_smiling_face:

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Cannot agree more!!!
You walk your talk, I am more than happy to have joined your VixTrader strategy in late 2017 and will make it an integral component of my portfolio in 2018. Thank you for all the money making trades in the past few months, our objectives here is to make money…subscribers are not interested in seeing how big DD is recovered but how big DD is avoided instead.

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Isn’t this the sweetest thing. You’ve never even been tested yet, not by a bear like 2008,
A trying market like 2015, and your system results and followers would not look the same since you weren’t even around for the volatile month of sept 2016 for Xiv. You and your subs are in for a Rude awakening but milk them now while you can. Did you explain to them that they can buy and hold and outperform your system and save 2400 a year?

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VixLite - You haven’t been tested either. Your system is only a month old. He is milking it because he has put up a stellar track record for over a year. He deserves his subscriber fees.
How about you do that first, then you can bash his system and tell him what he is doing wrong.

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Thanks for your trust!
“subscribers are not interested in seeing how big DD is recovered but how big DD is avoided instead” - Totally agree! Very important point to remember… :+1:

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I received during the year many questions about my Risk Management methods and now I am ready to share here one of the main rules of my system:

The first rule that I like is to know your exit before you enter… If I protect this rule, this rule will protect me…
As simple as that…

If you are a leader with other ideas about MM and RM, you can share it here for all of us…

Hope I gave an idea to improved some systems here…:slight_smile:

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if you trade vix, only risk management is not hold position overnight. it doesn’t matter what position size or how great of a trader you are. C2 is limited to no preopen/afterhour trading. $XIV drop 15-25% at market open is not as rare as this BTFD market since Nov, 2017.

every VIX strategy on c2 feel like they are ready to open a hedge fund just like all these blockchain traders, all ready to quit their day job and trade crypto daily. I trade vix, and i have an expectation of at least seeing 20-35% draw down on that allocation annually. 2013 was also a great yr for vix traders, but 2014 and 2015 a couple weeks during those year have broke many vix traders.

you are right about c2 subs on DD. you need a nice gain to growth subs, which you did that, now you just need to keep dd low and all your subs will stay. they dont care if you only avg 50% going forward, any drawdown greater than 15% you will prob lose a lot of subs. Keep up the good work, keep the DD low and keep collecting that big pay check each month.

to have a successful strategy on C2 is not difficult, especially not TOS. get a triple digit return first 6 month, then keep DD below 15%. TOS is completely different, most people just go Non-TOS until they get triple digit gains, then apply for TOS after. rarely any subs will ever look at the inception date of TOS.

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I like your best mm strategy of starting a system a month after a big pull down in a raging bull market.
Good one.

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Dear OSUTAI,

Unfortunately you again missed the main point of my idea…

  1. TOS says nothing… It is not a guarantee not to lose money or make money at all…

  2. Let’s say that my system will suffer as you said 15-25% at market open… So what? Probably after 2 months we will forget it and continue to make money…

  3. You try all the time to speak about the Black Swan that you see in the future… You can continue speak about it for the next 10 years and maybe you will be right once exactly like broken clock which show the correct time twice a day…
    So what? We made money all the way and we will continue do the same after it and maybe we will do money during the Black Swan…Right?

  4. As you probably know, the average position size of my system VIXTrader is only 60-65% so your Black Swan risk is much lower here and I am sorry not to agree with you here as well, MM is do matter in overnight trading…

  5. You said: “to have a successful strategy on C2 is not difficult, especially not TOS. get a triple digit return first 6 month, then keep DD below 15%” - I invite you to show me that and I will be happy to learn from you how this is “not difficult to get a triple digit return in 6 months and keep the DD below 15%”… Definitely this will be my surprise of 2018…
    I will subscribe immediately if you will be able to do that… The chance that you will able to do it is lower than the chance that we will see your Black Swan in the coming years :wink:

  6. My strategies enjoyed from a great return over the years and never suffer from a big DD… I invite you to see my new strategy VIXTrader Ultimate which probably will create 140%+ annually with DD less than 18% as it did in the last 8 years in back testing and live trading… Even if your Black Swan will come this year, probably this strategy will reach 3 digit return…

Do not forget, if you not ready to take risk, nothing will happened in your life…

Happy new year!

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Hello RobertPeterson,

Since you asked other leaders to provide ideas about MM and RM, I’ll give you some of my ideas as I am a leader of a strategy.

I consider the entire trade life cycle before the order is even sent. From entry to exit to stops and what could possibly go wrong including timing and news. I also consider the other side of my trade and what they think and would like to see. If I want to go long, I consider what a short may be thinking and would like to see for example. This I also consider before the order is sent. Stops are an absolute and I will never have a trade without a stop for any reason. You may have read this in another post but one metric I use with my followers is the R metric or R multiple. This measures the leverage a trader uses to achieve his results. A stop alone is only half the story. The R tells you how much of your stop did you you achieve in profit. 1:1 and you gained 1 R. It’s no good just to say you use stops in my book. If a trader goes long ES and his stop is 30 points away as an “emergency stop” and achieves only 6 ES points what good is that? In the event the trade went against this trader he’ll claim he had a stop on. In this “emergency stop” scenario, the trader would need a win rate of 83.34% just to break even. In the event of a bad market reaction against his position, he will leave the trade on with hope that it comes back and “insight” that the market could never go there. This is completely wrong. I believe a trader should be accountable for profits according to the actual risk taken. This is why I use this metric.

I have two others. I have not introduced them to my followers yet but I personally use them. I don’t want to overwhelm them all at once and will eventually include these two metrics.

PCP: (profitability check planned)
This measures if the trade you are taking is inline with your win rate. This goes back to considering the entire trade life cycle before the order is even submitted. If a particular trader has a win rate of 40%, he can never consider a trade with a stop of less than 1 risk to 2.5 profit as that is his break even point. For this particular trader, even a risk of 1 to a return of 2 still has a break even of 50% therefore should not meet criteria to take the trade.

PCR: (profitability check realized)
This measure the closed trade to make sure the risk the trader took to the profit achieved is inline with the traders win rate. A trade may be profitable on its own. But if it isn’t large enough for the traders win rate, a string of this type of trade will end badly. Once a trader looks over trades on the weekend and starts to see this metric out of line, an adjustment is necessary to the strategy. One trade is fine but if there’s a number of these that are profitable but the risk was too high for the current win rate, the trader may just be getting lucky in the short term.

MFE:
This metric checks how far the trade went in the traders favor. When looking back at closed trades, the difference between this and realized profits means the trader is not realizing his full potential if there’s a significant difference or not taking the trade off when he should.

MAE:
This metric checks how far the trade actually went against the trader before closing out. This helps the trader adjust stops. He might have stops wider than needed and using too much leverage when his MAE is small. This helps him identify and use tighter stops.

Other metrics are to track results to the end of the trading day for a day trader. Even after the trade is closed. Metrics like this will help you adjust a strategy where you’re leaving too much money on the table or give you insight that your timing is correct on exits.

There are more metrics that help refine a trader but I think that’s plenty to chew on for now.

Hope all that helps.

Good day

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  1. TOS means something, it means scale ability of a strategy and also not too many TOS system out there shoot for 100-200% return first 6 month or first yr. unless its like a 5k or 15k strategy.

  2. 15-20% draw down is nothing, 50% draw down is nothing. at least not to me, but other don’t feel the same way. after 2 month you will make it all back, im glad you have the confident. which i do believe you are a good manager, or else i wont be subscribe to your systems. But these post here or any other forums you post about how great your system is, im just worried because it sound so complacent, because i have over 100k subscribed to your systems. thats something i watch out for from prev experience, when the trend breaks they are not willing to privot. Ya ya, i know. Like you said i shouldn’t worry, there no manager was ever as good as you on c2 before.

  3. i’m Not speaking from a black swan level, i’m just speaking for a normal 5% - 15% market correction that lasted 2 weeks or maybe even 3 - 6 months. I don’t know how most of all VIX strategy on c2 will even handle a losing trade streak more than 1 week or 2.

  4. i do have to say your strategy has great risk management, 55% winning trades, but win trade size is 4x greater than losing trades. again that was the reason i subscribe to your systems.

  5. again on c2, you see most popular system first 2 month you see most system go all in on a trade. 50-100% on UVXY puts or shorting 15 vix calls. once they get 15-30 subscribers, they just slow down and shoot for low draw down. again, im NOT attacking your system or you. I’m just speaking from a large picture of the trend im seeing and manager bragging about their returns in 2017. yes, this yr everyone is a great trader if you shorted vix or long crypto. maybe one day i will start a strategy on c2, im just gonna long 200 uvxy puts with a 10k account. keep resetting until i get few trades right.

6.sorry, i dont believe in back testing. Unless you can show me real statements. i see so many “BACKTEST” making 100% with 15% drawdown, then it failes after a yr. We been thru those at c2 every week.

again, keep up the good work, and continue to proof you can make triple digit returns no what what the market throw at you. because ultimately im subscribed to your systems and in the same boat as you.

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@O5355p I am glad see you think in terms of risk as an “R” multiple which is a concept I originally discovered reading some books written by Van Tharp. Are you using R multiples to determine position sizing in your trading as well?

For example, say you are defining risk as “R” and say you are willing to risk $100 per trade, therefore 1R = $100 and so your stop loss on a trade should be set at 1R.

How does this relate to position sizing? Say hypothetically (of course!) you have a strategy where you get out of a losing trade once price crosses below the 50 day moving average. You buy a stock valued at $20 per share and the 50 day MA is at $17.50 and if it breaks below the 50 MA you will take the loss and sell. Using this trading rule how much stock can you buy and keep your risk at 1R?

As per above you are willing to risk $2.50 per share and the total trade risk is 1R or $100. Thus $100/$2.50 = 40 shares you can purchase and remain within your risk parameter.

In another example, using the same trading rule, a stock is trading at $10 and the 50 MA is at $9.25 so your stop loss would be set at $9.25 per share for a potential $.75 loss per share. How much stock can you trade but only risk $100? $100/$.75 = 133.33 shares or 133 rounded down.

Furthermore, say you target 2R ($200) profit per trade on this hypothetical strategy and backtesting indicates you can achieve a win rate of 50% with each winner at your target of 2R ($200) and each loss is at 1R ($100). To further the example, let’s say this hypothetical strategy makes 100 trades with the 50% win rate as follows;

Wins: 50 trades x 2R = $10,000

Losses: 50 trades x -1R = -$5,000

Net Profit = $5,000

You could expect to average a gain of $50 per trade. Expectancy = $5,000 / 100 = $50 per trade or an expectancy of .5R per trade. A win rate of 33% would break even.

Van Tharp uses a System Quality Number (SQN) he developed to rate the performance of trading systems. An SQN of 1 to 2 is about average, an SQN below 1 probably should not be traded, and an excellent system would be 3 to 5. An SQN above 5 is getting into the zones from superb to “holy grail.”

The trading system described above with 50% winning trades has an SQN of 3.3166 and would be an excellent system to trade.

Lastly, I am surprised no one here is able to clearly state their definition for the term “money management.”
Here is a quote from Van Tharp’s Definitive Guide To Position Sizing: “Money Management – A term that has been frequently used to describe position sizing but that has so many other connotations that people fail to understand its full meaning or importance. For example, the term also refers to (1) managing other people’s money, (2) controlling risk, (3) managing one’s personal finances, and (4) achieving maximum gain.”

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With that R rule, What do you do when the stock gap open down 12% or 25%? Cut loss at open or buy more or wait?

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Good point, your losses can exceed 1R and, conversely, stocks can gap up and wins can exceed 2R.

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Hello CoreyR,

The risk I take is precisely how I determine my position size. I’ll use ES as an example as that seems to be everyone’s favorite instrument to trade. If risk is $600 and the stop is placed 6 points away, that would afford you a maximum position of 2 ES contracts. Every ES contract is $50 per point and a 6 point stop is $300 for 1 contract.

In your hypothetical example, you can buy 40 shares of X stock. You defined R as $100. You bought at $20 and had a stop loss of $17.50 therefore risking $2.50.

Sorry I was answering as I was reading your post. I got to the next paragraph and noticed you already answered this. I thought you were asking me how many shares you can buy in the hypothetical example.

SQN is a trade grade system. System Quality Number (SQN) = square root (# of trades) * average R / STD of R.
Here is the scale:
1.6 - 1.9: below average but you can trade it
2.0 - 2.4: average
3.0 - 5.0: excellent
5.10 - 6.90: superb
7.0 +: you have found the holy grail

RM and MM are related yet different. Risk management is risk control of a trade. Money management is determining based on your capital and risk tolerance the amount you are willing to risk every trade (1% of capital for example). It’s also looking at daily/weekly/monthly/yearly draw downs and determining when to stop trading for that time period. All this should be included in the trader’s trade plan. For MM, you can also include in your trade plan how much you take out of the account periodically dollar amount or percentage of profits amount. You are managing the money itself and those plans are clearly defined. When RM and MM are combined it proves for a stable environment.

RM and MM should be a solid foundation to help a trader. I believe the real work starts with psychology and emotion control. If everything above isn’t bad enough, there are metrics that measure psychology and emotion. The more time a trader puts in this in terms of homework, the more he gets out of it. Most traders have metrics like MFE and MAE. They may not have metrics like PCP and PCR (see above post for this metric). But what are they doing with the data? They may glance at it and that’s where it ends before they continue to search for the next indicator or trade setup. When they start to refine their strategy based on these metrics, that’s when they’re on their way. This refining process happens outside of the market (on a weekend for example or evenings). Look at a professional athlete. We watch them play on TV and they make it look effortless. What don’t we see are the countless hours in the gym. The training and watching videos of replays and working with a coach to improve. Some go as far as working with a mind coach to get in the zone on game day. The fans, we see game day. The trader needs to think like this. Game day for the trader is the trading day. If he wants it bad enough he needs to put in the work. The market isn’t going to be generous because this trader is entitled. If a trader wants it bad enough, he needs to prove it to himself just how badly he really wants it.

This is a great time of the year. Many make resolutions for the coming year. Many are forgotten by March. Think about where you want to see yourself a year from now. Make the changes to make it happen and don’t lose sight 3 months in. Dedication.

Good day and Happy Holidays and Happy New Year

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all these…are…aibitrary Do back test please.

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Hello OSUTAI,

I use R and stops because I don’t hold positions overnight and don’t have exposure to a gap. R is only a way to measure the leverage used to achieve the return. Stops aren’t the only way to control risk but you can still use stops for overnight positions. The main takeaway here is risk does need to be controlled one way or another. You can certainly use stops with overnight positions but need to understand that you are exposed to a gap. As long as you have a way to control risk you’ll be fine.

Let’s look at Bill Ackman’s Pershing Square Capital Management and Valeant. He bought the stock at an average cost of $196 in 2015 and sold 27.2 million shares around $11 (low $8.31 and stock is $21.55 today). The firm said the entire position represented 1.5% to 3% of various Pershing funds but took a disproportionately large amount of time and resources. To make matters worse, he had a huge profit before selling the low with a huge loss. Where’s the risk control? Why isn’t he protecting profits? And why does a huge winner turn into one of his biggest losses? In August of 2015, the stock hit a low of $200.02 before closing the month at $230.60. Structurally the stock was broken. His team of analysts probably told him this. In September the stock hit a high of $245.82 giving him a chance to get out of a stock with major structural problems or gave him a chance to buy protection. The all time high was $263.81 (August 2015) and Ackman remembers that in short memory as the point he was sitting on a major winner. He wanted to prove to the world he was right. I’m sure his investors would have gladly taken any profit. Maybe it wasn’t the high point but a profit nonetheless. At the end of September of 2015, it was clear there were major problems. The stock closed September $178.38. Below his entry price. He could have unloaded or bought protection. He would have lost big holding the stock but won even more buying protection. He wasn’t clear headed and should have had a plan for the worst case. One year out puts at the money when it was known that the stock had problems would have been a huge winner.

Let’s look at another example. Bill Ackman had a huge short position in Herbalife. Carl Icahn took the other side. What happened in the end? Ackman converted his stock to puts after 5 years of being wrong.

He’s a pro and should never have let this happen in both examples. His ego got in the way. He has no emotional and psychological control. In the second example, he gave up without admitting he gave up. Why would he convert to puts from stock? Because he’s giving up without admitting he’s wrong. Puts have an expiration date while shorting stock doesn’t. It’s a way to concede without bowing down to Carl Icahn (someone he doesn’t like). He gets to claim he’s still short Herbalife when deep inside he knows this is the end for that position.

Even the top professional money managers aren’t immune. The market is bigger than Bill Ackman. He’s had impressive winners and can value a stock. He needs to refine his strategy specifically his ego and psychological and emotional issues. He needs to know when to say uncle and just give it up. He doesn’t have his psychology and emotion down. I’m sure when he reflects on Valeant, he thinks of things that he could have done different. Yes there’s hindsight but there’s also facts. The month of September 2015 and how the stock performed is a fact. Hindsight isn’t needed for that. A plan was needed for what could possibly go wrong.

Good day

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Hello TaoLi2,

Back test is a whole different conversation. Just think about this one fact. You will never meet a trader that will show you bad back test results and ask you to join his strategy. Why? Because they have curve fit the results to the point they are happy to share with others. For that reason, please don’t put too much reliance into back tested results. Have you ever seen a strategy where the actual results are different and worse when compared to the back tested results?

Look at the actual results. Not something the trader is providing. Results that are verified by a third party. The results you see here on the various strategies are verified by this platform. Those are the real results. The conversation is about how the trader achieved those results. How much leverage did he use. Was there martingale involved. Look at what price the trader entered. Look at what the trade did before he got out. And look at his results. If you constantly see that the trade goes against the trader more than his results show that should be a red flag. Look at the details. Did he add multiple contracts as it went against him before coming back due to dollar cost averaging? An investor should perform this due diligence before signing up for any strategy. Look at every position and make sure they are all consistent. If there’s anything out of line there’s room for concern. Dig into the details of every trade.

Assume I had a service that I take investors money and invest in these various strategies (I don’t). This is the kind of due diligence I would perform. Even on the investor side, it’s still hard work. But the more you put into it the more you get out. Relying on something a trader provided is easy. Nothing is easy.

Good day

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@TaoLi2 I think you may be missing the point and it really has nothing to do specifically with backtesting. My discussion with @O5355p is about how to systematically measure and incorporate risk into a trading strategy and is not necessarily about formulating a specific strategy. In fact, the same risk methods can be used in a strategy which does not have stop losses.

For example, most systems here on C2 do not use stops and position sizing is determined using dollar amounts. A system may begin with $50K and is always in 10 positions (utilizing $5K per position). What is the potential risk for each trade or position? Without a stop the theoretical risk is $5K per position, in other words you are willing to lose the entire trade amount.

Using this example R = $5,000. A loss of $1,000 is only .2R but represents a fairly large amount of money. Moreover, a gain of $1,000, still a fairly large amount of money, is only a .2R win.

I recently observed a futures strategy here that had exceptional gains over a few months, something like 80% to 90% total gain always trading 5 contracts. But when markets moved against the strategy he would buy another 5 contracts, then another 5, etc. until he was holding 25 or 30 contracts. Do you think this person had any concept of measuring risk per trade and, therefore, discipline? No.

His system promptly declined by over 85% and he went private on C2 which is equivalent to going into hiding.

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Those supposed loss and win just exist in you mind. They are not truth unless you can demonstrate those kind of pattern repeats and offers consistent return. Bill Ackman’s investment is not that simple like your stop loss setting. Very naive. Until you can demonstrate yourself, you are supposed to be the wrong one.