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> From: Wayne Moody <wlm95@xxxxxxxxxx>
> To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
> Subject: Re: Why do we go broke/lose more than random?
> Date: Thursday, October 02, 1997 11:22 PM
>
> I think a lot of money is lost more quickly than random because:
>
> 1. Trader has no method of selecting trades.
> 2. Poor risk control.
> 3. Bad money management.
A trader with no method of selecting trades would achieve results that were
purely random and would therefore only lose costs. There is no such thing
as a losing system, because if you did the opposite of a hugly negative
expectancy system you would have a tremendously profitable one. All
'losing' systems are really random market entry/exit, and taking or fading
the system would end up with basically the same results given a large
enough set. By the way this does not include paying too much for an option
or arb trading. I am concerned here with postion taking with futures.
I agree completely with your next step of the problems of following a
winning system/methodology. That is the natural progression.
> Commissions and slippage grind away against the trader, but I don't think
> they are the reason for the money that is actually lost so quickly by so
> many who try this game. It's not very hard to find a method that
overcomes
> these costs. Some option spreads can even put the odds in your favor.
> I think money is lost because traders are drawn seductively to the worst
> immediate real-time choices.
I disagree here. If one had enough money to stay in the game, in the end,
assuming he/she never found an edge, what would be lost is commissions. It
is very difficult to find a method that overcomes these costs. It is also
very, very difficult to make the next step you mentioned which is
commitment to this method. I do not think there is a beast luring people
to the wrong side of trades. Emotions make people act outside of their
systems, but the worst trading one can do is random. If it were worse than
random, it it merely the inverse of a winning system.
The reason most lose so quickly is overleverage/ undercapitalization.
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