In 1987 Larry Williams won the World Cup Premiership of Futures
Trading. According to his entry on Wikipedia, he “turned €10,000 of real money
into over €1,100,000”, for a profit on equity employed of 10,900%, over a
12-month period.
One wonders if such a story is a benefit or a curse to aspiring
traders. The record clearly shows us that well over 90% of new traders lose
money, and a great number of those get totally wiped out.
Here at OmiCronFX we do not aim for such performances. Our aim is consistent, sustainable profitability, with drawdowns
(which measure the magnitude of loss making activity) that are tiny relevant to
total account size.
While we agree with “Black Swan” author, Nicholas Taleb, when he
says that the Normal Distribution curve, also known and the “Bell Curve” and so
beloved of statisticians, does not reflect real life, nevertheless the
terminology used by statistics practitioners can be of assistance in describing
what goes on.
The use of straightforward, tried and tested risk reduction
techniques has the effect of reducing variance in the distribution of results. This
would tend to narrow the bell curve, meaning an absence of exhilarating extreme
wins, but also none of the debilitating losses that precede and / or follow
them.
The
importance of work rate in research
And once that is made to happen a lot more can be done. Detailed
and careful historical analysis, the results of which are built into our
trading algorithms, can alter the shape of the bell curve so that losses in
general are diminished while wins are increased and enhanced. In addition to a
policy of robust risk management, this can be achieved by the strange notion of
indulging in work: the work of research on the fundamentals, gaining
familiarity with technical indicators, especially support & resistance and
moving averages, extensive study of price action patterns on historical data,
and in getting to know the characteristics of the different currency pairs -
becoming familiar with their personalities, so to speak. The results of all of
this are then built into our algorithmic routines that allow price to be
monitored and trade entry signals to be recognised and acted upon, and the
all-important profit retention and loss reduction actions applied
automatically.
We do have an inspirational figure, but it is not the winner of
the 1987 World Cup Premiership of Futures Trading. It is Ed Thorpe, founder and
operator of Princeton Newport Partners. In his book, “Fortune’s Formula”,
William Poundstone tells in detail the story of how Thorpe’s fund, through the
agency of ultra-careful selection and management of investments, combined with
early algorithmic techniques, was able to achieve annualised returns of over 15%
after fees for an extended period of years, using a market neutral strategy.
Market neutral means it was able to be profitable even in those years when the
economy was in decline and / or the stock market was crashing.
OmiCronFX is also market neutral. This is because it is the
algorithmic routine that decides on the direction a currency pair is likely to
go, and algorithms are not prey to the emotions and whims that can blindside
even the most experienced manual trader.
No comments:
Post a Comment