Why You Fail As Traders

As you know by now I’m currently moving forward with a LAMM based signal service and as planned six or seven people have been selected as the first to get started. One question that keeps coming up is which system to choose – CrazyIvan or Thor? One intrepid sub is currently opening accounts with Vankar and he emailed me the following today:

I’m getting to the point where I’m about set up. Brokers take their sweet time, apparently.

After reading your writeup on Crazy Ivan – which seems to be kicking ass – I’m still not sure of which system I should choose. I was leaning toward Thor based on the SQN and higher expectantcy in your backtesting but I can’t really tell from your published result how the system is actually performing. Is 7.5R in 7-8 months inline with your expectations? Crazy Ivan seems to be doing a lot better but I’m weary of the time committment – not to mention chasing the form horse – for someone who is still too much of a control freak to play handoff to Vankar at this point.

What are you words of wisdom?

This was my response to him:

Words of wisdom I cannot offer in that department. However let me try to help you make up your mind another way. You looked at CrazyIvan and you liked the equity curve. I started with around 40 subs back in late 2013 when I introduced it. Guess how many are left today?

Four.

Yup, you read that right. Four subs remain for a system that would have more than doubled your account by now. At least half washed out after that summer 2014 draw down. The rest kind of dropped off one by one over the past year. Of course all of them had very plausible reasons – at least on the surface. But deep down inside I know that most people are incapable of abiding by even the most successful of systems. Now that said – CrazyIvan is a very tough system to be trading manually. But none of them ever came to me saying- “hey, if you offer it for auto trade I’ll be back”. I know that for a fact because none of them have returned after I announced my new LAMM signal service. It seems primarily existing subs and a few non-subs are interested. Interesting… isn’t it?

Right now you look at Thor and you think – hey, it only made 7.5R in seven months. It must be crap, right? Recency bias afflicts us all – even the most mentally disciplined. The problem with trading systems is that you cannot ever predict the future. For me Thor is a raving success right now. It’s been extremely tough tape and it actually managed to eek out a profit during a period that has not favored trending systems. CrazyIvan seems to love this market period and perhaps next year it’ll crap itself. But long term it really doesn’t matter. I personally would trade both systems – many would not want to pay both subscription fees unless I perhaps agree to offer a combo rate. But honestly – Scott already bitched at me that I’m selling my systems way too cheap. I mean – even with the worst spreads and commissions one would have at least doubled one’s account in the past 17 months. See my pertinent post. By the way it’s up to 150R now ;-)

Alright, so how many people on this blog have doubled their accounts since 1/1/2014? Exactly – zero most likely – please raise your virtual hands if you did and you’ll be instantly invited to become an Evil Speculator guest author. And even if CI only would have made 30% in that time it would have been worth sticking with it.  However if it had I bet you that the number of remaining subs would be zero today.

It all boils down to unrealistic expectations mixed with ignorance and something they call the Dunning-Kruger effect - in essence people vastly over estimate their competence. Add to that a lack of discipline and an unawareness of the power of compounding. They want to sign up for $49/month and double their accounts every three months. Without any effort and following some magic super system. And we all know that doesn’t exist – it cannot exist because everyone would sign up for that one and it would stop working quickly. That doesn’t keep people from moving from one system to the other however. Just to switch to the next one as soon as the one they are trading experiences a draw down. Remember the ongoing theme in the Nick Rage video? The pain just has become too much.

CrazyIvan is a grinder and it can experience tough draw downs – don’t let the current period deceive you. Thor seems lighter on the draw down side – although it would have had a tough year in 2010 – see the back tests I posted. In the end YOU have to decide what characteristics in a system suit you the best. Because if you sign up with me I would want you to be trading it for a few years, not three months. I cannot guarantee profits in six months – NOBODY can. Systems go through cycles – all of them do. Why? Because markets go through cycles. The system that works in today’s market environment may go through a draw down when the market conditions that favor it change. Which is why I endeavor to provide a range of systems instead of focusing on just one. That’s after all what the pros do. Do you think GS trades only one or two systems? Of course not – they have hundreds of them and they keep improving them on an ongoing basis.

So in a nutshell it doesn’t really matter which one you sign up for.  If you can afford it and if you have enough skin in the game sign up for both. Otherwise choose one that best represents a system you would want to trade manually. Letting others do the trading for you does not shield you from being emotionally tied to the outcome. So detach yourself from the outcome – at least on a short term basis ;-)

So now you know why most people fail at trading – they really do. Just go back a few years and read some of my old posts from June 2010 or even June 2012. Look at all these people’s disqus history – they all stopped posting years ago, not just here on Evil Speculator but ALTOGETHER. They are gone. Wiped out. Back to their day jobs as it were. So when I say these things I’m not trying to be an asshole just for shits and giggles if you will. I’m not the Fly – I wish I had his linguistic acuity and his wit, and if nothing else I respect him for his evil intent. But frankly, despite my rather exotic online persona Evil Speculator’s prime directive always has and always will be to help retail traders survive and even thrive in the market. When I say these things I am trying to help you realize what are up against and if possible learn from the failure of others.

Scott always points out that in order to survive as a trader you have to be in the top 1%. Everyone else loses over the long term. Guaranteed. So work your ass off and do whatever it takes. If that entails letting someone else trade a portion of your assets, then why not? Or develop your own but realize that one system alone will most likely encounter periods in which it doesn’t work. Which is fine – there always is a system that matches a particular market period. The problem is – you never know which one you are really in until it’s almost over ;-)

Public Service Announcement

I have decided to start CrazyIvan LAMM out with only Forex. The reason being is that the only futures symbol we are currently trading via the alert service is gold. And it’s not worth it running two accounts for only one symbol. If you participate I do however recommend that you open both and put a minimum amount into the Wedbush/CQG account. This way you are set up when/if I decide to add more futures symbols. Obviously as a LAMM service it’s all automated and so it doesn’t matter if we trade five or ten symbols. I still have to do a bit of testing though and select appropriate symbols on the futures front.

The other implications of this is that the minimum requirement for CrazyIvan LAMM will be $30k. I could make it less but personally I wouldn’t want to pay $149/month when my R size is less than $300. That however means that you would not be included if I add futures symbols later – your account would be trading Forex only until you reach $100k. So if a forex only CrazyIvan LAMM service is of interest to you then write me at admin@ and I’ll add you to the 2nd line up – for now we are full and I won’t accept more subs until I’m sure that everything works as expected.

Enjoy your weekend.

Mole

Equity Curve Filters And Compounding

In early 2014 we decided to implement an equity curve (EC) filter into CrazyIvan. The reason for doing so was the realization that CrazyIvan exhibited high dependency, meaning it was cycling through distinct clusters of winning and losing periods. Here is a recent reason example that demonstrates how our EC filter works:

2015-05-24_CrazyIvan-EC_filter

Granted this is a rather idealized occurrence and our EC filter may sometimes activate or deactivate a bit late, which is unavoidable. As there apparently is a high correlation between winning and losing streaks between the symbols CrazyIvan trades and winning campaigns can run for a day or more the EC filter keeps an open cache of open positions in addition to a list of completed historical campaigns. You can find more information about our EC filter here and here.

2015-05-24_CrazyIvan_PnL

Our cumulative P&L graph currently has us at 136R since 1/1/2014. Now it would be a common mistake to assume that this is tantamount to a profit of 136%. All position sizes in CrazyIvan (and Thor) are based on the account principal. So if your are trading a $100k account your position size (i.e. R size) will be 1% of that – hence $1000 (for futures it will usually be a bit less – I’ll cover that another day). As your account grows or shrinks your position sizes grow or shrink accordingly. Which not only keeps your risk or R size in line with your account but it implicitly produces an effect called compounding.

2015-05-24_CrazyIvan_100k

On IB we’ve been seeing slippage of about 0.015R which of course has to be considered. Vankar’s slippage is actually quite a bit tighter as they’re clearing through the institutional branch of FXCM as well as CQG on the futures side – plus you trade 0.1 pip sizes instead of 0.5 pips on IB. However I’m keeping it as an average cost – clearly this will vary from one broker to the next (tip – always always try to negotiate).

Also note that no trades are taken during equity curve wait periods – we still log the trades as the EC filter requires those numbers.  In any case – you can clearly see the impact of compounding – instead of $236k it has climbed to $301k (including avg. commission and slippage). And over time that really starts increasing your leverage. Something to ponder about and this is why I always caution you against taking large risks on a particular campaign. Instead take small risks over time and let compounding work in your favor. Remember – the results above only represent 17 months of trading CrazyIvan – the goal is to maintain a reasonable growth rate over many years to come.

 

It’s not too late – learn how to consistently bank coin without news, drama, and all the misinformation. If you are interested in becoming a subscriber then don’t waste time and sign up here.

Cheers,

Introducing LAMM Based Auto Trading Service

Many of you guys have approached me over the past few years asking about some way to let your accounts be traded automatically. Although daily systems like Thor are a lot easier to follow than for instance CrazyIvan which rolls over three times per day, placing trades manually after receiving email or Jabber alerts just isn’t for everyone. Many of you have day jobs and/or family obligations which prevent you from attending roll overs on a regular basis. Even the best system in the world is rendered useless if you aren’t there to either receive the signal or to place the trade. Another issue is placing them accurately day in and day out without making any mistakes.

day_trader

You asked for an auto trading solution and the Mole delivered. Over the past few months I have been working with the people at Vankar to develop a program that is flexible, secure, and would allow you to retain complete control over your trading accounts at all times. This is how it works: In essence all trading activity produced by a master account is copied to one or more client accounts via what’s called a lot allocation management module (LAMM). Clients will have to setup and fund two trading accounts over at Vankar – one for Forex and one for futures. Authorization to accept the signals issued by the master account is given via a letter of direction (LOD) – you print it, sign it, send it to Vankar, and that’s pretty much it. The arrangement is extremely flexible and withdrawals can be made at any time.

On my end you simply sign up for the package of your choice after your account at Vankar has been activated. You’ll pay monthly subscription fees right here as a member just as you may be currently doing it with Thor or CrazyIvan. There is no profit sharing and no annual management fee. All profits or losses accrued are yours to keep – simple.

The plan is to start out very small with a handful of people – about five to seven – who already have expressed interest in the recent past. Some of you have already done so and I’ll send you an email invite today or tomorrow. If you have not contacted me already then feel free to write me at admin@ - if there’s still a seat available I will add you to the list and forward you the information on how to get started.

Be advised that the minimum account size will be $100k – that is $50k for the futures and $50k for the forex account respectively. Below that it just wouldn’t make sense for you or me as various futures contracts would be out of reach (e.g. silver or copper). There is no upper limit really, in case you’re wondering.  The systems I plan to start out with are Thor/Thor.0 and CrazyIvan. The latter has always been tough as a manual system but given the rising equity curve (130R as of today) it’s definitely worth adding via automation.

So here’s the rub – you will have to decide which system you want to trade. As I mentioned - there will be two packages to choose from:

  • Thor/Thor.0 LAMM for $149/month
  • CrazyIvan LAMM for $149/month

You will not be able to trade both systems in the same account, so you need to tell me which system you want to be traded. If you want to trade both systems then you may have to open separate accounts. Vankar tells me there is a way to create sub accounts, so if there’s sufficient interest then we can definitely explore that further. But for now you should pick one and we’ll take it from there.

Now in the first month or so I will not be charging you guys subscription fees as I want to make sure that everything works perfectly. Most likely we’ll start with very small position sizes – initially 0.1%, then 0.5% and then finally 1% as always. So if you’re an existing sub and want to switch to auto trading then don’t cancel your existing Thor or CrazyIvan subscription just yet. You won’t pay extra after opening an account at Vankar as I won’t charge for the LAMM signal until we switch to full position sizes.

If you have any further questions please don’t hesitate to shoot me an email at admin@ – I’ll be happy to answer any questions or if you’re interested put you in touch with Mark who’s my contact over at Vankar.

Cheers,




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