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It could have easily been called "how i lost 500k with machine learning". If you've really worked in that field than it's very surprising you've never heard ab
by martinced 14y ago
It could have easily been called "how i lost 500k with machine learning".
If you've really worked in that field than it's very surprising you've never heard about what professional poker players call bankroll management (and they "stole" the concept from professional traders).
The whole point is that you can --either if you gain an edge or get lucky-- win big. Very big. But you're never exposing a large part of your funds in the process.
Maybe OP had an overall "stop loss" at, say, $10K. Had he had five minus $2K days in a row at the start, he'd be out. He wouldn't be broke. He wouldn't be without a car and without a bank account. He just would have lost $10K.
But there's no upper limit as to how much you can win.
All you need is discipline and sound bankroll management.
And, yes, I've won a five-digits figure (hence not anywhere near what OP did) real $$$ at online poker. Starting from $0.01/$0.02 small blind/big blind tables and then working my way up using bankroll management.
It's assymetric. You're foolish if you think that succesful traders who won $x were as likely to lose $x. This is simply not how it works and it's very well explained in OP's article. He's detailing what his maximal daily exposure was and it was tiny compared to what he made.
- jspaulding 14y agoI have some friends that have made a lot of money playing poker. The analogy is very good. But, in poker you have to be willing to deal with much bigger ups and downs than what I had to deal with. You can hit a bad streak and it can hurt - even if you are in fact a really skilled player and do in fact have an edge. With my program I didn't really have bad streaks because my P&L was averaged out over thousands of trades per day.
- sejje 14y agoNot always true. There are plenty of ways to minimize risk. I played HUSNGs for a living for several years, and I could play three tables at a time (about 9 games per hour) with a 60% winrate. That's incredibly low variance--my graph over the long-term was better than a 45 degree incline.
- incision 14y agoWell put. Risk management is probably the single most important thing to understand in trading. Unfortunately, it's something that lots of people learn late, if ever. Folks get caught up in the romantic notion of betting it all and winning big, but end up losers. Meanwhile, the consistent winners they aspire to be are exposing perhaps 0.2% of their roll at a time.
- johnwatson11218 14y agoI like the distinction between risk management and the romantic notion of betting it all and winning big. I see the same pattern in other areas as well, e.g. developers who focus on automated testing and other who think it is heroic to modify production code at 2:00 am. I think of it as the cowboys versus the tax accountants.
- incision 14y agoI actually thought about making that analogy, but it seemed unnecessary as the analogs are just so common. Though, one thing I think is a bit unique to trading is prevalence of folks who preach without practicing. Just about anyone with a brokerage account can rattle off the same short list of critical do's and don'ts, but very few actually follow them.
- halcyondaze 14y agoYes this is the point I was going to write myself. I played online poker for four years and won over $100,000. I wasn't very good compared to the top 5% of players at my stakes, but I was much better at bankroll management, tilt control, and all of the other soft skills. The way I structured my bankroll made it actually impossible to go broke as well.
- smrtinsert 14y agoStop-losses are not as effective or nearly as simple as they are described in typical financial media. http://falkenblog.blogspot.com/2011/02/stop-loss-myth.html http://falkenblog.blogspot.com/2011/02/stop-loss-myth.html (with additional citations in the blog)