Posts

Who is More Precious

An excerpt from the past weekend member report.

Gold (NYMEX)

The possibility of a massive inverted H&S pattern on the monthly graph is noted once again. The daily chart displays a small H&S top pattern. A completion of this H&S top would do some damage to the near-term bullish case.

 

 

 

Platinum (NYMEX)

The WBB advance on Thursday completed a 7- month ascending triangle on the daily chart. Support should exist at the 881 level. The target is 1001. The breakout of this pattern occurred during my nighttime hours and Platinum is a market in which I do not use overnight entry stops.

Factor is flat in the futures market. Instead I bought PPLT, the Platinum ETF as a means to more precisely control sizing. The target on the PPLT daily chart is 92.14.

 

 

 

 

Factor Membership

.

Peter Brandt is a 40+ year veteran of trading. Through his Factor Service, members receive:

checkTrading Commodity Futures with Classical Chart Patterns: A free PDF copy of Peter’s classic out-of-print book
checkWeekend Update: 10-16 pages full of in-depth chart analysis and charting commentary
checkAlerts: Detailed information on specific charts as unique opportunities present themselves
checkMarket Commentaries: Communications on specific topics regarding market speculation and trading distributed periodically
checkWebinars: Monthly member-only webinars where Peter speaks about current conditions and fields member questions
checkKnowledge Center: Fast and easy access to current and archived content from Peter’s extensive library of content
checkAutomatic notifications: Email and social media notifications are sent out when new content is published

.

View your Factor Member options here. You could consider your membership in the Factor Service as just one more trade. If the Factor Service is not of value to you, well, it is just one more trade that did not work.

Through the Factor Service I endeavor to alert novice and aspiring traders to the many pitfalls you will face – and to offer advice on overcoming those pitfalls. My goal is to shoot straight on what trading is all about. For more information watch my 30 minute webinar where we cover the Factor service in depth.

I hope you will consider joining the Factor community.

sig

 

###

SaveSave

Understanding Trading Outcomes

Understanding trading outcomes through the lens of probability theory

 

Reviewing trades offers the opportunity to unpack the impact of random probability upon a sequence of trading events. An extremely simplified view of probability theory relative to trading goes something like this:

  • A prolonged sequence of futures (or FX, equities, cryptos – pick your poison) trades with a fixed $1000 profit target and a fixed risk of $1000 (normalized for underlying trends) should produce profits in 50% of the trades. A net loss would occur over time due to trading fees.
  • A prolonged sequence of futures trades with a fixed $2000 profit target and fixed risk of $1000 risk (normalized for underlying trends) should produce profits in approximately 33% of the
    trades. I would have a “killer” trading program if I could achieve a 50% win rate with a 2:1 win-size/loss-size ratio.
  • A prolonged sequence of futures trades with a fixed $4000 profit target and fixed risk of $1000 risk (normalized for underlying trends) should produce profits in approximately 20% of the
    trades. Just imagine how profitable this profile would be if only 1/3rd of trades scored a win.

Many traders only enter trades with a profit/risk ratio of 3:1. I understand the concept behind this – although I do not pay much attention to profit-potential/risk ratios in my own trading because I move my stop aggressively even though I may hold fast to a target.

Active and aggressive trade management DRAMATICALLY alters the probability calculus. While the math
is complex, think of it this way:

  • My five year ratio of avg. profit size to avg. loss size is 3.8 to 1
  • My five year Profit Factor (PF) is 5.1

IMO, the PF is a better metric to reflect the projected ratio of win-size/loss-size for the purpose of understanding the impact of random probability.  A 5.1 metric is the rough equivalent of rolling the number 1 on a six-sided die (the probability is 1/6 or 16.6%). It is interesting to note that this percentage figure is similar to the percent of trading events that tend to put in my bottom line in most years. Coincidence? No.

Random probability theory applies best to the “law of large numbers.” Over a shorter series of events just about anything can happen. The point of this discussion is that thinking of trading in terms of “win-rate” over an extended period of time is a meaningless metric. I encourage traders to investigate a deeper understanding of the calculus of trading.

My three “take-aways” from this discussion are:

1. Avoid using simplistic performance metrics such as “win-rate” to understand the dynamics of a trading approach/program.
2. Trade identification (the “signal”) is far less important than risk and trade management.
3. Protecting one’s pile of chips is job #1. All approaches to market speculation run into losing streaks. Things will eventually get sorted out as long as the pile of chips remains mostly intact.

 

 

Factor Membership

.

Peter Brandt is a 40+ year veteran of trading. Through his Factor Service, members receive:

checkTrading Commodity Futures with Classical Chart Patterns: A free PDF copy of Peter’s classic out-of-print book
checkWeekend Update: 10-16 pages full of in-depth chart analysis and charting commentary
checkAlerts: Detailed information on specific charts as unique opportunities present themselves
checkMarket Commentaries: Communications on specific topics regarding market speculation and trading distributed periodically
checkWebinars: Monthly member-only webinars where Peter speaks about current conditions and fields member questions
checkKnowledge Center: Fast and easy access to current and archived content from Peter’s extensive library of content
checkAutomatic notifications: Email and social media notifications are sent out when new content is published

.

View your Factor Member options here. You could consider your membership in the Factor Service as just one more trade. If the Factor Service is not of value to you, well, it is just one more trade that did not work.

Through the Factor Service I endeavor to alert novice and aspiring traders to the many pitfalls you will face – and to offer advice on overcoming those pitfalls. My goal is to shoot straight on what trading is all about. For more information watch my 30 minute webinar where we cover the Factor service in depth.

I hope you will consider joining the Factor community.

sig

 

###

SaveSave

Trading Drawdowns

Discussion on Trading Drawdowns

Trading Drawdowns

The following video comes from one of our Factor Member Webinars where Peter discusses Trading Drawdowns.

  • What are drawdowns
  • How to handle drawdowns.
  • What am i doing wrong?
  • What did I miss?
  • How normal are they?

 

 

 

 

Factor Membership

.

Peter Brandt is a 40+ year veteran of trading. Through his Factor Service, members receive:

checkTrading Commodity Futures with Classical Chart Patterns: A free PDF copy of Peter’s classic out-of-print book
checkWeekend Update: 10-16 pages full of in-depth chart analysis and charting commentary
checkAlerts: Detailed information on specific charts as unique opportunities present themselves
checkMarket Commentaries: Communications on specific topics regarding market speculation and trading distributed periodically
checkWebinars: Monthly member-only webinars where Peter speaks about current conditions and fields member questions
checkKnowledge Center: Fast and easy access to current and archived content from Peter’s extensive library of content
checkAutomatic notifications: Email and social media notifications are sent out when new content is published

.

View your Factor Member options here. You could consider your membership in the Factor Service as just one more trade. If the Factor Service is not of value to you, well, it is just one more trade that did not work.

Through the Factor Service I endeavor to alert novice and aspiring traders to the many pitfalls you will face – and to offer advice on overcoming those pitfalls. My goal is to shoot straight on what trading is all about. For more information watch my 30 minute webinar where we cover the Factor service in depth.

I hope you will consider joining the Factor community.

sig

 

###

SaveSave

trading drawdown - peter brandt - factor trading

Trading Drawdowns

Most Long-Term Profitable Traders are Under Water Most of the Time – (Trading Drawdowns)

The dream of novice market speculators is that they will continually bask in the warmth of profitable times. This myth is falsely promised by the promoters of trading systems and trading training programs. In fact, just the opposite is true. Most long-term profitable traders spend the vast majority of their trading careers either in Trading Drawdowns or recovering from a drawdown. Any slick promoter who tells you different is not dealing from a full deck.

There is a statistical concept known as the “underwater curve.” The underwater curve plots the time periods when new all-time high NAV levels are being registered (represented by “0” on an underwater curve) and the time periods in which Drawdowns are either underway or in recovery back toward new all-time NAV levels.

Most successful long-term traders are underwater the majority of time. Welcome to trading!

The graphics herein show the underwater tables for Factor LLC (for the period listed) and several unnamed but highly successful futures/forex trading firms (for identical 5-year periods)

 

Trading Drawdowns - underwater Curve - Factor Trading - Peter Brandt

Factor LLC:

  • Annual Compounded ROR (ACROR) = 41.6%,
  • MAR = 1.8,
  • Gain-to-Pain Ratio = 2.4

 

The reality is that during decades of market speculation I have spent far more time in or recovering from Drawdowns than time posting new NAV highs.

 

Trader A – Annual Compounded ROR (ACROR) = 20.3%, Calmar = 1.9

Trader a

 

Trader B – ACROR = 19.4%, Calmar = .43

trader b

Trader C – ACROR = 19.4%, Calmar = 2.34

trader c

 

Trader D – ACROR = 18.8%, Calmar = .34

trader d

There are scientific reasons why successful traders are underwater the majority of the time

A “MUST” view is the presentation of an analysis of 180 years of market drawdowns (focused on U.S. stocks, but applicable to any and all trading operations) by Dr. Robert Frey to the Institut des Hautes Etudes Scientifiques in 2015. All serious traders and investors should take the time to understand the statistics behind Trading Drawdowns as presented in this YouTube video. Note the selected statements from the presentation to the right of Robert Frey’s photo.

Some selected statements:

  • “Most of the time even when we are in a good investment, we are in a state of regret.
  • “You are going to bed with an upset stomach because you have lost money most of the time and do not know what is going to happen”
  • “You are in a drawdown state 80% of the time and of that, you are in a severe drawdown state (greater than -20%) 67% of the time”
  • “Most of the time an investor is facing a market of regret…”

 

 

 

Beware of false claims by wolves in sheep’s clothing

 

sheep wolf

 

Successful market speculation is one of the most challenging endeavors one can pursue. Yet, promoters of get-rich- quick-and-easy schemes run rampant in the email and internet worlds. If they are not registered with the SEC, FINRA or the CFTC/NFA or are not personally managing assets of investors they are free to make exaggerated claims. Their advertising is extremely appealing and enticing. Many of these training and trade signaling services claim to have REAL trading track records. But, as far as I am able to determine, none are willing to provide an attestation or audit letter from a national or regional auditing firm that has reconciled their IRS tax payments for trading profits, brokerage statements and bank deposits with their public claims.

 

Factor Membership

Factor Membership is available and you could consider your membership in the Factor Service as just one more trade. If the Factor Service is not of value to you, well, it is just one more trade that did not work.   Through the Factor Service I endeavor to alert novice and aspiring traders to the many pitfalls you will face – and to offer advice on overcoming those pitfalls. My goal is to shoot straight on what trading is all about.  For more information watch my 30 minute webinar where we cover the Factor service in depth.

I hope you will consider joining the Factor community.

sig

 

###