Guide: In the market, any strategy has its advantages, its "one-acre three-point land", and its "mu-yield". If more people use it, its advantages will be weakened, its profits will be divided, and some people will lose their income.
1. There are always a few people making money in the market
This is an iron law.
We can use the method of counter-evidence: Assuming that in this market, most people make money and a few people lose money, what will happen to the market?
The so-called market is the trading place. The market itself does not generate profits. The so-called making money is nothing more than some traders earning funds from other traders.
Suppose there are ten participants in the market, each with 10 yuan. If a few people make money, and one of them earns 2 yuan from the other nine people, this person has 28 yuan, and the other nine people have 8 yuan, and the game can continue; I earned 2 yuan on my body, and nine people had 11 yuan on them. Not only did one person lose everything, but he also owed 8 yuan. The game could not continue.
If a few people make money, the market will last; if many people make money, the market will collapse.
It's the same principle as a lottery. If most people win the lottery, the lottery industry cannot operate; only if the majority loses and a few people win the lottery, the lottery industry can continue to operate.
Therefore, the market will use all methods to make a few people make money and most people lose money.
What inferences can we draw?
(1) The market trend is often inconsistent with most people's expectations. In other words, the market trend is often beyond most people's expectations.
We cannot tell whether we are the "majority" or the "minority" and therefore cannot predict the market accurately.
What is "unable to predict accurately"? Not that every expectation is wrong. If this is the case, it is easy to handle. We just need to do the opposite of the expectation every time. "Unable to predict accurately" means that sometimes you are right, sometimes you are wrong, sometimes you are right and sometimes you are wrong, and you cannot be sure.
We can have expectations, but we must be prepared for possible mistakes and prepare coping strategies.
What are the risks? Risk is uncertainty, the possibility of making a mistake.
(2) In the trading system, the first is any strategy, if there are too many people using it, it will lose its advantage. The second is that any system has a "decline period".
1. In the market, any strategy has its advantages, its "one-acre three-point land" and its "mu-yield". If more people use it, its advantages will be weakened, its profits will be divided, and some people will lose their income.
For example, in a market, everyone uses the same strategy, so who makes money? For another example, most people use the same strategy, so most people earn money from a few people? This violates the iron law of "a few people in the market make money".
To use an analogy, one person plows a piece of land and has enough food and clothing; two plows and barely survives; ten plows and half-starves; one hundred plows the land until it rots.
Therefore, an effective strategy must either have a very high hardware threshold, like Simmons' quantitative operation: the sales department is located next to the exchange, directly connected to the optical fiber, and the signal is a few thousandths of a second faster than any trader, preempting the transaction; super large high-speed Running computers; advanced algorithms, high-frequency trading; a team of first-class mathematicians. Either it is difficult for ordinary people to implement, like the turtle trading method: frequent stop loss; huge retracement; few trading opportunities in a year, too busy to count fingers and toes; sometimes the system declines, and it is difficult for people without super psychological quality Fully implement.
Richard Dennis, the inventor of the turtle trading method, told reporters: "I have said many times that you can publish my trading rules in the newspaper, but no one will follow them." I once taught the turtle trading method to my colleagues , She used this method to trade twice and then gave up, complaining: "Every time you buy at a high point and sell at a low point, it's too stupid."
2. Any strategy has a "decline period".
When the market shows certain regularity and certain strategies perform better, market participants will flock to them and adopt the same strategy following the trend. The strategy then loses its edge and enters a "decline phase". For example, arbitrage is originally a risk-free or low-risk strategy. However, if there are more and more arbitrage traders in the market, the price difference will become smaller and smaller, and the arbitrage opportunities will become less and less.
Just like a company, if you survive the cold winter, you will be able to occupy the market after the cold winter and become bigger and stronger. The same is true for trading. If you survive the "recession period", you can become a winner in the market. Fund management is how to help you get through the "recession period".
3. Why is the performance of open-end funds average?
Because customers of open-end funds can redeem funds at any time, managers must take into account the feelings and emotions of customers, and often follow the trend in operations. In fact, it means that the customer is the operator behind the scenes. The majority of customers belong to the majority of the market.
The American movie "The Big Short" has such a plot: a genius fund manager who is good at value investing. He found a century-old opportunity: the U.S. real estate bubble, shorting real estate, has super lucrative profits. He gambled with the bank and invested all the funds of 1.1 billion in the purchase of real estate bond default insurance (similar to short options).
At that time, the atmosphere of real estate in the United States was the same as that of the Chinese Empire. It was believed that real estate would always rise and could not fall. Clients thought that the fund manager was crazy and wasting client funds (there was a 13% floating loss in the fund account at the time), and a large number of redemptions forced the fund manager to sell options cheaply to pay for the client's redemption. In the end, U.S. real estate collapsed as expected, and the fund manager's return was 473%. Due to the redemption of customers in the early stage, he sold a lot of options at a loss, and the profit was only 970 million, while Paulson, the short-selling hero in the same period, personally earned 3 billion US dollars.
2. Moderate income
(1) Profit and loss come from the same source.
In the trading market, traders make money because they take risks, and lose money because they take risks. This is "the same source of profit and loss". You make money because you take risks correctly; you lose because you take risks wrong. As a trader, when taking risks, you cannot predict whether the risks you take are correct or wrong. It can also be said that the returns are generated by the risks taken. The higher the return, the greater the risk.
(1) Because of the "same source of profit and loss", a system, the greater the rate of return, the greater the drawdown. For example, a trading system with an average annual rate of return of 30%, its retracement (that is, the loss range) may also reach 30%. For example, Simmons’ quantitative fund has an average annual return rate of 35% to 40%, and when a loss occurs, the net value also drops to about 63%. For example, Soros’s fund’s annual return rate is about 20% to 30%, and serious losses occur At that time, the net value of the fund once fell to 60% to 70%. So the higher the income, the better. For example, a trading system with an annual rate of return of 30%, 130% in the first year, 169% in the second year, and a loss of 30% in the third year, the net value is 169%×(1-30%)=118.3%; the annual rate of return is 50% %, 150% in the first year, 225% in the second year, 50% loss in the third year, net value 225%×(1-50%)=112.5%; annual rate of return 60%, 160% in the first year, 160% in the second year The annual loss is 256%, and the loss in the third year is 60%. The net value is 256%×(1-60%)=102.4%. as follows
You see, if the yield is 10% to 30%, there will be little change when encountering a retracement; if the yield is above 50%, the change will be large when encountering a retracement. The rate of return is 100%. In the event of a severe retracement, the position may go bankrupt and even lose money.
Generally speaking, 20% to 30% is a reasonable expected return. If it exceeds 30%, be careful.
(2) Use leverage with caution.
After the trading system is determined, the income is basically determined. To increase returns, only increase risk. However, as the risk increases, so does the drawdown. For a retracement, it takes a greater profit to return to the original level. For example, a 20% retracement requires 25% of the return to make up; a 30% retracement requires 43% to make up.
So, in terms of risk control, are there any principles?
Yes, that is: use leverage sparingly.
Dennis's partner, math genius William Eckart said: "On the issue of how much to bet, if you draw a performance graph based on trading volume, then this graph is like a cartoon whale with its head up and its face facing right. The left side of the graph is almost a straight line, which is like a relatively small volume. On the left this range is almost a straight line, and an increase in volume will increase performance proportionally. However, if volume increases beyond This range, the upward sloping line will flatten as you have to narrow the trade and the ability to get back into the market after a loss is resisted. The theoretical sweet spot is about the nostril of the whale. At this sweet spot the On the right, the graph falls vertically, which shows that the average trade size is even slightly larger than the theoretical optimal amount, which has bad consequences."
Where is this "whale's nostril"? I have no idea. After calculation, the 4% risk of the turtle trading method is halved, that is, the 2% risk of each product, which is approximately equal to the full position of the spot (without leverage). That is to say, it is more reasonable to use cross-position spot (without leverage) as the maximum position of each product.
Leverage is a double-edged sword that can make you or break you. In the second half of 2015, the stock market only had a huge correction (the general trend has not changed), how many people's assets have shrunk severely, and some have even gone bankrupt. Why? They abused leverage, some allocated funds and raised funds on a 1:3 basis, and some even allocated funds and raised funds on a 1:10 basis. If leverage is not used, a huge market correction is nothing more than a shrinking of book funds, and the stocks are still those stocks and will not go bankrupt.
Therefore, leverage is the only way for smart people to go bankrupt.
Many masters don't use leverage. Buffett's largest position is Coca-Cola, accounting for about 43% of his total funds; Li Ka-shing had 40% of his cash flow during the 2008 financial crisis.
When we say use with caution, we don't mean not to use it. Use with caution means to use less, and to use fewer multiples. Soros crazily shorted the pound and used leverage, but his total risk was only 4%, which was about 2 times leverage.
(3) The maximum risk limit for each transaction.
So, how to control the risk? Different books give different answers.
The answer in "Turtle Trading Rules" is 3%.
"Let's imagine the consequences of using the Donagile Trend System in 1987 to take a high-risk trade. Figure 8-1 shows a trend in which the magnitude of the drawdown increases significantly with the level of risk. It is clear that the curve continues to rise steadily until it reaches 100 % level and then turned to the horizontal line. This means that if you risked 3% of your trading capital on each trade, you would have gone bankrupt overnight, because this decline is entirely due to the interest rate futures market. It was caused by a big reversal in that day."
The risk capital of each transaction cannot exceed 3% of the total capital.
"Stable Odds of Winning" proposes that the maximum risk capital of a single product should not exceed 2.5%. The author uses a method similar to Tang Anqi's trend system for testing. Each transaction of a single product is traded with 1% of risk funds. Within 10 years, there is a possibility of losing 20%. In the same way, if you spend 5% of your risk capital every time, you may lose 100% within 10 years. The author proposes that in order to have 50% of the funds to continue trading when the maximum loss occurs within ten years, he recommends that the maximum risk of funds for each transaction be limited to 2.5%.
There is a story in "Turtle Special Training Course": Dennis taught the turtles that the maximum risk capital of each transaction is 4%. The Turtles used their spare time to test and concluded that 4% of the risk funds would lead to a serious loss in the account in a certain period of time, reaching 20% or even liquidation. It is recommended to reduce the risk. Dennis then adjusted the risk on each trade to 2%.
"A trader's money management system" stipulates that the risk of a single transaction cannot exceed 2%.
William Eckart also advocated that the risk capital invested in each transaction should not exceed 2%.
When Stanley Crowe talked about trading strategies, he said that Larry Haight, the manager of billions of dollars, did this by setting a maximum loss percentage and linking the risk of each position with the total assets, that is to say, Limit the maximum risk on each position in the portfolio to 1% of the total account equity based on closing prices. Any time the closing price loss on any position amounts to 1% (or more) of total equity, the position is closed out the next morning.
(4) Respect market laws, conform to market trends, and endure market fluctuations.
What is the law of the market? From a microscopic point of view, price fluctuations are random, and the smaller the time frame, the stronger the randomness. From the perspective of the short-term time frame (daily line), the price shows a certain trend, but it is mixed with "daytime clutter" from time to time. In the medium-term time frame (weekly line), the price trend is obvious, with both a main trend and a turning trend. Long-term time frame (monthly), price is showing a clear major trend. Judging from the ultra-long-term time frame (seasonal line, annual line), the price shows a certain periodicity.
We respect the laws of the market, that is, we must operate along the main trend and endure "daytime clutter" and short-term retracement. To reduce equity retracement, the only way to reduce positions is to comply with the laws of market fluctuations, instead of using other methods such as hedging, locking, multi-strategy, short-term, ultra-short-term and other methods to artificially control the retracement.
Just like the growth of crops has a certain law, the development of the market also has a certain law. After we sow the seeds, we should not intervene except for fertilizing and weeding.
Locking is especially discussed here. Lots of people, myself included, have used locks. The reason is to protect the long and protect the position. In fact, this is an ostrich policy of fear of loss.
If there is a loss to lock the position, what is actually locked is the loss; if there is no loss to lock the position, it violates the principle of "let the profit run". Because the main position is an order following the trend, and the locked position is an order against the trend, which often results in losses. Locking a position may make the equity curve look better, but the actual return tends to decrease when the main position's profit minus the loss of the contrarian position.
3. Principal Security
Buffett said that the first iron law of investment is principal safety, the second iron law is principal safety, and the third iron law refers to the first and second.
(1) The safety of the principal is realized through "light storage and long-term holding".
To ensure the safety of the principal, it is necessary to reduce the amount of positions. However, "profit and loss come from the same source", after the position is reduced, the profit will inevitably decrease. In order to obtain reasonable profits, we increase the winning rate by "following the trend", and realize the "fat tail" of profits by holding positions for a long time.
The three complement each other. Only by maintaining long positions can profits be realized, and only by lightly holding positions and taking advantage of the trend can long-term holdings be realized.
Still have to take the trouble to quote Livermore's classic quotes:
After all these years on Wall Street and making and losing millions, I want to tell you this: My ideas have never made me a lot of money. It was me who made the big money by sitting still. do you know? Sit still! It is nothing to be right about the market. You can always find many people who have been long early in a bull market, and you can also find people who have been short early in a bear market. I know many people who are right at the right time, buying or selling at the most favorable price. Their experience was the same as mine - that is, they didn't make any money from it. There are very few people who can do it right and persist. I think this is the hardest thing to learn. However, stock operators can only make a lot of money if they are well versed in this trick. Really, it is easier for a trader to make millions when he is enlightened than to make hundreds when he is ignorant.
Livermore was able to "follow the trend and maintain the long-term", but one thing was missing - "light warehouse", so he went bankrupt four times in his life.
(2) Principal security is achieved by "cutting off losses and letting profits run".
The market is an external thing, a chaotic thing. Different people recognize different markets through different eyes, so they have different "market laws" (the human brain is very good at summarizing "laws"), and thus have thousands of strategies. We quote the words from "The Spore Theory" to describe the market:
First, spores are alive. It is able to dodge and has the ability to change form as its environment changes and over time. That is, spores do not have a stable form, and knowledge of the spore's past cannot predict the future. When the observer learns of the new form of the spore, the spore also learns that it is recognized by the observer, and mutation occurs. The spores must tend to mutate in directions unknown to the observer. It is intelligent enough to prevent observers from catching its abnormal laws. So, the first realization of the spore is its eternal variability.
Second, the spores cannot be captured. What does it mean? In layman's terms, it means uncontrollable. The observer alone cannot separate a spore from many spores. When you separate one spore from the colony, you'll find that all the other spores are gone too. That is to say, the group and individual of spores are unified. It does not matter whether there is a single spore or multiple spores. A spore is a kind of life that exists but is nothingness.
Third, the simplicity of the spores. A spore is a spore, it does not represent anything, and nothing represents it. The spores are so simple that they only follow one law, and any appearance other than this law is a false mirror image. In other words, the spores reflect the essence of the entire world. Don't use complex theories to describe spores, the more elaborate the description is, the more it deviates from the essence of spores.
Replace "spore" with "market", this passage is a wonderful exposition of the market.
Why do so many smart people fail? "Spore Theory" says:
When they raise experience to theory, failure is doomed. I have said that a spore is a kind of intelligent life, which has a tendency to mutate in directions unknown to the observer, and it always mutates in directions unknown to the observer. When it realizes that the observer has seen through its truth, it will definitely mutate, thus making the theory summed up by the observer fail.
So what if it's a winner? You must first learn to fail and become a loser. A good loser never dies.
"Spore Theory" says:
Use many small defeats to win big victories. Use small losses to accumulate big wins. Use the method of losing one hundred dollars ninety-nine times to exchange for one profit of ten thousand dollars to operate.
If you want to exchange a loss of one hundred dollars for a profit of ten thousand dollars, you must "cut the loss and let the profit run".
(3) Reduce the operating frequency.
Just as crops have their seasons, the market has its rhythms. Traders must be on the right pace and act accordingly. According to the signals sent by the monthly and weekly lines, open positions according to the stop loss of the daily line, and then close the positions according to the signals of the weekly and monthly lines.
(4) Fund management.
Funds are based on balance, excluding floating wins. 25% of the total risk capital, 2% risk for each product. Open positions in 2 batches, each batch of positions is divided into 4 times, each time the risk of opening a position is 0.25%, and the stop loss distance is 0.5ATR.
The total position does not exceed 6 varieties, and the total position risk does not exceed 5%. At the same time, the number of open positions cannot exceed 3. Subsequent open positions must wait for the previously opened positions to be profitable before opening positions.
4. Advantages of the Turtle Trading Method
(1) K-line principle.
According to statistics, after a positive line appears, the probability of another positive line will appear; after a negative line appears, the probability of another negative line will appear. This is the K-line principle.
The 60-day high and low point of the turtle trading method is equivalent to the quarterly line; the 20-day high and low point is equivalent to the monthly line; the 10-day high and low point is equivalent to the two-week high and low point
One quarterly line is a positive line, and the second quarterly line has a higher probability of getting out of the positive line. At this time, use the monthly line to track; one monthly line is a positive line, and the second monthly line has a higher probability of being a positive line, so use the two-week line to track it. track.
(2) Stop loss in a small time frame.
After a signal appears on the quarterly and monthly lines, use the daily line as the initial stop loss. After the position is successfully opened and the price leaves the cost zone, the daily line structure is closed, and the weekly and monthly lines are used to track the stop profit, which embodies the principle of "cutting losses and letting profits run".
Someone has done a special test and proved that the method of "stop profit with a large time frame and initial stop loss with a small time frame" has advantages and can increase profits.
(3) Robustness.
1. The system is simple and adaptable, and can basically be applied to all varieties launched on the public platform. The system is durable, not curve-fitted, and will perform correctly in most markets.
2. Because it can function normally in most markets, it can capture major trends. For trend traders, repeated stop loss is not terrible, what is terrible is missing important trends. Because of the main income for one year, 3. When the signal appears, open positions according to the established position volume, and do not increase positions.
Someone has done a special test and found that adding or reducing positions will destroy the stability of the system and affect the performance of the system.
4. The turtle trading method has two trading systems, which are to capture short-term trends and mid-term trends. The superimposed use of the two trading systems can be regarded as a natural increase in positions.
(4) One-way operation.
Taking the breakthrough of the highest point of the quarterly line as the operation direction, and taking profit on the monthly line and weekly line, the winning rate of the system is guaranteed.
(5) Do not do shocks, only do unilateral trends after successful breakthroughs.
Because the quarterly line, monthly line, and biweekly line are relatively large time frames, which can contain small shocks. At the same time, the quarter line is a quarter of a year, and the space is large enough to avoid mid-term shocks. When it sends a signal, the mid-term shock market has broken through.
Add
