The Bear ™ 🇱🇾

Consistency is the name of the game. And discipline is how you play that game.

[Brian Lee @BrianLeeTrades]

This is information you’ll ignore until it hits you like a truck in the future so store it for later.

You are constantly, and indirectly, gaslit into ignoring risk of ruin by social media.

In my own words, Risk of Ruin is acknowledging and estimating the probability of losing far more than one should using one’s actual statistics, projected risk model or backtested theory.

Ruin =/= 0% capital blowup. It’s more likely to be 50% capital loss and above, for the squeamish it can be less. This is somewhat dependent on your psychology but largely on your strategies’ potential to recover like average gain ratios.

The reason why is because of Geometric Loss. Geometric loss is the absolute nature of losing in terms of percentage. Despite your accounts’ upside being infinite like you’ll see 1000% growth or any number it doesn’t matter, you will always experience losses as a percentage of total capital being capped at 100% (unless you lose more shorting).

I’ve highlighted it before but it is so important to understand because one’s account is a constant existential issue. In other words, geometric loss will always be a factor in your trading specifically if you are interesting in compounded growth.

Basics:

DD to Recovery Ratio
5% = 5.3%
10% = 11.1%
25% = 33.3%
30% = 42.9%
35% = 53.8%
40% = 66.7%
50% = 100%
60% = 150%
70% = 233.3%
75% = 300%
80% = 400%
85% = 566.7%
90% = 900%
95% = 1900%

The reason why I highlighted so many potential losses is to show the exponential incline associated with drawdown recovery.

If one understands exactly how, and why, drawdowns can be unbelievably oppressive then one can begin to structure their approach to risk.

Fact: Traders are going to incur much larger losses than projected in models because of human nature, emotions or simple mistakes.

Knowing this truth is the first step to undermine our innate desire to skirt the very fine line of greed. ALWAYS expect and plan for degradation, a healthy amount of skepticism for me personally is 33% more loss inherent to systems such as max losses or slippage.

Secondly, models such as equity curve simulators or EV projections operate on pure unadulterated statistics. You could enter a regime change that completely eliminates edge temporarily or for a prolonged period of time that will override any "maximum draw" or "probability of consecutive loss" that you'll get from utopian conditions. Things change frequently so your control is actually modeling your own risk control.

Taking responsibility for risk, and acknowledging it is the primary factor a trader can control, should be the lever you focus on and master.

How can one do this?

Firstly ask yourself what is the MAXIMUM drawdown you’re psychologically and emotionally able to stomach. Second, question whether it is even reasonable for your strategy to recoup efficiently… let’s say you only make 1R on average but you’re willing to draw down 50%, then your next challenge would be to recoup 100% 1R at a time…

Third, take your actual trading statistics and run them through an equity curve sim and find the common maximum drawdown to see what it already reflects on paper. From there literally double it and check how big that recovery would need to be, this can be a very likely scenario.

Ideally one should never enter the point at which the draw becomes exponential because that is challenging for any trader. This becomes more and more apparent and true the bigger your account gets, it becomes extremely punishing. Side note I recommend to scale down risk as account grows bigger because of this meanwhile smaller accounts can play more aggressively but SHOULD have a plan to scale down systematically… you will be so greedy and decide to avoid making changes I promise. This I can’t necessarily imprint on you so you’ll probably need to make a mistake to feel it viscerally.

Find what your max pain tolerance is on drawdown and then divide it by two (earlier I said to double, you’ll see why).

1/2

[Brian Lee @BrianLeeTrades]

I’m going to start a helpful thread for beginner-intermediate traders which will go over basics, you may also learn something new at any stage though!

It will not be in any particular order just things that come to mind.

See below:

[The Bear ™ 🇱🇾 @ShortTrades]

Best wishes to @zander_odom and his family 🙏

https://t.co/j3xOD85zc1

[The Bear ™ 🇱🇾 @ShortTrades]

@lporiginalg They know how to survive. They did it and they’ve been around before dinosaurs 😂 @elonmusk studied their blueprint and applying it lol

[Brian Lee @BrianLeeTrades]

I am starting to realize that there are two and a half dominant trading mentalities and it can be boiled down to these:

1) Casino mentality: Treating trading as one is the 'house', emphasizing edge and the law of large numbers. This philosophy emphasizes consistency, time and math. The house edge exists within casino games by taking marginal % advantages over the player, however trading actually has far more edge than +1/2/5%.

Personally I prefer this and I think you can put a lot of my thought processes into this box.

2) Poker mentality: Emphasizing and extrapolating the game of poker towards the game of trading and using this philosophy to guide major decisions such as bet sizing, opportunity and bankroll management.

Undoubtedly analogous to trading in many ways, I think this one makes the MOST sense to the MOST amount of people because of the parallels. It also makes the MOST sense because making money with large wins and minimizing losers is easy to understand.

2.5) Dumbass gamblers: Philosophy is centered around winning at all costs, willing to forsake trading convention and ego-driven decision making. Goals are egregiously large, imagine big losses as "bad luck" and would use martingale as their primary strategy if given unlimited resources.

The allure of financial markets is that any fool can appear a genius given the right set of circumstances.

The thing that #1 and #2 share is intentionality and adherence to a set of principles that guide decisions. Both are equally able to navigate markets because there are fundamental systems that are derived from mathematics and profitability is largely a numbers game with some bells and whistles.

Think on it!

[The Bear ™ 🇱🇾 @ShortTrades]

@ModernWarzone 😂

[The Bear ™ 🇱🇾 @ShortTrades]

@BrianLeeTrades 💯🔥

[The Bear ™ 🇱🇾 @ShortTrades]

@danshep55 Beast mode Dan 🔥🔥🔥 thats legendary

[The Bear ™ 🇱🇾 @ShortTrades]

@BrianLeeTrades @604Rez 😆

[The Bear ™ 🇱🇾 @ShortTrades]

@BrianLeeTrades

[The Bear ™ 🇱🇾 @ShortTrades]

@jtraderco Don’t trade when horny

[The Bear ™ 🇱🇾 @ShortTrades]

@CensoredMen @bullyb170 Legend 🇵🇸

[The Bear ™ 🇱🇾 @ShortTrades]

@James_F94 @dubzyxbt

[The Bear ™ 🇱🇾 @ShortTrades]

@BrianLeeTrades Thank u 🐐

[The Bear ™ 🇱🇾 @ShortTrades]

@LilMoonLambo @BrianLeeTrades @AndresArmienta @PharmDFoose 😂🤣

[The Bear ™ 🇱🇾 @ShortTrades]

@Naeememe @InternetH0F No shit 😂

[The Bear ™ 🇱🇾 @ShortTrades]

@BrianLeeTrades Killer work brotha 🐐💎

[The Bear ™ 🇱🇾 @ShortTrades]

@AT09_Trader 😂

[The Bear ™ 🇱🇾 @ShortTrades]

@rektcapital Send it

[The Bear ™ 🇱🇾 @ShortTrades]

@modern_rock 🤣🤣🤣🤣