Chasing returns ANN HUNT Founder and CEO of Chasing returns
Similarly a positive outlier trade is anything that is larger than Q3+$150 = $200. We have been focused on helping traders avoid bad outlier trades, and here’s why. It turns out practically everyone trades outliers. Over 99% of traders in our study had outlier trades.
These outliers have a disproportionate impact on profitability: overall only 25% of our traders were profitable but without ANY outliers that number would be 45%.
Diamond hands are a hot topic at the moment. They refer to highly risky positions that are either massively in the money or out of the money. They sound exciting – because let’s face it – they are exciting. Unfortunately, they often lead to traders blowing up their accounts and brokers losing clients. At Chasing Returns we think of diamond hands as outlier trades. For the maths geeks, let me explain what an outlier is. In statistics, an outlier is a data point that differs significantly from other observations. How different I hear you ask? Imagine you take your entire trade history and organise it based on the P&L. You remove the worst 25% and the best 25% to give you the range of the P&L of your middle 50% of trades. This is called the Inter quartile range. If your range is from -$50 to $50, then the Interquartile range is $100. You then multiply this by 1.5, to get $150. A negative outlier trade for this trader is then anything that falls outside of Q1-$150-basically a losing trade that loses more than -$200.
GAME CHANGERS Issue #32
This was a pretty staggering finding when we first identified it. If we could help traders avoid outliers, their probability of success would almost double. Of course, we really only want to curb the negative outliers- those outliers that cost the trader money. So, this is what we are focussed on. We are helping our traders reduce their number of negative outliers, while leaving the number of positive outliers the same. The improvement is seen in clients using both our GamePlan and our PlayMaker products together.
