Why Most Traders Lose: Ergodicity for Quant Trading

*🚀 Master Quantitative Skills with Quant Guild* https://quantguild.com *📅 Meet with me 1:1* https://calendly.com/quantguild-support *📈 Interactive Brokers for Algorithmic Trading* https://www.interactivebrokers.com/mkt/?src=quantguildY&url=%2Fen%2Fwhyib%2Foverview.php *👾 Join the Quant Guild Discord server here* https://discord.com/invite/MJ4FU2c6c3 ___________________________________________ *🪐 Jupyter Notebook* https://github.com/romanmichaelpaolucci/Quant-Guild-Library/blob/main/2026%20Video%20Lectures/81.%20Why%20Most%20Traders%20Lose%20Ergodicity%20for%20Quant%20Trading/e_ft.ipynb **TL;DW Executive Summary** - **Edge**: dictates our wealth path trajectory over time in a closed game of chance and a strategy in a game of incomplete information - **In reality**: *edge* is not constant and probabilities of winning and losing along with the average winner and losing comprising edge change over time - **Bet sizing**: dramatically impacts our wealth path trajectory in these games, we don't want to bet fixed amounts as our wealth grows making these systems multiplicative and non-ergodic (the path of some is not the path of many, the ensemble and time average aren't equivalent) - **Optimizing for Time Average**: Optimizing specifically for multiplicative wealth yields the Kelly Criterion - **In reality**: *bet sizing* is a function of our edge components which vary over time and full-Kelly is too aggressive leading to higher likelihood of ruin which is why we often modify this quantity such as going half-Kelly or other functional variations for optimal sizing I hope you enjoyed! - Roman ___________________________________________ *📖 Chapters:* 00:00 - Few Understand Ergodicity 02:37 - Expected Value (Edge) 04:07 - Stationarity vs. Non-Stationarity 05:42 - Ergodic vs. Non-Ergodic Systems 07:03 - Optimizing a Non-Ergodic Wealth Path 08:17 - Reality of Full-Kelly and Half-Kelly 09:34 - TL;DW Executive Summary ___________________________________________ *🗣️ Shout Outs* A special thank you to my members on YouTube for supporting my channel and enabling me to continue to create videos just like this one! *⭐ Quant Guild Directors* Dr. Jason Pirozzolo ___________________________________________ *▶️ Related Videos* *Quant Builds 🔨* How to Build a Markov Chain Regime Switching Bot in Python with Interactive Brokers | Part 1 https://youtu.be/GZnCiXMNZcQ How to Build a Markov Chain Regime Switching Bot in Python with Interactive Brokers | Part 2 https://youtu.be/CkXljL6eI5A *Statistics and Trading Profitability Over Time (Edge) 📈* Time Series Analysis for Quant Finance https://youtu.be/JwqjuUnR8OY Quant Trader on Retail vs Institutional Trading https://youtu.be/j1XAcdEHzbU Quant on Trading and Investing https://youtu.be/CKXp_sMwPuY Why Poker Pros Make the Best Traders (It's NOT Luck) https://youtu.be/wZChBKDFFeU Quant vs. Discretionary Trading https://youtu.be/3gblERSSHXI ___________________________________________ *🗂️ Resources* *📚 Quant Guild Library:* https://github.com/romanmichaelpaolucci/Quant-Guild-Library *🌎 GitHub:* https://github.com/RomanMichaelPaolucci https://github.com/Quant-Guild *📝 Medium (Blog):* https://quantguild.medium.com/ https://medium.com/quant-guild ___________________________________________ *🛠️ Projects* *The Gaussian Cookbook:* https://gaussiancookbook.com *Recipes for simulating stochastic processes:* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5332011 ___________________________________________ *💬 Socials* *TikTok:* https://www.tiktok.com/@quantguild *Instagram:* https://www.instagram.com/quantguild/ *X/Twitter:* https://x.com/quantguild/ *LinkedIn (personal):* https://www.linkedin.com/in/rmp99/ *LinkedIn (company):* https://www.linkedin.com/company/quant-guild ___________________________________________