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Old Aug 14th, 2003, 08:59 AM   #55
dbphoenix
 
 
Join Date: Sep 2002
Location: Rome Milan Paris London NY Sheboygan
Posts: 10,432
First, you're not making random entries. Second, why must it be a choice between random entry and carefully-managed exits, and carefully-managed entries and random exits?

If one is going to make random entries, he must be prepared for an unbroken string of losses. Each loss reduces the account. If the same percentage is applied to each trade, it becomes next to impossible for the trader ever to get back to breakeven.

Those who continue to insist that random entries can be profitable rely on "studies" or something they read somewhere or something that somebody demonstrated in class. The practical application is a different story. Until somebody can produce an actual system of random entries that, when applied, yields a greater profit than the same system with non-random entries, I'll continue to go with the lessons of experience.
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Old Aug 14th, 2003, 09:15 AM   #56
Yannis
 
 
Join Date: Jan 2002
Location: New Jersey
Posts: 5,501
Quote:
Quote from dbphoenix:

First, you're not making random entries. Second, why must it be a choice between random entry and carefully-managed exits, and carefully-managed entries and random exits?

If one is going to make random entries, he must be prepared for an unbroken string of losses. Each loss reduces the account. If the same percentage is applied to each trade, it becomes next to impossible for the trader ever to get back to breakeven.

Those who continue to insist that random entries can be profitable rely on "studies" or something they read somewhere or something that somebody demonstrated in class. The practical application is a different story. Until somebody can produce an actual system of random entries that, when applied, yields a greater profit than the same system with non-random entries, I'll continue to go with the lessons of experience.
db,

For the sake of this example, I did define the entries to be random - just a regular coin flip, I said, meaning that you go long or short randomly. You can also do this by adding random times to enter, same thing. All I was trying to say is that random entries and carefully managed exits CAN make a profitable system.

As far as the value of theory vs experiment goes, it's an old argument, and I've lived through it intensely (I have a PhD in Theoretical Physics.) The idea is that theory allows one to scan though many possibilities rapidly and target the one or two juicy situations to experiment with in depth. The alternative, experimenting with all possibilities, is much less feasible.

What this teacher taught me is that exits are more important than entries. (This was a trading system designing workshop.) Therefore, as I design trading systems (which I like to do) I spend a good amount of time designing the entry and twice as much designing the exit management strategy. That's all. Actually, as I said in a previous post, (generalized) money management is very important to me. And, many of my systems trade in real life quite well.
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Old Aug 14th, 2003, 09:29 AM   #57
dbphoenix
 
 
Join Date: Sep 2002
Location: Rome Milan Paris London NY Sheboygan
Posts: 10,432
We're getting circular here, but, again, claiming that random entries and carefully managed exits CAN make a profitable system is not the same as actually producing one, preferably one that produces more than a subsistence income.

And, again, what some teacher said or what one learned in some class may not necessarily apply to practical use.

If a beginner wants to believe that he can enter wherever he likes as long as his exit is pre-planned, he should be prepared for at least the possibility of a string of losses that may do considerable damage to his account.
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Old Aug 14th, 2003, 09:32 AM   #58
Yannis
 
 
Join Date: Jan 2002
Location: New Jersey
Posts: 5,501
db,

1. Agree.
2. Agree.
3. Agree.

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Old Aug 14th, 2003, 10:27 AM   #59
tntneo
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Join Date: Dec 2000
Posts: 1,162
Yannis, I did not back test your system.
but we are actually saying the same thing..

look,
your entries are not random, they are filtered to find a trend (!).
within a trend, you can use random entries that's true. my point was not to show you can't use random entries, but to prove the market is not random, therefore within one established direction you can pick any level and make money (unless you screw up the exits).

so we agree.
but again, I don't call these random entries !

a random entry is when you flip a coin every hour or day or 15mn whatever and place a trade.
apply the best exit strategies you want. it won't work.

tntneo
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Old Aug 14th, 2003, 11:08 AM   #60
Yannis
 
 
Join Date: Jan 2002
Location: New Jersey
Posts: 5,501
tnt,

I have to look back and find my notes to make sure, but I remember those discussions and say that even what you describe is possible.

Let me clarify:
1. System enters at random moments in time and in random direction (long or short);
2. System does not enter again until position is exited;
3. Exit strategy takes it from there.

Question: Can one design an exit strategy that makes the system profitable over reasonable periods of time?

Answer: I believe so.

The idea is that one has to load all market intelligence (eg, current direction and stregth of trend, volume, info from leading indicators, etc, etc) into the exit strategy, and execute. And because there's more information available as the trade evolves, that side (the exit side) is the superior place for that intelligence.

How easy is that? Not very... it's a task for experienced system designers.

How can one tell upfront that this is not a fruitless effort? Remember, I believe that it is reasonable to assume that if that system's exit was also random, the system would only incur the cost of slippage and commissions in the long run. So, what the "intelligent" exit strategy has to do is counterbalance those costs, at a minimum, which, imo, is feasible.

Have I done it? I have designed several systems (and traded a couple for real) that have a lot more smarts on the exit side as compared to the entry. For example, systems that take in a relatively simple algorithm based on pivots, H/L etc and enter a minute or so after open. Then they think long and hard as to where to put stop loss levels and profit targets and how to manage those. Not the same but similar. I've compared mine to systems that think long and hard where/how to enter and always exit at the end of day. Mine are better

Again, as we all agree, not a task for a beginner.
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