Nearly Random Entry vs a High Probability Entry

Discussion in 'Trading' started by damir00, Sep 1, 2003.

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  1. Because the challenge was made to dbphoenix, it would be appropriate for him to be involved in the decision as to what a random entry is. And db' has made it very clear elsewhere that a random entry has somewhat specific qualifications.

    However, since nitro is willing to have a broader definition of random, including a cat walking on the keyboard and a random number generator, and folks, nitro is a programmer so his entry will really be random, :), then perhaps an agreement can be reached.

    Now if dbphoenix doesn't agree to the means of entry selection, he will always be able to fall back on his standard reply that he is unfamiliar with the definition of random as it is being used here. And as such, any results can and will be viewed by db' as invalid.
    So in db's own words, a "generally accepted definition of random" should be agreed on.

    It wouldn't seem prudent to put up real money though. I'd wager real money nitro, that you have never tried any trading strategy without first backtesting it or papertrading it. I'll bet you the most expensive steak at Ditka's.
    #21     Sep 1, 2003
  2. mark1

    mark1 Guest

    #22     Sep 1, 2003
  3. ramora


    There was an article in Stock&Commodities several years ago on money management. The idea of the article was to make random entries and then use good money management to stop losses and let profits ride. Over a long period of time the 3 populations all turned a profit, but the drawdowns and the modest returns suggested that there are better approaches to trade entry than random entries. It was a good article.

    Chuck LeBeau in his book on developing trading systems also suggested using random entries to test and improve his exists.

    I think a random selection combined with money management may work over a long period of time 'to some degree'. But adding even the simplest filters to the entry would improve the profitability overall and reduce drawdowns.

    I believe any definition of random by nitro would be fine.

    Any test would have to define timeframe. What is success and failure? Modest success could be defined as returns investing the same amount into T-Bills? Failure greater than 50% drawdown in the account?

    #23     Sep 1, 2003
  4. nitro



    Whole different ballgame when using REAL money. How many paper trading millionaires are out there?

    #24     Sep 1, 2003
  5. nitro


    This has been discussed before on ET. There and here, I vehemently disagree, especially the shorter the time frame.

    #25     Sep 1, 2003
  6. acrary posted his method a while back of comparing system testing results to random results over the same period to see how much better system results were than random to see if his system results were significant or not. It's worth looking up if you have interest in systems and system testing.
    #26     Sep 1, 2003
  7. dbphoenix


    You're confusing randomness with probability and knowability. The fact that you don't know what the outcome of an entry is going to be doesn't make it random.
    #27     Sep 1, 2003
  8. If EVERY entry point has the potential to be a successful entry point, then I think we can also assume that this would include an entry point based on something that leads you to be believe it's high probability. Therefore, choosing to enter a trade in a random way versus one you believe has some higher probability carries no inherent advantage.

    But there is a problem with the random entry. If entry is truly random, then WHEN do you exit? In other words, your EXIT becomes equally random because you have no basis for exit.

    Or let's put it another way: if you choose to enter trades randomly because you believe there is inherent advantage of other methods of trade selection, then you evidently would also believe there is no inherent way to KNOW WHEN to exit the trade, that this must also be random.

    Here's the alternative: when I put a trade on, I know WHY I put it on. And therefore, when that reason no longer exists, I take it off. In other words, if I know WHY I entered the trade, then I know WHEN I must exit.

    Simple example: If I buy a breakout, I know how the trade should should move forward immediately following the breakout. What it should not do is fail back under the breakout point. Therefore, if it does, I should exit immediately. Once the trade is moving my direction following the breakout, I simply manage the trade. In other words, I know HOW to handle the trade when I know WHY I entered the trade.

    Perhaps I should mention that "edge" to me does not imply a situation where you never lose. "Edge" to me implies a situation that you have been able to identify where a trade produces larger gains when it works correctly versus losses when it doesn't. Edge implies to me a trade where I can readily assess my risk versus my potential reward. I think there are situations where an "edge" exists. What is important as well is to manage the trade, manage your money, etc., all the things that you evidently do with random entry. But managing your trade/managing your money only, in the end, is going to give you mediocre results in my opinion. Again, if you don't know why you got in, you can't know WHEN to get out. In fact, if you believe that random entry is good because nothing favorable is identifiable, then clearly you are unable to indentify the circumstances under which you should exit.

    Good luck though with random entry....

    #28     Sep 1, 2003
  9. damir00

    damir00 Guest

    no. your conceptual filters are very, very strong.

    again, no, you are simply not understanding what is being said. unfortunately it's not stopping you from using terms like "nonsense".

    is this your way of saying you can't put your money where you mouth is? the simplest way to show your complete lack of edge over randomness is with a realtime demonstration.

    if at some point you feel up to the challenge, please let me know.
    #29     Sep 1, 2003
  10. damir00

    damir00 Guest

    didn't you just blow up? again?
    #30     Sep 1, 2003
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