Positive Expenctancy Trading Systems In Efficent Markets- No timing

Discussion in 'Trading' started by riskfreetrading, Oct 17, 2009.

  1. This is for two types of audiences:

    1. Those who have problems with stops being taken, or take profits too early or not taking profits, and losing the unrealized profits later.
    2. Those who believe/concluded that markets are efficient. I think the market sare efficient, but this does not mean they cannot be exploited for trading, and/or cannot be timed by a minority. We address the none-timing point below.

    I have developed a set of trading systems that have a positive expectancy (at the theoretical level for the moment, which at first was surprising to me but I now understand the core reasons).


    1. Market follows efficient hypothesis. In fact one needs only zero sum game, and no asymmetry in distribution of gains vs. losses. If there is asymmetry, then there are other sets of trading systems that can be derived from the other models.

    2. One needs a time frame for his trading. The system gives you where to take profits, and the time to take losses if any. It can also provide the average gain per trade, average loss, etc.

    No timing is needed. There are no stop loss orders involved. There are however take-profit orders that need to be put in place at the time you put the trade. The system tells the take profit price.

    Once you enter the trade, you do nothing, except checking at a time of your choosing how things are going to satisfy your curiosity. If a trade is a winner then you move to a next trade.

    As in other systems, one needs to repeat this for the same time frame a number of times in order for the expected value to be achieved/estimated.

    There are no emotions involved, no timing involved, none of the other problems with other methods.

    The only thing needed is to repeat, and that you assumptions above are correct. This is set -and-forget type of system. A robot can trade it.

    What do you think? What do you want to know more about this system. Again no stop loss orders, and you know exactly where to take profits. You just repeat the system.

    Any comments? Have you seen systems like this?

    There is a mathematical proof for why the trading system has a positive expected value.

    There are risk in this trading system, but of different nature than what most people experience in traditional trading approaches. For instance, the loss on a single trade can be high though with a decreasing probability as a function of the magnitude of the loss.
  2. I dont like the "no stop loss". I would definitely modify it to have a catastrophif stop loss - there RARE sudden items happening (like, for example, 9/11), so a "not close" stop would still be approrpriate. One that gets triggered ONLY in really bad moments.

    Otherwise, I would love to hear about the mathematical proof ;)
  3. piezoe


    It sounds screwy, but go ahead. You'll be flamed of course, but you're used to that.

    You might know that referring to the efficient market hypothesis is going to make some traders laugh, because they all know the market is horribly inefficient in the short run and is seriously out of whack much of the time. The efficient market hypothesis is just a model that economists use because they can't accurately model Goldman's insider trading and all the factors that make up the sideshow we call the stock market. If they could, they'd all be much richer than they are. It's a stupid model, but it's the best they can do. They are after all economists; not traders.
  4. Piezoe: Good input as usual. A point that is maybe hidden in first post this: if the market were to be efficient, then one can make money via the type of models I mentioned. If it is not efficient, then it goes that one makes money. So either way, market efficient or not, one can make money. The difficulty is to distinguish between the two regimes (efficient vs. not efficient). I have been under the impression that when people say the market is efficient, they implicitly assume one cannot make money, while in fact it seems to me that it is easier to make money if the market were to be efficient. In other words, if one were to run for me a market that is efficient (in a lab for instance), then one can pull money using for instance the above models. I am thinking whether this is the root reason why markets deviate from efficiency, because there are trading models based on efficiency assumption which take cash out while market is in efficient regime, which then puts the market out of kilter, and when such deviations are picked by other non-efficient hypothesis traders prices are either pushed further away or brought back to efficient market trajectory, until the reverse process takes place.
  5. say, efficient market can be anything until proven otherwise and we choose : random market. I cannot see how one can extract profits from random market. On average one should lose cost of trade.

    ignoring nonmovement, at time t there is 50% probability of next tick beeing up and 50% down. If you wait another tick before exiting there is no statistics proving you will be better or worse off.

    you do need some rule that say if this then wait next tick else exit now to start accumulating profit on average tick by tick.
  6. Alexis


    "no timing" (random entries)systems have been tested for decades, they never failed to desappoint. never!