basing this on a purely random entry system. using a backtested exit strat of a stop loss at -5 and a take profit a +5, ignoring costs. to show a ~0 expectancy. then using a stop loss -10 and a take profit of 1 to show a backtested skewed expectancy (either positive or negative). if i had MT4 i would run the backtests myself, since i dont i'll pose the question to ET hoping to discover a knowledgeable person.
no, you can have a positive expectancy in a fair game eg coin toss game, provided that the number of tosses is finite. in such a game all you need to end up with positive expectancy is LUCK. But when looked on a perpetual basis any fair game expected result is zero becuase LUCK doesn't affect the final outcome. If you add comms and slippage to such a game then you got yourself a negative expectancy game at the beginning but still can end up winning (based on just luck or any external edge) provided you play a limited amount of bets. so no matter how you look at it, there is always ways of achieving positive expectancy either with random entry, TA bots, etc, etc, etc. all it matters is playing afinite game and play it well.
why cant we make the system an infinite game (or ... reasonably infinite) . pass it down through the generations and such.
you can have extensive periods of positive expectancy followed by negative expectancy, etc, etc. Like I said, the more you play it, the more you get to zero expected value in a fair game. it doesnt matter much the PT and SL you put on since the prob of success varies accordingly. In the end the expectancy is zero and thus its perpetual expected value is zero.
ah really? an unbalanced PT and SL still results in a zero expectancy? an idea like that is'nt intuitive to me.
I recently finished this book so this came to mind when I read the thread title.... Tom Basso designed a simple, random-entry trading system ⦠We determined the volatility of the market by a 10-day exponential moving average of the average true range. Our initial stop was three times that volatility reading. Once entry occurred by a coin flip, the same three-times-volatility stop was trailed from the close. However, the stop could only move in our favor. Thus, the stop moved closer whenever the markets moved in our favor or whenever volatility shrank. We also used a 1% risk model for our position-sizing system. ... We ran it on 10 markets. And it was always, in each market, either long or short depending upon a coin flip. ... It made money 100% of the time when a simple 1% risk money management system was added. ... The system had a (trade success) reliability of 38%, which is about average for a trend-following system. Source: Van K. Tharp , Trade Your Way to Financial Freedom
interesting. this may be a very good method of gauging the relative value of differing money management systems.
sure. if you put on a PT of 10 and SL 1, you have 90% chances of being stopped and around 10% chances of hitting PT (assuming no edge of course). expectancy couldn't care less about the the setup we put on. as we tweak the PT and SL, the prob of success varies accordingly so one ends up with a net result of zero. otherwise, the game would not be fair to the other party involved.
ahahah. a TS is just another trade put on. like when it reaches 9 and new SL is set at 8. so it is like adding a new bet. the probs are compounded such as: trade reaches 10 with 10% prob. then it has 50% chances of hitting 11 and 50% chances of hitting 9 (a compounded prob of .1*.5=5%). so TS is just a way of adding multilpe bets to you initial bet but the prob of reaching any of thresholds has a compounded probability of success. In the end expectancy is...