DREAM ON GUYS. There are many reasons to devise ** deliberately sub-optimal ** strategies: (1) Free Lunch mentality. (2) Laziness. (3) Fundamental misunderstanding of the markets. (4) Lack of university level education in hard math/stats. (5) Inability to do anything complex. (6) Lack of technological infrastructure. (7) Shoestring capitalization. (8) A business model designed to defraud unsophisticated mooks. Do yourselves a favor... and address the issues above... one by one.
To put this in a positive way... There are exactly 2 ways a trader makes money: (1) By entering a position in a non-random way... With a positive expectation going in due to market inefficiencies... Which is the whole point of quant analysis. (2) From exploiting the bid/ask spread... And there are still lots of spreads to exploit in this world. I would estimate that my profits derive roughly 50/50 from each of the above. If I eliminated one or the other... I would go OUT OF BUSINESS.
hound. i dont understand how any of those points has anything to do with this thread's topic of random entry trading. understanding why a basic statistical idea works or does not work is key when hoping to understand the market. the term optimal and trading strategy should never be used in the same sentence. unless you have complete knowledge of every future tick movement there is no hope of producing an 'optimal' trading system. we are limited to a variety of non optimal with meager rates of return. from an academic standpoint the idea of maximizing loss in a no cost environment is a very interesting concept when trying to understand the market. anyone with a reasonable level of education understands that the best way to start to understand an unknown system is to start with very basic math, like being discussed here, and help confirm or disprove assumptions. like my assumption that a trailing stop skews percentages on random entry. this idea is extremely basic but very significant to future research if shown. i have a feeling that any random entry point has a 50/50 chance of going up or down. but as the position ages, and the stop is not hit. the probability of profit or loss is no longer 50/50, since we know the market is not purely random. its nice to see someone on ET supporting their beliefs with a little math, unlike hounddog's post above, presenting his opinion as 'fact' (maybe he should use the terms 'i think' or 'i believe' more). this is very refreshing and i applaud you. but i think you have the 'random' 50/50 chance of loss / gain on a random entry confused with a 50/50 chance concerning market movement. which is not random (not 50/50). depending if the market stops out right away, or moves up, the probability of it moving in either direction is not 50/50, it greatly (or possibly solely) dependant on market conditions, which the stops / takes could possibly help prune / detect. what do you think asap?
true tape readers (non chartist) do not analyze charts. Also a good training technique is to take a very small position on a random stock w/o looking a chart and manage the trade for a couple swing cycles - but staying in the stock. Switch long to short and so on using hard stops and price targets. Great management technique.
the fallacy here is that the market is not a coin van tharpe is right i am not saying that random entry with any given system is positive or negative expectancy (leaving commission out of it). i am saying it does not NECESSARILY have to be a coin has no memory. the market does with the TS strategy, this takes advantage of the tendency, to some extent, that a market will continue in the direction it was moving for some time. it is not RANDOM nobody, unless you subscribe to efficient market theory (and in that case, you should not trade since it's impossible to have an edge if EMT is true) believes that there is NO correlation between past market events (price) and the future. so, the fallacy in ASSUMING negative expectancy (negative expectancy with commission/slippage), is that the coin is a proper analogy to the market it isn't
If your broker charges a monthly fee for unlimited trades ... maybe you can profit by opening two accounts placing a buy in one and sell in the other at the same time, a reasonable stop loss, and probably a buy (sell) at profit. Imagine you place a buy & sell at 87.45, stop loss @ 50cents, the stock price drops to 86.95 (you have sold one account at 86.95 with 50(+/- 1) cents loss), you wait tell it drops 5 cents more and you buy it, you have profited 5 cents.
how is that different from waiting till a price moves 50 cents in one direction and opening a single position in that direction? only playing 1 account fees, 1 spread and 1 round trip commission, . instead of 2 acct fees, 2 spreads and 2 commissions. note this is not a random entry trading strat. as you put before bluud 'dream on'. it is a common mistake to think you can gain something from a perfect hedge on a single equity. this is untrue. it can be viewed as paying someone to allow you to trade with yourself. since you are both trying to buy/sell at the same price. whistler: in my example i do not make the assumption that the market is a coin. merely that it is possible to enter the market based on the flip of the coin. say the future is set. then deciding to buy or sell based on a coin flip will result in a 50% chance of correctly guessing the future.
50% chance only if your profit target and stop loss are the same. Thinking that you can find a random entry strategy with negative expectancy (of any significance) that you can "flip" is the flaw in your logic.
i do believe you just managed to contradict yourself. you just said there was zero expectancy if the PT and SL were the same, by that implying that it is possible to get a non zero exp when they are different or using TS. note we are looking for a non-zero expectancy in the 'no cost world' here. not necessarily negative expectancy. also note the 'predicting the future' example did not state anything about PT and SLs. merely you can obtain a 50% chance of profit by flipping a coin. i believe there is no flaw in the logic of flipping to negate a positive / negative expectancy. given the 'no cost trading' world. imagine taking any position and ending with a profit or loss. obviously if you had taken the opposite position (buying instead of selling. selling instead of buying) the P/L will be negated. you can 'flip' it outside the system if you want, right before the trade reaches the brokerage if you think it would interfere with the system.
I did not imply that. Expectancy will be close to 0 no matter what the PT and SL are (as asap has been saying). You can't say this without qualifying your exit method. You won't have a 50% chance of profit on the next trade if your PT is double your SL, for example. Let me rephrase: Thinking that you can find a random entry strategy with negative expectancy (of any significance) is the flaw in your logic.