random trade

Discussion in 'Trading' started by terminator, Sep 11, 2007.

  1. Just curious as to the answer to this question

    If i enter randomly and exit randomly from the market. I use a simple 1:1 risk/reward ratio as a money management/profit target stop.

    Will my resulting trading break even not including slippage and commissions?

    Futhur if i use a 1:1 risk reward ratio for something like a 20MA breakout, will I end up with a break even not including slippage and commissions?

    Furthur if i use a 1:1 setup for any system that does not have an edge will i end up with a long term breakeven net of slippage and commish?
  2. no, if you have an edge (70%~80%), then 1:1 r/r ratio will end up with profit. if you play it randomly, for sure it will empty your account. particularly, if for those small account, the odd is highly a failure while not suceess. why? first in order to generate significant statistical reliable results, you need large samples, that means if you have an account, for example, 30k, you can not play it out with very limited trades (not like deep pocket). second, and the most important is under limited play times, for example, 30k account, and suppose it can only lose 100 trades in a row, your succeess is decided by the conditional probability, suppose you winning chane for every play is 50/50, that is 50% percent, then the final chance is 0.5*0.5*0.5*0.5.....*0.5(100 power of 0.5)=7.8e-31, that means the odd is ZERO.

    for a small account, avoid gamling play. the only thing you can do is: learn how to play the market, focus on some predictable almost free-risk trades, grow it, if winning BIg, reduce exposure, ... need skills like chess playing
  3. teun


    Without slippage and commish any random system X:Y (with X, Y > 0) will break even in de long run.
  4. No way. Set ups and exits are everything. You are assuming all trades have an equal chance for success, and an equal amount of potential rise as fall. Since the market naturally has an upward bias you are shot out of the water immediately not withstanding the first point.

    edit: Oh, and if you don't think so let me have access to your account and I guarantee you I can clean it out trading perfectly randomly.
  5. Tell me in what reality do you participate in a market without suffering slippage? Tell me what the purposes of even hypothesizing about a world without slippage is. I don't think there is any.

    If you enter and exit trades randomly you'll suffer a lot of slippage and lose money consistently, with random swings of winners and losers that would even out towards consistently losing as the frequency of trades increased.
  6. as was previously stated your unstated assumption is that the market has an equal probability of going up or going down at some random point in time... this is not the case.

    the market always has a place where it CAN operate and a place where it Can NOT operate given volume considerations. (the volume or lack therof dictates the operation point of the market).

    probabilistic trading is a very easy way to trade but a very difficult way to make money.

    When learning what works and what doesn't I would advise against looking at things like probabilities/win loss ratios/pattern %'s etc... ad nauseum. Those are the things the majority looks at, and the majority loses too.

    my 2 cents.
  7. I think the short answer is that the market has a higher probability of going up.

    I think you could use probabilities in your own trading style though to determine winners/lossers, entry/exit positions.

    That's essentially the strategy I'm developing myself. We'll see how it goes. I'll call it discretionary probabilities:D
  8. what are "almost risk free" trades in the YM, ES etc.
  9. I don't care what they say I won't live in a world without slippage.
  10. KY Jelly was specifically manufactured to insure there would never be a world without slippage.
    #10     Sep 11, 2007