Reality based coin-tosser method that beats 95% of traders in the world.

Well, I won't attempt a serious proof, but, the Effiecient Market Hypothesis does come to mind. Investors/Traders do not act rationally, hence EMH is flawed. That "something" losers are doing to their account is called emotional and irrational behaviour.

 

AyeYo, let me take a stab at explaining this... these things are not always intuitive so I've verified the numbers for each case with MCS.

I looked at 3 cases and assumed NO COMMISSIONS OR SLIPPAGE to keep it simple:

1) The market is so biased to the long side that it goes up every day by one point.
Net profit/loss of coin toss method: zero.
Why? Because you win one point 50% of the time and lose one point 50% of the time.

2) The market randomly goes up/down 50% the time, but it's so biased to the long side that each up day is +2 points and each down day is -1 point.
Net profit/loss of coin toss method: zero.
Why? On up days, you win/lose 50% of the time, so your 2 point wins cancel out your 2 point losses. On down days, you win/lose 50% of the time, so your 1 point wins cancel out your 1 point losses.

3) Cases inbetween, like the market is up 90% of the time AND makes 2 points on each up day, but only loses 1 point on the 10% of down days.
Net profit/loss of coin toss method: zero.
Why? On up days, you still win/lose 50% of the time (even though 90% of the days are up), so your 2 point wins cancel out your 2 point losses. On down days, same logic applies.

 

Can you explain how EMH applies all the time to ES trading.

Also why do you say I/T do not act rationally.

sosueme

 

I am impressed by your on going ability to miss the point that you are missing the point.

 

Despite calling out - and trying to set - four options for position size, only two are actually attainable.

 

Great catch! Here is the edited code with proper sizing code.

Thanks Random.

Mike

 

I agree that markets are not random. HOWEVER, if you flip a fair coin, half the time the market bias will work in your favor and the other half the bias will work against you, canceling each other out.

See my 10-21-09 12:11 PM post (above) for more detail.

 

http://en.wikipedia.org/wiki/Efficient-market_hypothesis

See criticism section.

Any leveraged market - ES included of course - is subject to irrational behavior. What you're seeing with the system results I'm posting is the liquidation effect at 1255pm PST, i.e. overleveraged participants either being force liquidated or seeking liquidity. This is not a rational behavior; traders are getting "trapped" in positions and not exiting due to rational reasons. They are exiting because of irrational reasons beyond their control (margin requirements, impulsiveness, agony, cat jumping on the keyboard... etc etc).

Mike

 

Interesting.
What system results are you posting please

sosueme

 

A corollary of the third conclusion is how are you going to get out if you are wrong or trapped with the losers either by mistake or by design?. ==> EXITS

What if you are so big that there is no liquidity to get out?. This happened to LTCM, Barings, Lehman, etc, etc, etc.

If one could spot large traders in trouble like these, making big money would be like taking candy from a baby.