Random entry with money management is a grand idea but it simply doesn't make much money with the commissions po' boys pay. Add in market orders and slippage and it's a total loser. It's easy enough to code and test if you are willing to take the time to make enough runs. The only time it works is during the brief high volatility periods. Try it continuously all day and you'll get killed.
I'm convinced that the primary impetus for market change is to wipe out all "proven" edges -- in other words, anything that can be systemized will eventually degrade down to unprofitablility. "Thinking", flexibility, and experience are the keys to knowing what part of one's system has to change with the times.
...I should also add that my opinion is also supported by the experience of developing many "systems" which later turned out to be random entry, and even in high volatility soon failed to work. BTW, if I may ask does Breakout use a breakout? - Mike
I don't doubt you know what you're talking about, no offense intended. I posted the original quote to John Q. Public because I thought maybe he didn't believe there were any profitable systems. My point was that with proper money management and risk control, you can make money. I believe a lot of the stuff (divergence, pivots, retracements, Gann, Fibb etc...)work if you stick to your plan and keep your losses small. I also am skeptical of a random entry, but who am I to argue with a guy who's been a floor trader for 35 (as of the writing of the book)years. But, I think you made a valid point about the strategy not being practicable for the average Joe who pays retail commission. When I joined the board I was trading breakouts, but I learned a lot of helpful techniques here about retracements and switched. Here's one more quote from a successful trader who feels money management and risk control are whats really important. "One thing I learned when I started trying to develop systems over the last couple of years is that the money management is the crucial element in daytrading. You could write a system that says: Buy the market when it rains, and sell when it stops raining......And you know what? You could probably make money with that system, if you had good money management techniques"......David Silverman...(member of the CME and former floor trader in the currency pits. Currently serving as a member of the Board of Directors of the Chicago Mercantile Exchange) Quote from The Day Traders Advantage...Abell pg.117
Without abetting an idea that could propel this thread into the hundred's of pages: Regardless of what money management you employ, a random entry system with exit "rules" based merely on price goals can not have a positive expectancy. Not to say it has a negative expectancy either. But why pay commissions and transaction costs for a system that merely scratches. In other words on a coin flipped buy I say I'm risking 1pt to make 3pts. Great money management right? Except that in an infinite sample of trades I will be stopped out 3 times for every winner. Pure and simple! Hypo's quotes from floor traders are ridiculous. Locals trade with an edge! Merely buying the bid and selling the offer blindly gives you positive expectancy, and floor traders have negligible commission costs to boot. Now if one wants to define money management as the art of treating trades differently based on technical/tape reading or fundamental criteria then I will agree that one could either enter trades randomly and win or perhaps do worse than random. But random in and set money rules getting out....your broker will love you.
...thanks. I didn't mean to imply that I took offense. I'm just pissed off that I spent so much time to prove to myself something stupid like that. I had high hopes that random entry WOULD work, so I could completely abdicate responsibility for my trading decisions. Now I have to go back to flipping my lucky penny. Picked it up on the street. Treats me right, just like an ugly woman picked up in a bar. Yeah, breakouts ARE sorry systems. That's what I use.
...I would like to offer one caveat. I believe random entry with money management WOULD work between 9:45 and 10:30 EST (peak daily volatility). I offer as a data point that I traded a system for a month and made money before I realized it was for all intents and purposes nearly random. I had optimized the hell out of stops, reverses, and takes, so it just barely made minimum wage. How's this for a trading contest idea? We challenge the top traders (Mark D. Cook, Larry Pesavento, Robert Deel, Linda Raschke, et al) to a contest. We generate a random entry, and whoever randomly makes the most money, wins. That would look real good in their ads.
...I can sense that you are warming up to this idea. This is a P.T.Barnum business opportunity, and I'm letting you in on the ground floor. For round two of the trading contest, we have a tag team event. I get to pick the ET posters here that I think walk the walk, and YOU have to take the ones I think talk the talk. Like Mexican wrestling. If you don't like that, we could poll the members for both categories, and I'll flip ya to see who gets which. Get to use my lucky trading penny for the flip, though (OT, I'll sell it to ya for $50, personally backtested it. Works good.)