A truly riskless system?

A SIM with a variation of 100 pips per re-adjustment and using historical data for 10 years will show all the hidden warts in this fallacious contraption.
 
Quote from sambian:

My portfolio is now $562.5, but if I just bought and held euros, it would be $250. And the idea of the system is that it's profitable in both currencies in the long run, when there are up and down movements. You take an example of only two movements, both of them are down movements, and then you ask "Where on earth did you make some profits". I have written very clearly in the title and many times in the article that the system is profitable in the long run, if the price follows a random walk. It is also useful if markets are efficient and you can not predict future prices. If you can predict when eur/usd will be 0.25, of course the best is to bet all your money on it.
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No offense, but if you just bought and held $, it would be worth $1000 !
What makes your assumption of long term profits holding ?

I took only the movements you did. But we can go ahead with the movements of your choice.

Masteratwork
 
Quote from MasterAtWork:

What makes your assumption of long term profits holding ?

I took only the movements you did. But we can go ahead with the movements of your choice.
More...
Let's go ahead with the movements. The next 2 movements are up.
We have $562.5, we buy euros with half of them = €1125 and keep the other half = $281.25
4. eur/usd = 0.5
Our portfolio is $281.25 and €1125. It is worth 281.25+1125/2=281.25+2500=$843.75
We buy euros with half of them = €843.75 and keep the other half = $421,875.
5. eur/usd = 1
Our portfolio is $421,875+€843.75 = $1265.625

Summary: The price was 1 in the beginning and at the end was again 1. Our portfolio went from $1000 to $1265.625.

I have written these kind of calculations countless times only in this topic. I have given a link to a spreadsheet with these calculations in my first post, here is a link again - http://rapidshare.com/files/372675452/eur-usd_example.xlsx.html
You can simulate random price movements by pressing F9 in Excel and see what happens with the portfolios.
I'm tired of explaining the same thing over and over again, so if you have more questions, please first read the whole article and the whole thread here.
 
Quote from sambian:

No offense, but you seem to not read what I write, or maybe you don't think about it. This is what I have written:
My portfolio is now $562.5, but if I just bought and held euros, it would be $250


Let's go ahead with the movements. The next 2 movements are up.
We have $562.5, we buy euros with half of them = €1125 and keep the other half = $281.25
4. eur/usd = 0.5
Our portfolio is $281.25 and €1125. It is worth 281.25+1125/2=281.25+2500=$843.75
We buy euros with half of them.
5. eur/usd = 1
Our portfolio is $421,875+€843.75 = $1265.625

Summary: The price was 1 in the beginning and at the end was again 1. Our portfolio went from $1000 to $1265.625.

I have written these kind calculations countless times only in this topic. I have given a link to a spreadsheet with these calculations in my first post, here is a link again - http://rapidshare.com/files/372675452/eur-usd_example.xlsx.html
I'm tired of explaining the same thing over and over again, so if you have more questions, please first read the whole article and the whole thread here.
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"No offense..." Cooldown, that was just a joke .

What I see is just that you're averaging your position.
It's just like to say : guys, you could buy 10 shares of this stock, but just buy 5 of them and invest the rest of your money in a cash account. If the stock drops, buy 2 more shares and if it soars to the initial price, you'd make money. And if it keeps going down, you'd lose less money that if had bought the initial 10 shares.

There is nothing new with that. It's called "averaging". The point is that the risk is smaller, right, but the payoff is too.
 
Quote from F112358:

A SIM with a variation of 100 pips per re-adjustment and using historical data for 10 years will show all the hidden warts in this fallacious contraption.
More...

hmmm looks like you're made a lot of progress since saying "i know what's wrong but won't tell you"
 
Quote from laserwolf:

hmmm looks like you're made a lot of progress since saying "i know what's wrong but won't tell you"
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I solve difficult problems on the spot. The impossible ones take only a few hours.
 
Sambian- Fantastic discussion! I maintain that this is a Martingale Mean Reversion strategy because you increase your wager on a losing bet and you only make money when the underlying goes back towards your starting point. If the underlying trends against you, you do not make money on that trend, only on the small reversals and retracements back towards the mean.

After having slept on it, I think the real genius is this strategy is that it looks like it is optimal game-theory for a random walk market. And that has great value.

I would rate this thread a win, it has given me lots to think about in both the arguments for and against your strat. Thanks for sharing.
 
Quote from sambian:
Ok, now think about this example:
I offer you a game, in which we flip a fair coin. You pay me some amount of money to participate in each flip. If it comes up heads, I give you back twice your bet, and if it comes up tails, I keep half of your bet. How much will you bet each time?
For example:
You have $10. You believe that the Kelly ratio should be 1 and bet all - you pay $10 for the first flip. It comes up heads and I pay you back $20. Then you bet them all, the coin comes up tails and I keep half of your bet, so you are left again with $10.
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I have to correct a semantic problem with this game regarding bet size.

Your game confuses "bet" with "tying up capital". Bet is the total amount you can lose on a given event's outcome.

If I am going to bet $10, and if I lose you are going to keep half of that, then all I have at risk on each event is only $5.

Let's say I I walk into your gambling hall with $10 in my pocket, play your coinflip game once and walk out. If I bet $10, lose, then walk away with $5. If I bet, win, then walk away with $20.

So this example is really coinflip game with a 4:1 payoff, which I don't think is what you want. Of course that has a positive expectation for the gambler; I would play that game all day long!
 
If you go long EUR/USD and long USD/EUR at same time, you can make money

for example if EUR/USD goes from 1 to 2, a 10.000 pip move up then USD/EUR naturally goes from 1 to 0.5, a 5000 pip move down.

One trade will make double the pips the other one loses, and then you make 5000 pips profit on this trade.


A complicated version of this strategy is going long USD/GBP, long GBP/EUR, and long EUR/USD, threeway trade. This is equal to three seperate trades in one!:eek: :p
 
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