Always Profitable Trading System

Quote from fletch2:

This seems to be a widely held point of confusion. The expectancy of the so-called "random walk" is hugely positive. There is nothing special about making money on a +EV wager.

Fletch
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you also have to take into account, that if you start the random walk walk of a virtual stock's price at, say, 50 points. you'll have to call it quits when price reaches 0, you can't go on and on under 0.

same with the martinggale strategy, if you have unlimited money, you'll never lose, but in order to make this a more practical debate, you'll have to take into account that money isn't unlimited.
 
Quote from ElectricSavant:

So people that believe that the market is random rely upon luck?
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i think those people rely on investing, not trading.

edit, or on interest rate differences or similar edges.
 
Quote from RunTrade:

I believe something was discussed like this a long time ago.... if i recall it went something like:

if there is a 50/50 chance of a stock moving up 5 points or down 5 points, applying proper risk management creates a winning system. Stop loss at -1 point; take profit at +2 points.
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if someone could explain me how that works might be amusing :p
 
Actually what they usually mean with the above statement is that IF you are able to find volatile assets (preferably uncorrelated) and IF you rebalance between them constantly with minimum transaction cost then you've got a profit. Not a huge one though.
 
Money management alone will not make one a winner in the long run.

A trader (or gambler) can not win in the long run without a "positive expectation" on his trades or bets.

Risk management will help make a trading account grow and protect the account from temporary adversity IF the trader has a winning methodology for entering and exiting. Over-betting a bankroll often leads to ruin. Always doing this always leads to ruin


A casino guarantees themselves a "positive expectation" on the bets they make (take) by paying "less than is mathematically breakeven".
Example: Even money on red when playing Roulette even though the gambler has about a 48% chance of winning this bet.

A casino manages its' money by not taking on too much short term risk.
Example: Caesar's Palace would never let Bill Gates bet $2,000,000 a spin on Roulette because in the short run he could get lucky and bankrupt the casino. Caesar's would gladly let a player bet $100,000 (or more) a spin as the casino can survive streaks of "bad Luck" for these amounts.

In the casino, players with Money Management Systems (usually progressions) are treated like kings and never bared from playing!

There are many names for one key concept: Positive Expectation,The Edge, Overlay, The Best Of It, Getting paid more than is fair, Positive Risk/ Reward, etc. Whatever a trader, gambler or casino call this concept.. they all must abide by it to be winners.
 
Of course money management requires a positive expectancy to begin with. No MM scheme can make money without positive expectancy.

Say that log(S/So) is normally distributed and you can spot assets with mean 0 and standard deviation vol (log(S/So) -> N(0,vol)). Then S has a positive expectancy vol^2/2. The more the vol the more the expectancy. This class of assets has the property that the chance of doubling equals the chance of halving because ln(2/1) = - ln(1/2) and mean = 0. If you can find x such uncorrelated assets then you can increase your betting by rebalancing between them without risking ruin. You can make profit even in assets with negative mean of log(S/So) (decaying assets) as long as vol^2/2 > - mean.

For a complete explanation of the concept google for papers of Maslov and Zhang on optimization theory of diversified portfolio.
 
I can agree with this.

Also I might add that having the edge may be temporary and your ability to maintain it over time depends on your ability to see the change in the market or instruments that you trade and to recognize how big or small your edge reacts.

So to be consistently profitable over time depends on how much time you devote to your edge. Finding new ones...ETC. This is trading in my opinion. Not investing.

Now if you have a huge edge and you really are making a lot of money quickly, it will not last as it will be exploited sooner or later....or else the market is extremely bull or bear....

In my trading, I get lazy and look for the small edges...31% winrates can be huge....even 50.01% edges can work too...But to clarify ...when I look for systems I prefer high winrates and slow and steady profits, but most of all, I like minimal drawdowns. I need minimal drawdowns to feel that I am growing slowly and consistently. I need a minimum of 25% APR on my money...NOT INCLUDING LABOR. heck! if I cannot get that higher risk yield of 25% per year, then I might as well throw it in a 4-5% CD down the street at the bank and take up something else...Trading is hard and I have considered quitting several times.

Michael B.

P.S. I reread the quote I used below...If I have an incredible edge I have no problem ramping up and grabbing some bank...but it is my style to immediatley ramp back down, so I can keep it! Maybe I am not a good trader after all. It's been my experience that to LIVE your daily lives trading your own money requires you to take the "roller" out of your "coaster"...but thats for me anyways...maybe some of the superstars traders out there have "graduated" to a higher level that I just do not see.

Quote from 777:

Money management alone will not make one a winner in the long run.

A trader (or gambler) can not win in the long run without a "positive expectation" on his trades or bets.

Risk management will help make a trading account grow and protect the account from temporary adversity IF the trader has a winning methodology for entering and exiting. Over-betting a bankroll often leads to ruin. Always doing this always leads to ruin


A casino guarantees themselves a "positive expectation" on the bets they make (take) by paying "less than is mathematically breakeven".
Example: Even money on red when playing Roulette even though the gambler has about a 48% chance of winning this bet.

A casino manages its' money by not taking on too much short term risk.
Example: Caesar's Palace would never let Bill Gates bet $2,000,000 a spin on Roulette because in the short run he could get lucky and bankrupt the casino. Caesar's would gladly let a player bet $100,000 (or more) a spin as the casino can survive streaks of "bad Luck" for these amounts.

In the casino, players with Money Management Systems (usually progressions) are treated like kings and never bared from playing!

There are many names for one key concept: Positive Expectation,The Edge, Overlay, The Best Of It, Getting paid more than is fair, Positive Risk/ Reward, etc. Whatever a trader, gambler or casino call this concept.. they all must abide by it to be winners.
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Quote from KS96:

Please explain why do you think it is.
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Because the "random walk" I've seen this discussed for is a bet with outcomes +b or -b/2 units, where b is your bankroll, with probability of 1/2 in each case.

Take b = 1. The EV of such a bet is:

1/2 -(1/2)(1/2) = +1/4

Fletch
 
I was reading about one of the new currency ETF's. Forgot the symbol but it should be easy to find if anyone's interested. Their strategy is kind of a modified Dogs of the Dow approach. They go long the top yielding currencies and short the lowest yielders. There is some leverage involved in the longs, but not the shorts as I recall.

They must have backtested it and found it worked. Sounds like an interesting approach. Any comments?
 
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