IMHO it is not so much the entry but the exit of course that matters. It is funny how so many books talk about when to get in but the aspect of getting out has so much less focus. I believe the true measure of a successful speculator is in his/her ability to manage money well, i.e. taking small losers and letting winners run. That is by far the hardest aspect of trading.
Flip a coin for entry
- Thread starter dnaj65000
- Start date
Imagine a trader with a method or system that only takes one position during a given day, and closes out this position at the end of each day. If a given day has a 3 point range, and the entry is at the high of that range, no amount of money management or clever exit tricks will turn this losing trade into a winner. Likewise, if the same trader bought at exactly the low of the day, no amount of stupidity or poor money management could turn this trade into a loser. So from this example it is clear that both the entry and the exit have an important role to play in the specific results obtained from each trade, and in general from a particular method or system. Discounting the importance of the entry can be just as unwise as discounting the importance of any other part of the trade.
I would say this is a good definition of what makes a disciplined trader. But just because a trader is disciplined in taking small losses and letting winners run, doesn't mean that they will end up making money. If a trader's method is a net loser, then even their extraordinary money management skills will not be able to staunch the slow bleed of a negative expectancy. Try to turn a negative expectancy game like roulette into a winning proposition by using money management - over the long term it can't be done.
Hi Tripack,
This is a masterly rebuttal of the money management fable.
Be good,
nononsense
No this random entry does not work. I did this on roulette. Took black all night and ended up broke.
My husband played Blackjack with strategy.....He came out with more than he started with.
A good strategy beats blind luck anyday.
If you want a simple strategy do a short skirt on the close of the previous day.....if it is above it, go long, below it go short.....See how that goes.
My husband played Blackjack with strategy.....He came out with more than he started with.
A good strategy beats blind luck anyday.
If you want a simple strategy do a short skirt on the close of the previous day.....if it is above it, go long, below it go short.....See how that goes.
Thanks bobcathy1.
Good work dnaj65000.
We will learn something.
Regards proving the random-walk, hmmm. There are those who swear the market is not random, only a little *chaotic*. By the looks of some of the winning traders equity curves I'm inclined to believe this to be true. Further proof, for me, are equity curves such as we see in CALM (daily,weekly chart) right now. And there are many other such stocks with hyperbolic (is that the right word?) curves, that I have never seen in a random environment. I've seen amazing winning streaks, but never curves like these. I can also say this: an environment can appear (to the naked eye) on the surface very random, yet something within it might not be. I suppose this is what we are looking for.
BTW: Theoretical expectancy on 58 is 16.57 wins and 41.43 losses.
Years ago I ran a random *bracket* (buy x distance above a price, sell X distance below) test on a set of commodities with a four week time exit. It seemed to profit, but I have to run a more extensive test. I'm not sure, but bobcathy might be proposing a similar idea, if *short skirt* is the same as a *tight bracket*. Bobcathy1?
Right on Tripack.
Let's put it this way. Either the entry, or the exit must have an edge, or better yet, both. Money can be made either way, if either/or have an edge...only then can money management then maximize growth and minimize drawdowns.
No amount of good money management can turn a zero edge (zero entry AND zero exit) into a winner for long. It would be better to put perfume on a dirty shirt.
I try to keep my comments in a realm that I have made some proofs through many various tests. I have done extensive study in randomness, applying TA to random market simulations. I can't comment really on trading, what is the *hardest* part, or how to actually profit.
I can say with strength, that a trail stop system adds no edge to a system that has no edge to begin with (or end with).
And yes, don't forget the commissions.
JohnnyK
Good work dnaj65000.
We will learn something.
Regards proving the random-walk, hmmm. There are those who swear the market is not random, only a little *chaotic*. By the looks of some of the winning traders equity curves I'm inclined to believe this to be true. Further proof, for me, are equity curves such as we see in CALM (daily,weekly chart) right now. And there are many other such stocks with hyperbolic (is that the right word?) curves, that I have never seen in a random environment. I've seen amazing winning streaks, but never curves like these. I can also say this: an environment can appear (to the naked eye) on the surface very random, yet something within it might not be. I suppose this is what we are looking for.
BTW: Theoretical expectancy on 58 is 16.57 wins and 41.43 losses.
Years ago I ran a random *bracket* (buy x distance above a price, sell X distance below) test on a set of commodities with a four week time exit. It seemed to profit, but I have to run a more extensive test. I'm not sure, but bobcathy might be proposing a similar idea, if *short skirt* is the same as a *tight bracket*. Bobcathy1?
Right on Tripack.
Let's put it this way. Either the entry, or the exit must have an edge, or better yet, both. Money can be made either way, if either/or have an edge...only then can money management then maximize growth and minimize drawdowns.
No amount of good money management can turn a zero edge (zero entry AND zero exit) into a winner for long. It would be better to put perfume on a dirty shirt.
I try to keep my comments in a realm that I have made some proofs through many various tests. I have done extensive study in randomness, applying TA to random market simulations. I can't comment really on trading, what is the *hardest* part, or how to actually profit.
I can say with strength, that a trail stop system adds no edge to a system that has no edge to begin with (or end with).
And yes, don't forget the commissions.
JohnnyK
Hi JohnnyK,
This may be true, or it may not be true.
In the case of Tripack's roulette example, it won't work as in this process you have no exit option.
If you would bring in stochastic process control theory, something could be said about entry/exit policy merits. However under this theory you would have to:
(1) rigorously define the underlying stochastic process (futile in a market situation);
(2) rigorously define your control laws governing entry and exit (seems easier than it is).
Not pretending to say anything rigorously, it seems sensible to not choose a blind or random entry and from then on apply a policy for exit, but, to make use of all your "knowledge" about the process to determine both entry and exit.
Not gotten very far with mathematical "market" description, I for my part will keep on fiddling with both entry and exit. I'm not smart enough to do with exit only!
Yours and Tripack's attitude on money management is reasonable. You must be a fool to believe that money manegement - often poorly defined and understood - is going to save you from going down in flames with "random entries" (or other crazy techniques).
When I look at these things, I don't babble too much about money management but rather try to asses "risk of ruin" for my strategies.
Be good,
nononsense
I love this probability sh*t. I mean, I *LOVE* it 
--------------------------------------------------------------------------------
I believe the true measure of a successful speculator is in his/her ability to manage money well, i.e. taking small losers and letting winners run. That is by far the hardest aspect of trading.
--------------------------------------------------------------------------------
This is one of the "urban myths" of trading. NOT true. It takes a non-dogmatic person to understand though. This only works in trending markets. In non-trending markets it pays to average down and to take small winners and large losers. In trending markets one could average UP.
I didn't understand this myself at first either
, it still takes a lot of skill to distinguish a trending from a non-trending market and that's where my learning curve is at now. If anyone knows how please let me know.
--------------------------------------------------------------------------------
I believe the true measure of a successful speculator is in his/her ability to manage money well, i.e. taking small losers and letting winners run. That is by far the hardest aspect of trading.
--------------------------------------------------------------------------------
This is one of the "urban myths" of trading. NOT true. It takes a non-dogmatic person to understand though. This only works in trending markets. In non-trending markets it pays to average down and to take small winners and large losers. In trending markets one could average UP.
I didn't understand this myself at first either
, it still takes a lot of skill to distinguish a trending from a non-trending market and that's where my learning curve is at now. If anyone knows how please let me know.Quote from trade4succes:
I love this probability sh*t. I mean, I *LOVE* it
--------------------------------------------------------------------------------
I believe the true measure of a successful speculator is in his/her ability to manage money well, i.e. taking small losers and letting winners run. That is by far the hardest aspect of trading.
--------------------------------------------------------------------------------
This is one of the "urban myths" of trading. NOT true. It takes a non-dogmatic person to understand though. This only works in trending markets. In non-trending markets it pays to average down and to take small winners and large losers. In trending markets one could average UP.
I didn't understand this myself at first either
Hi trade4succes,
I believe a lot in probability. I agree with you that probability, like many other things, is sh*t if you try to apply it in places where it doesn't apply.
To tell you the truth, you appear to be more advanced than me. I gave up on trying to distinguish between trending and non-trending markets. I had to learn how to do things differently.
nononsense
Well thanks.
My statement was more theoretical than anything else. I hope you're doing well.
I'd like to rephrase "trying to distinguish" into "learning to anticipate" That should make things more clear.
Trending or non trending markets is a function of the time frame that you are trading. What looks like chop on the 5 minute bars may be part of a trend on the daily.
I agree that good money is made with small gainers during times of chop. I did pair trading for a while and it worked well during choppy market conditions, however since the beginning of last year, we've been in a bull run and pair trading is no longer a profitable strategy.
From what I have seen over the years and studied, trend following systems are pretty good. The only system that I know of that is better than trend following is arbitrage. The biggest barrier to entry for a retail trader to arbitrage is the huge line of credit that you need to make it worthwhile.
FYI, I am still collecting data on the flip a coin strategy. I said I'm going to get 100 samples at the start of the tread and will continue posting results until I'm done.