Nearly Random Entry vs a High Probability Entry

[inandlong]

Because the challenge was made to dbphoenix, it would be appropriate for him to be involved in the decision as to what a random entry is. And db' has made it very clear elsewhere that a random entry has somewhat specific qualifications.

However, since nitro is willing to have a broader definition of random, including a cat walking on the keyboard and a random number generator, and folks, nitro is a programmer so his entry will really be random, , then perhaps an agreement can be reached.

Now if dbphoenix doesn't agree to the means of entry selection, he will always be able to fall back on his standard reply that he is unfamiliar with the definition of random as it is being used here. And as such, any results can and will be viewed by db' as invalid.
So in db's own words, a "generally accepted definition of random" should be agreed on.

It wouldn't seem prudent to put up real money though. I'd wager real money nitro, that you have never tried any trading strategy without first backtesting it or papertrading it. I'll bet you the most expensive steak at Ditka's.

 

[mark1]

Quote from swoop[TR]:

I see where Damir is getting at, and I guess in absolute terms, every entry is random because we really never know if the next tick will go in our favor or not. The problem with random entry is the one of psychology, it's tough to buy in a downtrend and it's tough to short an uptrend.

It is true that exit is probably the most important factor in trading because only the exit will tell you if you have a profit or a loss.

It's a psychological issue, not a trading issue.
It's always better to see your trade go in the right direction right from the entry, but sometimes it will not, and sometimes it will for too short a period for you to take advantage of it.

Amen

 

[ramora]

There was an article in Stock&Commodities several years ago on money management. The idea of the article was to make random entries and then use good money management to stop losses and let profits ride. Over a long period of time the 3 populations all turned a profit, but the drawdowns and the modest returns suggested that there are better approaches to trade entry than random entries. It was a good article.

Chuck LeBeau in his book on developing trading systems also suggested using random entries to test and improve his exists.

I think a random selection combined with money management may work over a long period of time 'to some degree'. But adding even the simplest filters to the entry would improve the profitability overall and reduce drawdowns.

I believe any definition of random by nitro would be fine.

Any test would have to define timeframe. What is success and failure? Modest success could be defined as returns investing the same amount into T-Bills? Failure greater than 50% drawdown in the account?

ramora

 

[nitro]

Quote from ramora:

...Over a long period of time the 3 populations all turned a profit, but the drawdowns and the modest returns suggested that there are better approaches to trade entry than random entries....

Eeeeeeeeeeggggggggggggggggsxactly.

Whole different ballgame when using REAL money. How many paper trading millionaires are out there?

nitro

 

[nitro]

Quote from swoop[TR]:

...It is true that exit is probably the most important factor in trading because only the exit will tell you if you have a profit or a loss...

This has been discussed before on ET. There and here, I vehemently disagree, especially the shorter the time frame.

nitro

 

[TriPack]

Quote from ramora:


Chuck LeBeau in his book on developing trading systems also suggested using random entries to test and improve his exists.

acrary posted his method a while back of comparing system testing results to random results over the same period to see how much better system results were than random to see if his system results were significant or not. It's worth looking up if you have interest in systems and system testing.

 

[dbphoenix]

Quote from swoop[TR]:

I see where Damir is getting at, and I guess in absolute terms, every entry is random because we really never know if the next tick will go in our favor or not.

You're confusing randomness with probability and knowability. The fact that you don't know what the outcome of an entry is going to be doesn't make it random.

 

[OldTrader]

Quote from damir00:



you already have what you think you need. the problem isn't finding a way to enter the market - you can enter it anytime you want - the problem is figuruing out how to *exit* the market. anybody - absolutely anybody - can pick successful entry points because almost every entry point has the potential to be a successful entry point.

there is no edge in picking entries, none whatsoever. the only edge out there is money management, and the solution to that comes from you as a trader: what are you comfortable risking, holding etc.

If EVERY entry point has the potential to be a successful entry point, then I think we can also assume that this would include an entry point based on something that leads you to be believe it's high probability. Therefore, choosing to enter a trade in a random way versus one you believe has some higher probability carries no inherent advantage.

But there is a problem with the random entry. If entry is truly random, then WHEN do you exit? In other words, your EXIT becomes equally random because you have no basis for exit.

Or let's put it another way: if you choose to enter trades randomly because you believe there is inherent advantage of other methods of trade selection, then you evidently would also believe there is no inherent way to KNOW WHEN to exit the trade, that this must also be random.

Here's the alternative: when I put a trade on, I know WHY I put it on. And therefore, when that reason no longer exists, I take it off. In other words, if I know WHY I entered the trade, then I know WHEN I must exit.

Simple example: If I buy a breakout, I know how the trade should act....it should move forward immediately following the breakout. What it should not do is fail back under the breakout point. Therefore, if it does, I should exit immediately. Once the trade is moving my direction following the breakout, I simply manage the trade. In other words, I know HOW to handle the trade when I know WHY I entered the trade.

Perhaps I should mention that "edge" to me does not imply a situation where you never lose. "Edge" to me implies a situation that you have been able to identify where a trade produces larger gains when it works correctly versus losses when it doesn't. Edge implies to me a trade where I can readily assess my risk versus my potential reward. I think there are situations where an "edge" exists. What is important as well is to manage the trade, manage your money, etc., all the things that you evidently do with random entry. But managing your trade/managing your money only, in the end, is going to give you mediocre results in my opinion. Again, if you don't know why you got in, you can't know WHEN to get out. In fact, if you believe that random entry is good because nothing favorable is identifiable, then clearly you are unable to indentify the circumstances under which you should exit.

Good luck though with random entry....

OldTrader

 

[damir00]

Quote from dbphoenix:

You're saying, in so many words, that looking for a high-probability system is a waste of time since each entry has an equal probability of going up or down

no. your conceptual filters are very, very strong.

perhaps because you confuse "knowability" with "probability". As for "almost every entry point has the potential to be a successful entry point", that's self-evident, as is its opposite. But, again, you're mixing up probability, knowability and randomness.

again, no, you are simply not understanding what is being said. unfortunately it's not stopping you from using terms like "nonsense".

You can challenge me to all the contests you like

is this your way of saying you can't put your money where you mouth is? the simplest way to show your complete lack of edge over randomness is with a realtime demonstration.

if at some point you feel up to the challenge, please let me know.

 

[damir00]

Quote from Gordon Gekko:


exits and money management are important, but your claim that there is no edge in picking entries is absolute NONSENSE.

didn't you just blow up? again?