Prudent Risk Management + No Edge = Positive Expectancy??

ironchef said:
No commissions trading stocks.

As of last week, after 397 trades, 215 win. R:R more difficult to determine, perhaps 1.05:1

Last week is more difficult to assess. I am experimenting with not exiting after cum win but trade a fixed number everyday. Preliminary outcome: Not good. Two losing days in a row were losses when I made 50 trades each day.

Not scalping, trend following.
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profit factor?

Have the past 7 weeks been traded in a live account?
 
ironchef said:
I won't laugh, even @SimpleMeLike's click, click, click and use your eye works for some. It is actually not that bad a way to go.
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Just a ma crossover. Ma 200, or 180, 220, 223 etc it doesn't really matter. I think every line is possible. It's the risk and monymanagement which can make or break it. And being creative in how to make the losers less losers.
Just my experience and this is position trading, larger timeframes only.
 
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ironchef said:
No commissions trading stocks.

As of last week, after 397 trades, 215 win. R:R more difficult to determine, perhaps 1.05:1

Last week is more difficult to assess. I am experimenting with not exiting after cum win but trade a fixed number everyday. Preliminary outcome: Not good. Two losing days in a row were losses when I made 50 trades each day.

Not scalping, trend following.
More...

EV is 1.11

If you can automate it, you'd be good.
 
I think you could also look at the homo- or heteroscedasticity of your returns, it could reveal interesting things on how to make your method more adaptable (if you are interested)
 
You need to analyze in more detail where the gains originate from. Even with a 50/50 win/loss ratio if your gains on average exceed the average loss then you are ahead. But this has to originate from somewhere. If you don't have any edge whatsoever then as you hinted at, your recent profile is purely random. But if your profitable positions for whatever reason run further while cutting losses early this could be because of some sort of edge you are exploiting, even unknowingly. Note here that risk management (the fact you decide to cut losses early and let gain run) is not an edge in itself ever. I strongly suggest you run more extensive back tests to investigate.

For example, if the market exhibits momentum with statistical relevance and you are able to exploit such moment (meaning you got an edge) then you can figure out at what level you cut losses and by how much you let profitable positions run. But you need that edge. Without edge you got nothing. Not in trading, not in gambling.

ironchef said:
I have been trading a system for 7 weeks with positive results.

The system is eerily similar to a random coin toss, win rate ~ 50%, R:R ~ 1:1 but both are skewed slightly favoring win and reward. Statistical sample analysis showed these are not statistically significant, i.e., could be due to sample size errors.

Risk Management: Cut losses aggressively, take wins aggressively. Exit trades, call it a day when cum trades produce a profit or total # of trades exceed X, which ever comes first.

75% winning days and 6 consecutive winning weeks are highly unusual for a random coin toss.

Could @Buy1Sell2 be right? Or I am fooled by randomness?

Comments/feedbacks are welcome especially from the math wizards on ET.
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YOu know what I learned after testing out my bot using all different settings:
  • Averaging in will kill you eventually
  • You can make random entry work if have multiple entry tries and you close your trade at the end of of the day.
  • OR trading is the purest trading method known to mankind
 
hilmy83 said:
EV is 1.11

If you can automate it, you'd be good.
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Thanks. That makes me feel better. But how do I know it is not random due to small sample size? Sometimes when on a roll I made good money playing the roulette betting on red.
 
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