random entry trading

[illiquid]

Quote from walterjennings:

i just really confused myself thinking i was wrong by calling this incorrect. say your exit strat gives a 60%-40% win-loss ratio. flipping a coin to negate action on each signal. say you trade 1,000,000 times. roughly you will have close to 500,000 no negated trades. giving you 0.6*500,000 wins and 0.4*500,000 losses. you will also have ~500,000 negated action trades. giving you 0.4*500,000 wins and 0.6*500,000 losses. add those together. 500,000 wins. 500,000 losses. or 50% chance of profitability regardless of the exit method using coin flipping to enter the position. phew. i thought i went insane for a second there

But now we're back to flipping coins between complementary expectancies; given any strategy X, you will have the opposite expectancy with -X (given 0 slippage/spread). Since a fair coin flip gives you equal # of trades between 2 strategies whose expectancies have a SUM of 0, given future price move F, you will have 50% profitability over time.

A coin flip between 2 complementary strategies will yield the same conclusion if you put money in 2 accounts, one always doing the opposite of the other. What you are showing here is that the BEST you can expect from entries based upon a coin flip, given no slippage, is 50/50.

 

[walterjennings]

Quote from illiquid:

But now we're back to flipping coins between opposite expectancies; given any strategy X, you will have the opposite expectancy with -X (given 0 slippage/spread). Since a fair coin flip gives you equal # of trades between 2 strategies whose expectancies have a SUM of 0, given future price move F, you will have 50% profitability over time.

A coin flip between 2 complementary strategies will yield the same conclusion if you put money in 2 accounts, one always doing the opposite of the other.

read it again. the coin flipping was in response to the statement by Steveyd that you cant guarentee 50% profitable trades on random entries / any exit strat. nothing to do with negating expectancy. stop taking about multiple accounts!

 

[illiquid]

All you are saying is that it is possible to have a system where random entries yields 50/50, given that the 2 choices are complementary to each other and no slippage, right?

 

[walterjennings]

bah the past 10 posts have been wasted trying to explain two ideas.

1) in a no cost world. we can negate expectancy of any system.

2) Steveyd was incorrect by saying you can't obtain 50% profitability given ANY system(entry, exit), obtaining 50% by flipping a coin.

can we move on... please

now the question is. can we have an exit strat. that given random entries. results in |exp| > cost? if not.. why?

 

[illiquid]

The point of the discussion is that the BEST you can ever guarantee doing with (edit) coinflip decisions = 50/50, w/ 0 slippage, by using complementary actions for heads vs tails.

Beyond that, the whole thread is pointless. Given a system with positive expectancy, all a random entry gives you is additional slippage for exiting immediately upon receiving a signal that otherwise you would not have executed. If your expectancy can overcome this additional slippage, then yes, you can have profitable random entries temporarily.

But that just begs a whole other question, which gets back to why this thread is pointless.

 

[walterjennings]

Quote from illiquid:

The point of the discussion is that the BEST you can ever guarantee doing with random entries = 50/50, w/ 0 slippage, by using complementary actions for heads vs tails.

Beyond that, the whole thread is pointless. Given a system with positive expectancy, all a random entry gives you is additional slippage for exiting immediately upon receiving a signal that otherwise you would not have executed. If your expectancy can overcome this additional slippage, then yes, you can have profitable random entries.

agreed. but noone said we are required complementary actions. that was used for a specific example. take the case of having a trailing stop, being a proper trailing stop, acting different from buys and sells. i dont 'believe' that it would result in a 50/50 with /0 slippage.

the Van K. Tharp quote alone shows the value of this thread. random entry trading is a brilliant way of valuing an exit strategy without having the entry strategy effect the results. for the purposes of back testing.

 

[illiquid]

Pretend you have the "perfect" system that catches every single dip and spike in a market. That system would need to exit and reverse in the same tick, therefore making exits of one trade the entries to the next. If you remove one element of action from the impetus of the system and give it a random impetus, all you are doing is impairing the system.

Either you will hold, given a "lucky" entry that happens to agree with your system, or you will exit immediately with a 1 tick loss. Edit: the closer to "perfect" your system performs for a given market over a period of time, the more likely you will overcome this "impairment" of randomized entry.

 

[illiquid]

Quote from walterjennings:

the Van K. Tharp quote alone shows the value of this thread. random entry trading is a brilliant way of valuing an exit strategy without having the entry strategy effect the results. for the purposes of back testing.

This assumes you believe in backtesting . . .

 

[Steveyd]

Quote from walterjennings:

bah the past 10 posts have been wasted trying to explain two ideas.

1) in a no cost world. we can negate expectancy of any system.

2) Steveyd was incorrect by saying you can't obtain 50% profitability given ANY system(entry, exit), obtaining 50% by flipping a coin.

can we move on... please

now the question is. can we have an exit strat. that given random entries. results in |exp| > cost? if not.. why?

I don't think anyone here ever disagreed with 1). You are the one who came up with the "flip the negative expectancy" idea in your first post. .

I did not say 2), I don't even understand what it means. What I did say was:

"You won't have a 50% chance of profit on the next trade if your PT is double your SL, for example."

In the example you give with a 60% win rate, 60% is the chance of profit on the next trade.

As for the latest version of your question: Assuming Van Tharp is not lying, we have evidence that a profitable system with random entries did exist in the past. I think they could be found in inefficient markets today. If a market did always trend up or down and never chop then a random entry with large PT and small SL would yield a profit > costs. So the real question may be what markets, if any, could a random entry system be profitable? If you could find such a market (before everyone else does), then you've got the question of whether the market would continue to exhibit this behavior in the future. And can you make it worth your while. Good luck on the eminis. I have enough trouble finding profitable systems with non-random entries to spend my time looking for systems with random ones.

 

[laptop]

Quote from whitster:

the fallacy here is that the market is not a coin

van tharpe is right

i am not saying that random entry with any given system is positive or negative expectancy (leaving commission out of it). i am saying it does not NECESSARILY have to be

a coin has no memory. the market does

with the TS strategy, this takes advantage of the tendency, to some extent, that a market will continue in the direction it was moving for some time. it is not RANDOM

nobody, unless you subscribe to efficient market theory (and in that case, you should not trade since it's impossible to have an edge if EMT is true) believes that there is NO correlation between past market events (price) and the future.

so, the fallacy in ASSUMING negative expectancy (negative expectancy with commission/slippage), is that the coin is a proper analogy to the market

it isn't

I SUGGEST TO ALL OF YOU TO READ AGAIN these quoted words

it solves your dilemma you guaulds