Techniques for Managing a Random Entry

oh man, that's amazing. I think you just made this thread a classic. And that's just random entry. It isn't that they made money, or one made more than another, it's just seeing the difference one component of a system makes.

Have you ever considered what a truly random entry would be? For instance, flip and reverse isn't really random, or initiating on the open or at a regular interval isn't really random.

I guess random would be the trade just initiates at any time long or short for no apparent reason. (and I've had some days like that)

Well, now I must get back to the posted results. Thanks again for the little gold mine.
 
Quote from profitseer:

it was removed because he claimed merely accepting responsibility for a trade would make it profitable. The new forum rules prohibit posts which can be taken out of context.
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The last thing that a fish notices is the water in which it swims.
 
Posted by Gordon Gecko:

just for the sake of example, say all trades from the price of 50 have a 50% chance of going to either 48 or 52, and a 100% chance that one or the other will happen. would my above idea make money? i think it would..right?
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No, I don't think that's right. The logic is not correct here. Just because you have 2 possible outcomes does not mean that the probability of either outcome is equal.

For example, by your logic, I'm either alive or dead, therefore, tomorrow I have a 50/50 chance that I'm will die. (That's kinda a morbid example. ) Or, it's either raining, or it isn't. Therefore, tomorrow has a 50/50 chance of rain. I'm not quite eloquent enough to explain it without metaphors or examples, but do you guys see the error in logic here?

You see, in reality, the future only has one outcome (whatever it is that the future holds). Of course, no one knows what tomorrow will bring, so we try to pinpoint it using probablilities. But more importantly, the probability of an outcome CHANGES depending on the INFORMATION that is available to us.

In gordon's example, when we take a position, we are assuming that we have absolutely NO other information. Therefore, being completely blind, we CALCULATE a probability of 50/50 since there are two outcomes. However, as soon as we get another piece of information (i.e. we are in a bear market, or we are in a bull market), then that probability WILL CHANGE.

Probability is not a CONCRETE or FIXED number.

Being a physician, I can give an example. If someone develops breast cancer, just the fact of having breast cancer gives you about a 50% chance of survival. However, if I know that the tumor is >5cm, then your survival changes to become less than 20%. If I know that your mother also had breast cancer and died from it, then it decreases your probability even further.

That's why I believe that trying to develop a system around random entries will fail. You cannot approach the problem from ASSUMING that the outcome is 50/50 chance, and try to develop a money management / positioning system to give you the edge. Becasue the assumption of 50/50 is flawed to begin with.

I don't know who or why people keep on perputuating the idea that your exits are more important that your entries. Your entry should be just as carefully considered as your exit.

It's true that having a good exit is important to having a profitable trade. However, just having a good exit strategy will not guarantee a good trade. Having both good exits AND entries are equally important in trading - you should give yourself as much of an edge as possible.

eugene
 
To answer the original question, I agree with TSaimoto -

I would simply exit the position. I would pay the commission and slippage and just get out. That is not a good trading strategy in my book. You have just given up half of your avaiable "edge" when you randomly entered the market.

If i were forced to manage this postion somehow, or I had to trade this strategy, I simply wouldn't trade. I don't care how many Tradestation / Wealthlab tests show that it can be profitable, I don't believe it. When someone can truly enter the market without discretion and profit from it trading with REAL MONEY, in REAL TIME, for a few months consistenly, then I'll give him or her all the credit in the world (and probably some of my money to trade with - because that would be a tryly amazing feat - to be a profitable trader based solely on money/position management without any "edge" in the market.)

eugene
 
The purpose of this exercise is to have more-experienced and less-experienced traders apply what they would use to manage the outcome of any trade.

For example, you are given the position long. Manage the trade.

Here is what I had hoped some of you would say:

I would put in a trailing stop and get out when hit. (That was said)

I would overlay a 20 period and 50 period sma and depending on where the price is relative to these ma's I would do this.

I would get out the first bar that took out the previous bar's low in whatever time period.

I would place an MACD and RSI at the bottom and stay in until this did this and then I would get out.

This was a very, very simple question and exercise that has been twisted and turned extraordinarily.

"I wouldn't trade!" "Random entries are not really random" 'The randomness of life prevents me from taking anything but random action'

Sheesh. C'mon gang. How much more complicated can you make it? Oh geez, I better state that was a rhetorical question.
 
Hi All

Well I've put it off long enough, can't help but put some thoughts out there :-)

Just to make sure I'm hearing/reading right (I have a very easy way of confusing those around me and myself included)

I'm in a long trade at 50, looking for a profit at 52 with at stoploss at 48. (which I'll carry on the example, even if it was just numbers out of the air, I know no profit amount was given by Inandlong, but am curious about the idea behind set profits)

I've not looked too much at stocks, but going off what I've seen of late for a stock in that price range I'd expect (my downfall?) it may take a day or two to travel that range (4pts) So I would look at this trade from a swingtrade view/ slower, but still ready to take a quick profit/loss which/if came first.

Also because it's a random entry, giving a 50/50, I would think (again maybe my downfall ? :-) That I would need to give the trade more time/chance to become profitable - to give a higher win/loss ratio ?

So I would leave my sell out at $52 and with the $2 set stoploss (at $48), until each new day is started. Then either use the $48 stoploss, or a few cents below the previous days low, which ever is the smaller.

Why move up stoploss if the previous days low is higher ? I think that would be one an edge to keep with momentum, and also slightly making a few losses smaller, allowing the ratio of win/loss profits to be slightly higher in the win favor ?

Another reason for my thoughts in this action is letting the "price/money" tell me which way to go - proof in the pudding ?

Please feel free to criticize (aahhh, I'm opening the flood gates:-) it may give good feed back as to why I'm still churning instead of making a constant living - all views welcome :-)

Two other options, well maybe three :-)

When up a dollar move stop to breakeven ? Reason - momentum is in your favor , why give up a winner ? Problem, which bothers me about the whole idea of set profits, even though I still look at the idea ,is not letting profits run. Can anybody tell me they're making a living trading using set profits, i.e. dollar amount/point amount/% amount ? I'm not asking for methods, just if set profits work on a loss to profit ratio ?

Just keep a $2 trailing stop in place, till stopped out ? Reason - allows for profit/loss ratio to be bigger (lets winner run, trend is your friend) especially if avg daily range falls in $1-3 range.

How about buying a second equal share amount, if say the price falls to $49, but still keeping original stoploss and sells - reason, that would then give you a 3-1 profit/loss ratio on top of your original 1-1 profit/loss ratio.

Later, Andy

P.s Writing this out has actually been a interesting exercise for me, after not only showing me how many confusing/contradicting thoughts I have, but also how I'm leaning towards trying to fit it into a simple mechanical system ? Again all your views are welcome-I know I asked for it :-)
 
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