Van K. Tharp's Random Entry System

Quote from danielc1:

Wow, Mike, It is not my intention to dish you're believes how to trade. If you find that you're win/Loss ratio must be more the 0.5 then that will work for you. I do not find anyone or anybody stupid because the have a different believe or style then me...

I'm not sure I follow you're question about optimization:
But I hope this can clear more of the smoke there is about trendtrading...

Trend trading is all about many small losers and very few large winners. But that is not all: I believe that every trading system( Trend or non trend)must have small losers and very big winners( at least between 5 to 35+ times you losers).
Example: If I lose $1 everytime I'm wrong, but win $35 when I'm right, then I can be wrong many times... But this trading style has also a downturn: You could have losingstreaks of 25 trades and more... And that is very difficult for many people.
The reason way you are more wrong then right is because you use small stops to increase your multiples of winners:

If a stock stands at $50 and goes up to $60 you can have to different results:

A) You're stop is $10($40) big, then you have a 1 to 1 winner.
b) You're stop is $1($49) small, then you have a 1 to 10 winner.

If you use money management and risk 1% then in example a you have 1% increase of capital and in example b 10% increase of capital.

When you use the b style of trading you are more wrong then right, for the obvious reason.(the stock goes quicker to 49 then to 40) but it is my believe(and experience) that this makes more money then the A style of trading.
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danielc1:

I understand your pt about B and trend following. Yes, a few big winners make up for all your losses. But backtesting a very simple minded trend following system will results in NET negative gain because the 70% of the time you are wrong even with small stop losses it ADDS up. So, there's a little bit more to it though...

Have you designed one that's successful? I'm assuming if you trade enough markets over long periods of time for certain trends to develop then it may work out.
 
Quote from Thunderdog:

I have no doubt that Doc Tharp is the life of the party with his coin flips and his bag of marbles. The question is, does he actually trade with real money and does he use this method? If so, then let us pay attention and take notes. If not, then why all the hoopla? Because if he doesn't, then why would you? What is the point? How much of a non-trader's introspection do you really need? Reportedly, he "coached" many trading luminaries. That is his claim to fame. But, if I am not mistaken, he did not actually teach these luminaries to trade. I think his coins and marbles are his way of converting a simple point into a lucrative career (seminars, courses, tapes, workshops, etc.).

Obviously, stops and exits are integral parts of a trading program. But anyone who dismisses the importance of entries is simply not deriving his principal source of income from trading.
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At the time he wrote the book, he didn't trade. In fact, one of his trader students took him to the cleaners with bogus trades. And, no, he didn't teach anybody to trade (how could he since he wasn't a trader?). I understand he trades occasionally now, but there's no evidence he's any good at it.

As for the importance of entries, you're exactly right. As you say, anyone who dismisses their importance isn't supporting himself off his trading income.
 
..it's Remiraz' thread. The rest of us are just clogging it. What was the topic? Regarding Tharp the elder, whether or not he traded or trades, the fact remains that "Trade Your Way to Financial Freedom" is a great book. I remember reading it and struggling with the idea of expectancy. Duh!
 
Misctrader:

Here you have two example of systems that are only right for +- 35% of the time.

The first one is a daytrading system.(only used when IBM is bullish)
The second one is a longterm trend following system.(Bullish and Bear).

The longterm trend following system adds to positions when right. Do not look at the numbers, look how it trades in the trades on the picture.
 

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Quote from hypostomus:

...I don't trade anything with a wins/losses ratio of less than 0.5. A nonscientific explanation is that that would imply worse than random rules. If you're testing a system and find that that ratio is less than 0.5, then you have a possible candidate to trade the opposite rules, because the expectancy is usually strongly negative. Sometimes that works. I found a couple of half-assed systems that way.
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Hi Misctrader,

of course we would all love to trade stuff that is right at least 60% of time or more. But please be aware that just switching the rules for a bad win/loss system doesn't necessarily give you a good system. The hidden variable is transaction costs and slippage. Most chart patterns with a good hit-ratio degrade significantly when ported to intra-day (noise). Most frequently trading systems with a 40% hit-ratio and a pay-off of 1.0 stay at 40% hit-ratio and pay-off 1.0 when rules are reversed. The cause is transaction costs and slippage which at least equal or even surpass the positive expectancy of the system.

Hope that helps, Oliver
 
I don't think the good Doc trades.....which may be neither here nor there but I don't think I would take flying lessons from a guy who knows flying in theory but not in practice.

Far as 50% winners are concerned, If you make twice on those winners as lose you are ahead of the game. As a matter of fact, the best traders I know are only right 50% or less of the time, but they are quick quick quick to stop out of losses and they really press the winners.
 
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