Van K. Tharp's Random Entry System

Quote from misctrader:



We all seemed to repeat that mantra. Ride the trend of your big winner to make up your losers. I have backtested several trend systems that have about 1.75:1 or 2:1 on the average win. But because the win % is so low 30-35%, it end up being net down. Then IF you account for slippage and commission then you are REALLY down.

So, it's not that simple. I think position sizing might be the key. But the question is when to bet big? What happens if you bet big thinking it's the beginning of a huge trend, but it turns out to be fake and then drop back to the trading range? Then not only are you down, you are down HUGE.

all these trading idioms sound very nice and good on paper, but to test it or trade it in reality is a totally different thing..

it ain't so simple i think...

what ya think?
More...

You seem to understand the point I've been trying to make. Or rather Magee's point. The example I provided a couple of posts back doesn't include slippage and commissions. And if one tries to contain the damage by using tight stops and making smaller bets, he just digs himself deeper into the hole.
 
Quote from dbphoenix:


All this sounds good in theory, but anyone putting it into practice is asking for trouble. Unless, of course, he increases his size after every loss and prays real hard.
More...
Quote from dbphoenix:


Doesn't matter. If there's no regard for system or entry, you have to increase your size in order to work yourself out of the hole.
More...
Quote from dbphoenix:


The problem is that you don't know whether or not they're winners when you enter the trade. And without some sort of strategy that has a probability of a greater number of winning trades than losing trades, you will sink further and further into the hole.
More...
Quote from dbphoenix:


Exactly. You have to increase the size of your bet in order to work your way out of the hole. This is what I was saying several posts back. But this entails betting a greater percentage of your equity on the trade.
More...
Quote from dbphoenix:


You may be risking 5%, but the dollar amount is less. Therefore, you have to risk more in order to get back to where you were in the first place. Either that or obtain a higher probability of one or more winning trades. Which is where strategy testing, including the selection of entry point, come into play.
More...
Quote from dbphoenix:


Sorry, but it doesn't work out that way. If you lose $1000, you then have $999,000, 1% of which is $999, not $1000. In order to get back to breakeven, you have to risk more than 1%. If you want to risk only 1%, your winner, assuming you have one, is going to have to bring more money in than your loser lost. This is unlikely to be accomplished with no plan and with random entry.
More...
Quote from dbphoenix:


You seem to understand the point I've been trying to make. Or rather Magee's point. The example I provided a couple of posts back doesn't include slippage and commissions. And if one tries to contain the damage by using tight stops and making smaller bets, he just digs himself deeper into the hole.
More...
If you're saying what I think you're saying, then I have to respectfully disagree. In a random system (probability of winning trade = 50%) using a % of equity for your risk sizing method, the expected return (ignoring slippage and commissions) is zero, and not some negative number as you seem to imply.
 
Quote from Mr Subliminal:

In a random system (probability of winning trade = 50%) using a % of equity for your risk sizing method, the expected return (ignoring slippage and commissions) is zero, and not some negative number as you seem to imply.
More...

In the real world, it won't work out that way since there is an equal probability of having a string of losing trades from the first as well as a string of winning trades.
 
Quote from dbphoenix:



In the real world, it won't work out that way since there is an equal probability of having a string of losing trades from the first as well as a string of winning trades.
More...
The sum total of which is zero. Or do you disagree with that also? Why do you conveniently ignore the trader who starts off winning?

I stand by my statement and have done the simulations to verify it. You (and Magee if he did say it) are wrong.
 
Come on, you guys!!!
If al that is stated here is true, how am I making money??????
I trade systems with a win/loss of 35%.
I do use moneymanagement between 0.3% of equity for daytrading systems and 1% for the longterm.
I add to winningpositions....
I get losingstreaks of 25 and more.(Yes, if you trade one system on one market, you can have drawdowns of 30% and more, but if you comb. your systems you will be pleasantly surprised).

I have include it a random generated excel sheet(this is not a random system!!!), do demonstrated that you can come ahead with a 35% win/loss ratio as long as you winners are much bigger than you're losers.
-1 = -1R = 1 risk loss
+5 = +5R = 5 times your risk that you gain.
 
This is my inspirational quote for Wednesday October 22th (a new one everyday here http://www.elitetrader.com/vb/showthread.php?s=&threadid=23474&perpage=6&pagenumber=8) :
"The excitement that a gambler feels when making a bet is equal to the amount he might win times the probability of winning it."
-- Blaise Pascal, mathematician and inventor of the first calculating machine (1645)

In lottery people spend 1$ many many many many many many many many many many many many many many many many many many many many many many many many many many many many many many times ... looking for the BIG gain :D. So there is a limit of this big gain because of probability law. And that doesn't depends only on your personal choice but on how the system tolerance (the system is the market + the trading system/framework if you have one + you + your capital) operates. Since generally many don't really know how each of the component acts and even more more how act all together, one must be rather not be too foolish about irrealistic gain at least if one talks for general which is the case I suppose here.

Quote from danielc1:

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).
More...
 
Quote from Mr Subliminal:

The sum total of which is zero. Or do you disagree with that also? Why do you conveniently ignore the trader who starts off winning?

I stand by my statement and have done the simulations to verify it. You (and Magee if he did say it) are wrong.
More...

If the sum total of your trades is zero, what's the point in trading?
 
You must log in or register to reply here.
Back
Top