Van K. Tharp's Random Entry System

limitdown · Oct 22, 2003

Quote from danielc1:

If you trade and make money, good for you, but looking at you're answer I doubt that you will ever make a lot of money in trading...

dbphoenix:

Everybody has gone of the subject of randomentrytrading.... except you.

wildly successful!
I make boat loads of money trading,
I swim in it..... then I wake up from the dream and realize that its time to click SELL and see what I've actually made....

System Traders and Quant Traders (scalpers, position traders, day traders, etc.) never really see eye2eye.

So, I can understand your disdain, however, one thing is true:
"never count your cards when you're sitting at the table" is the maxim that over simplifies what I was saying.

Advanced degrees in mathematics and statistical analysis of past results providing probabilities of future success based on previous events are all that those numbers represent, whether they are your's or Larry Williams or Geo Soros or anybody.

Living and trading in the moment is what delivers consistent results.....

Work on that, share those gems, like I just did, and see how much opens up ...

misctrader · Oct 22, 2003

Just something interesting... I shorted the YM on Monday a little after the close at 9762. Felt pretty good from the daily that it would go down. Then it went to 9783 but I held on because I "knew" it was a good entry. Then lo behold on Tuesday, Dow tanked. I covered at a good profits. Then today it went down even further. Tells you exits are what makes huge gains/losses.

Though, I would disagree on random entries! People who actually trade with random will lose a large % of the time.

dbphoenix · Oct 22, 2003

Quote from danielc1:

If you trade and make money, good for you, but looking at you're answer I doubt that you will ever make a lot of money in trading...

dbphoenix:

Everybody has gone of the subject of randomentrytrading.... except you.

I don't know what my name is doing here. None of this belongs to me.

Mr Subliminal · Oct 23, 2003

Quote from dbphoenix:

You'd learn a lot more by reading The General Semantics of Wall Street.

I'm sure I would, but alas the book, written in 1958, is out of print. Not to worry, I have all I need in the following few lines of elementary Pascal code. You'd learn a lot more by analyzing its output.

Code:

Program Trading(input,output);

{ Expectancy of trading system risking a fixed percentage  } 
{ of equity per trade. Profit target equals amount risked. }
{ Slippage and commissions ignored.                        }

uses Crt;

const
  startingequity = 100000;
  riskpertrade = 0.01;  { as a percentage of equity }
  pwin = 0.5;   { probability of winning trade }
  no_trades = 10;
  sample_size = 100000;

var
  file1          :text;
  kk,mm          :longint;
  daytrade,
  currentequity,
  sample_average :real;

{************************************************}
function trade(currequity:real):real;
{ trade generator }
var
  rnd    :real;

begin
  rnd := random;
  if rnd <= pwin then trade:=currequity*riskpertrade
                 else trade:=-currequity*riskpertrade;

end;
{************************************************}                                           

begin  (* main *)
  assign(file1,'f.pas');
  rewrite(file1);

  {*  initialize random no generator  *}
  randseed:=125;

  sample_average:=0;

  for kk:= 1 to sample_size do
    begin

      currentequity := startingequity;
      for mm := 1 to no_trades do
        begin
          daytrade := trade(currentequity);
          currentequity := currentequity + daytrade;
        end;

        sample_average:=sample_average+currentequity/sample_size;
 
    end;

  writeln(file1,'samples: ',sample_size:6,'  average equity: ',
            sample_average:12:2);

  close(file1);

end.

dbphoenix · Oct 23, 2003

Quote from Mr Subliminal:

I'm sure I would, but alas the book, written in 1958, is out of print.

It's available under the title of Winning the Mental Game on Wall Street.

As to your code, I'm sure you're able to make your point in plain English. Or were you just trying to impress me?

Mr Subliminal · Oct 23, 2003

The point, in plain English, was made in my first post in this thread, and is identical to the output of the above program :
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). (Back to square one.)

dbphoenix · Oct 23, 2003

Quote from Mr Subliminal:

The point, in plain English, was made in my first post in this thread, and is identical to the output of the above program :
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). (Back to square one.)

And you've found this to be true in practice?

Mr Subliminal · Oct 23, 2003

Quote from dbphoenix:

And you've found this to be true in practice?

While others may have their doubts, I'm sure you'd be the first to agree that SOMP is not random entry trading, so I haven't the practical experience to answer your question.

My point, however, is this - just as I would take issue with someone claiming there is an inherent advantage to be gained by using random entries, I took issue with you for claiming (in 7 different posts) that there is an inherent disadvantage when using random entries, that of having to increase size to climb out of a hole. A statement like "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" is erroneous. You won't sink, you'll just tread water. Unless you can show me otherwise.

There is an interesting discussion between myself, acrary and others in the following thread. This should clear up the "win a trade, lose a trade, still down after the 2 trades" paradox which you are referring to.

http://www.elitetrader.com/vb/showthread.php?s=&threadid=13252

dbphoenix · Oct 23, 2003

If you're speaking from a purely theoretical position, I don't know that I can offer you much since I'm not speaking theoretically.

However, nothing more than a knowledge of simple arithmetic is required to understand that if one risks 10% and loses, he must risk more than 10% to reach breakeven on the next trade, unless he has some reason to believe that the trade will yield a greater number of points than those lost on the previous trade.

If you choose not to accept this, then that will be that. I'm not concerned about "showing" you anything. When you gain the practical experience, all this will become clear to you.

Mr Subliminal · Oct 23, 2003

Quote from dbphoenix:

However, nothing more than a knowledge of simple arithmetic is required to understand that if one risks 10% and loses, he must risk more than 10% to reach breakeven on the next trade, unless he has some reason to believe that the trade will yield a greater number of points than those lost on the previous trade.

This is precisely the {win, lose} paradox that has baffled many before you, and which is explained in the thread you apparently have chosen to ignore.

When you gain the practical experience, all this will become clear to you.

As a qualified actuary, I believe I have sufficient practical experience in this particular area, gained in no small part from a willingness to keep an open mind and, more importantly, to learn from others. Try it sometime.