Van K. Tharp's Random Entry System

[dbphoenix]

Quote from Specul8r:



DB,

Flip the script. It works out the same as when you win on the first trade -- your risking more on the next. Over the long run they will flatten out me thinks, but im not an expert in the field a 'matamatix'...

If the first trade is a win, then, yes, you'll be risking more. But will it all flatten out in the end? Under the right conditions, yes. But those are conditions that no trader would adopt. What would be the point? And if one starts instead with a loss, he won't be able to depend on the Trading Fairy to replenish his account before the next trading day, as Stuart is doing.

Lest the point be lost yet again, if a new trader has a series of losses, which most new traders do, he will find it difficult to climb back into the profit column unless he increases the amount that he's putting at risk and/or develops a strategy which has a higher percentage of winners than losers and/or develops a strategy which has a higher probability of winning trades than losing trades and/or develops tactics which enable him to "let the winners run" while "cutting the losers short", etc.

Simply keeping one's losses "small" is not enough, since one can easily grind his account down to an amount that is for all practical purposes untradeable. If anyone wants to believe that strategy is unnecessary and that entries can be random and that losses are unimportant as long as they are small, that's okay by me. It's not my money. But beginners ought to think about all this very carefully before they put down real money.

 

[Mr Subliminal]

Quote from dbphoenix:

Now you make another trade, also risking 10% of your equity, only this time you win. What is your balance now?

$99. We both know where this is heading. But answer me this one question (seeing as you ignored the previous ones) - assume all traders in the universe are random entry, fixed % of equity traders, enjoying no slippage or commissions. Possible, no? Into which black hole does all the money they are supposed to lose go? (That was two questions.)

 

[Mr Subliminal]

Quote from Specul8r:


Sub,

What happens to your zero expectancy if the highly unlikey event of 15 straight losing trades occur before you get a winner? Will the expectancy still flatten out over a long run of trials???

PEACE and good-speculation...

You've answered the question yourself - flip the script - somewhere out there is a lucky bastard with 15 winning trades in a row. This is not a complete answer to your question, but you get my drift

 

[Mr Subliminal]

Quote from dbphoenix:

Lest the point be lost yet again, if a new trader has a series of losses, which most new traders do, he will find it difficult to climb back into the profit column unless he...

What's with the "yet again" shtick - this is the first I'm hearing about a new trader with a series of losses. Gimme a break.

Simply keeping one's losses "small" is not enough, since one can easily grind his account down to an amount that is for all practical purposes untradeable. If anyone wants to believe that strategy is unnecessary and that entries can be random and that losses are unimportant as long as they are small, that's okay by me. It's not my money. But beginners ought to think about all this very carefully before they put down real money.

I fully agree.

 

[dbphoenix]

Quote from Mr Subliminal:

$99. We both know where this is heading. But answer me this one question (seeing as you ignored the previous ones) - assume all traders in the universe are random entry, fixed % of equity traders, enjoying no slippage or commissions. Possible, no? Into which black hole does all the money they are supposed to lose go? (That was two questions.)

Apparently we did not both know where this was heading since you made me repeat it three times. As for ignoring previous questions, I ignored only those which had nothing to do with trading, since, as I said repeatedly, I'm interested only in trading, not in participating in whatever playlet you've written for yourself.

Is it possible for all traders to use random entry, etc, and to avoid all trading costs? No.

Where does the money go? Who cares? My point is now as always that once you've lost the money, you then have less equity to work with. If you're lucky enough never to have a losing trade, this won't be a problem. However, this is not the case with the vast majority of traders.

 

[GetWhatUDeserve]

you have good money management, you can use sunspots, astrology, tarot cards, and you will make money.

I think thats his point, and if you did it with small enough size that you could execute with perfection, you would see it too.

 

[oddiduro]

Quote from danielc1:

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.

I was quietly laughing at db and others who say you can't make money on a 35% system.

Now you have given them the answers. Let's see if they do it.

Regards
Oddi

 

[oddiduro]

Quote from GetWhatUDeserve:

you have good money management, you can use sunspots, astrology, tarot cards, and you will make money.

I think thats his point, and if you did it with small enough size that you could execute with perfection, you would see it too.

Bingo...somebody learned something.
Good Post.

 

[dbphoenix]

Quote from oddiduro:



I was quietly laughing at db and others who say you can't make money on a 35% system.

That's not what I said, but I'm not surprised that you have trouble in this area.

 

[aphexcoil]

Quote from Mr Subliminal:

$99. We both know where this is heading. But answer me this one question (seeing as you ignored the previous ones) - assume all traders in the universe are random entry, fixed % of equity traders, enjoying no slippage or commissions. Possible, no? Into which black hole does all the money they are supposed to lose go? (That was two questions.)

I've always believed that all markets are zero-sum games -- including stocks. No matter how you look at it, markets don't "create" money -- they create perceptions, and those are the things that people are trying to profit from.

In a perfect world with no commissions, costs for trading, etc, then whatever money one man losses has to go to some other man's pocket. Even in stocks, if a company suddenly gives a new great perception, money isn't being created -- there are just more people running into the game to put their money on the table as well (hence, the larger pot).

It's like sitting at a poker game with $1,000 in the pot and suddenly other people are pulling up a chair and throwing additional money in -- if you have the winning hand and rake in the pot, you're taking out more money from the system -- but it still is coming from another man's pockets. Money doesn't just appear and disappear, but perceptions of value are constantly changing and bringing newbies to the table ...