Newbie testing a system

Hi,

I'm a newbie trying to figure out the odds of making money in this game

I think I've pretty much figured it for the most likely scenarios... but I don't have sufficient experience to judge the long term odds.

For those of you who've been around a while I'd appreciate any comments you have on the following hypothetical...

Assuming a random punter (no skill or judgement, just pure random choice) puts on a spread bet (sell or buy, it doesn't matter)... what are the chances that the market would then move against him and never come back to a break even position? At least, not come back within say two months.

I see a lot of scenarios where it can take a week to 10 days to come back to break even... but it seems that the "never come back" scenario is rare... I'm trying to get a handle on how rare... maybe twice a year?

Thanks in advance...

Jack

It sounds like you need to look at a chart. If what you think were true, everyone would be able to make money except maybe twice a year. And that's obviously the case - at least not with the markets I'm looking at.

I have heard it's possible to have no stop and never take a loss, only taking 100 pips at a time when the market moves in your favour. I'll be ****ed if I'm trading that way, though.

jackolan said:

Hi,

I'm a newbie trying to figure out the odds of making money in this game

I think I've pretty much figured it for the most likely scenarios... but I don't have sufficient experience to judge the long term odds.

For those of you who've been around a while I'd appreciate any comments you have on the following hypothetical...

Assuming a random punter (no skill or judgement, just pure random choice) puts on a spread bet (sell or buy, it doesn't matter)... what are the chances that the market would then move against him and never come back to a break even position? At least, not come back within say two months.

I see a lot of scenarios where it can take a week to 10 days to come back to break even... but it seems that the "never come back" scenario is rare... I'm trying to get a handle on how rare... maybe twice a year?

Thanks in advance...

Jack

Click to expand...

Mr Random punter will blow his account fairly quickly. No skill. No judgement. Why bother?

Tenapenny said:

Mr Random punter will blow his account fairly quickly. No skill. No judgement. Why bother?

Click to expand...

Mr Random punter will probably do a hell of a lot better than 90% of punters. Mr Random punter will hit the 1st major trading milestone (achieving break even) way faster than the majority of traders. Mr Random punter may well survive long enough to develop some discretionary skills.

Taking random entries and exits (in a structured learing environment, by which I mean detailed retrospective analysis, compiling good statistics, maintaining a trading diary etc) is beyond a shadow of a doubt the most effective approach any trader can take.

I honestly cannot comprehend how anyone can progress as a trader, without building on a random methodology. Without it, you have no idea if skill and judgement are a statistically valid edge, or simply luck.

Unless you understand the effects that random chance might play, you are screwed.

jackolan said:

Hi,

I see a lot of scenarios where it can take a week to 10 days to come back to break even... but it seems that the "never come back" scenario is rare... I'm trying to get a handle on how rare... maybe twice a year?

Thanks in advance...

Jack

Click to expand...

then, based on your observation, that once or twice a year is enough to completely wipe you out, as it will never come back. it will happen eventually, you are playing russian roulette, but instead of bullets you are killing yourself with time.

I am assuming that you are going to trade without a stop loss, becuase you have to hold to at least break even and you dont know haw far in the red it will go before it comes back.

any trade can be that one that doesnt come back, you just wont know until your are wiped out.

I would never trade like this........

zupcon said:

Mr Random punter will probably do a hell of a lot better than 90% of punters. Mr Random punter will hit the 1st major trading milestone (achieving break even) way faster than the majority of traders. Mr Random punter may well survive long enough to develop some discretionary skills.

Taking random entries and exits (in a structured learing environment, by which I mean detailed retrospective analysis, compiling good statistics, maintaining a trading diary etc) is beyond a shadow of a doubt the most effective approach any trader can take.

I honestly cannot comprehend how anyone can progress as a trader, without building on a random methodology. Without it, you have no idea if skill and judgement are a statistically valid edge, or simply luck.

Unless you understand the effects that random chance might play, you are screwed.

Click to expand...

I agree to an extent, jackolan may well progress as a trader in a structured learning environment. I just think that Mr Random Punter would be just that, a random punter, and with no structured learning environment the market will take him out sooner rather than later.

Hi jackolan - Don't try this with serious money. Though price movements look random on a small scale, they are actually just difficult to predict. The markets are not random on the larger scale, they have an inherent upward bias. But over any realistic trading period, this upwards imbalance is normally so slight that it is not worth trading - unless you are a long term buy and hold investor prepared to wait 20 years. That is fine, though it is also aided as a strategy by the dividend income over the holding period - but I think its not what you mean and certainly isn't trading.

Had a second thought (while re-reading Mark Douglas's The Disciplined Trader: Developing Winning Attitudes).

Perhaps the more interesting question is not whether a random entry into the markets might be statistically capable of bringing a profit, but why anyone should think this is a possibility. Douglas basically says its impossible to know what you should do next until you know the market: and you can't know the market until you know yourself. The idea of random entries suggests refusal to confront the complexities and issues in this activity, and to take responsibility for one's own decisions.

Not necessarily, as a random entry does not imply a random exit. I think it has been rpooven that a good trader can be profitable with random entries, as long as he controls the rest properly.

Which basically prooves that the market is not totally random.

Can make money with random entries and exists, just a bit of work figuring it out.

The strategy proposed might work, but you've got to do the maths first. Still not gonna get out of doing some work, and might be easier to learn to trade anyway.

shadowninja said:

I have heard it's possible to have no stop and never take a loss, only taking 100 pips at a time when the market moves in your favour. I'll be ****ed if I'm trading that way, though.

Click to expand...

Anyone who trades that way will be ****ed, not just you.

NetTecture said:

Not necessarily, as a random entry does not imply a random exit. I think it has been rpooven that a good trader can be profitable with random entries, as long as he controls the rest properly.

Which basically prooves that the market is not totally random.

Click to expand...

I don't follow your "logic" at all. You think it has been proven that a 'good' trader can be profitable with random entries, as long as he controls the rest properly...!? What!?

You think it has been proven?? Surely you aren't just inventing facts to support a ridiculous theory? And 'good' isn't a word I would use to describe a trader who takes random entries. Reckless or clueless would be more appropriate.

I wouldn't say it has been proven either, but it doesn't seem impossible. If I picked a random entry and gave that entry to a superb trader, he would then look at his charts, look at price etc., and using his expert judgement he may immediately decide that is an awful random entry and exit immediately for a small loss. When he gets a good random entry he may know to stay in that trade and move stops up appropriately. It doesn't seem impossible does it new_trader? Surely a really good trader, given any position should be making effective judgements. After all, even if you get a good entry, at some point in the future price will be at a separate price which is somewhat random, and the trader will still have to make a decisions about whether to exit there, or whether to stay in the trade.

Calinor said:

I wouldn't say it has been proven either, but it doesn't seem impossible. If I picked a random entry and gave that entry to a superb trader, he would then look at his charts, look at price etc., and using his expert judgement he may immediately decide that is an awful random entry and exit immediately for a small loss. When he gets a good random entry he may know to stay in that trade and move stops up appropriately. It doesn't seem impossible does it new_trader? Surely a really good trader, given any position should be making effective judgements. After all, even if you get a good entry, at some point in the future price will be at a separate price which is somewhat random, and the trader will still have to make a decisions about whether to exit there, or whether to stay in the trade.

Click to expand...

What you are describing is an entirely different matter though. You are saying that it is possible for a person to pick a brilliant entry by chance and I agree it is possible. But this is completely different to saying that a good trader can always pick a trade at random (by the flip of a fair coin let's say) and then apply 'skilled' trade management to make it profitable. No way. Both the direction and time of entry should be selected at random, not just one or the other. Otherwise an element of discretion is being added.

Any trader, and I mean ANY trader worthy of the title 'good' wouldn't even entertain the idea of managing a trade they accidentally (equivalent of random) entered. I have accidentally entered an order and I didn't stop for even a second to consider whether I should stay in the trade or not, I hit the EXIT button as fast as possible. This is what every trader should do. Never, I repeat, NEVER stay in a trade you didn't deliberately enter.:!::!:

The markets are to people what cheese is to mice, a very big temptation. People want the money, but they don't want to have to put the effort in to learn how to get the money. You see it on T2W all the time, systems that supposedly take all the effort away, and not just the effort of learning, but the effort of feeling. Dealing with money in such a way as trading, doesn't make people feel good most of the time, it makes them feel bad, this is due to a lack of understanding. So, how do people make themselves feel better about the markets? Firstly they try to appease their lack of understanding, and they falsely convince themselves that the markets are totally random, that makes them feel slightly better about themselves. Now comes the next step, they no longer feel like such market dunces or trading remedials, all they have to do now is play around with some basic mathematical figures. Now they really feel better, and what's more, they actually feel like they stand a good chance. The rest is history, and it's back to the drawing board of lifestyle financing, much easier to apply for a credit card. Or it was, most of the greedy little mammals called humans can't even get thier own basic affairs together, nevermind trading.


When it comes to the subject of money, people will even lie to themselves, lying to other people about money is as natural as breathing. It's easily taken advantage of.

Acutally I have to read up through my library to find the references, but I read it ins a nice book - random entries can make one money. The trick here is money management and managing the trade.

Technically, a random entry will be in the correct direction 50% of the time. That is not THAT bad. By evaluating the risk/reward side and changing fund allocation the good trader can turn that into a winning strategy. This is similar to a poker tournament - one HAS to deal with the cards given to him (no chance to "just" say no), but one still controls the risk.

OTOH, some stat I read once showed 60% of the people would loose money after a year with a money making system, because they would totally botcher the risk management side.

The book used that to emphasise that a lot more important than the entry is actually proper money management. And that is something I tend to agree with.

NetTecture said:

The book used that to emphasise that a lot more important than the entry is actually proper money management. And that is something I tend to agree with.

Click to expand...

Well I say that is a total load of rubbish. How about proper self management instead? Entry is everything and if it isn't right then all the 'management' in the world isn't going to make a trade profitable. Being out of a trade and waiting patiently for a good entry is the best sort of money management there is. This way your money is safely in your account where the market can never touch it. Why would you want to be in a bad trade where your money is at risk? You need to stop reading books and start trading for real.

And I think you have a totlaly wrong view on the matter.

Who cares if a TRADE is profitagble, as long as the trader is profitable?

Yes, proper management will not make the bad trade profitable, but it will make sure that your exposure is limited. Capital conserved. And the profits of the good trades outweight the profits of the bad trades.

Noone says it is a perfect strategy, but it says that with good risk management one can live with 50% good trades. Not a good scenario by any means, but risk management can make one profitable.

NetTecture said:

And I think you have a totlaly wrong view on the matter.

Who cares if a TRADE is profitagble, as long as the trader is profitable?

Yes, proper management will not make the bad trade profitable, but it will make sure that your exposure is limited. Capital conserved. And the profits of the good trades outweight the profits of the bad trades.

Noone says it is a perfect strategy, but it says that with good risk management one can live with 50% good trades. Not a good scenario by any means, but risk management can make one profitable.

Click to expand...

And we will just keep going in endless circles! Yes, I read it often, you only need 30% winners as long they are bigger than the losers, even 1% winners if they are bigger than the losers....just keep guessing and as long as your winners are bigger than your losers you will make millions, simples..!