REME Trading Method

This is a discussion on REME Trading Method within the Trading Systems forums, part of the Methods category; OK, Here's an idea thats been floating around my head for a wee while. This is an approach I've been ...

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Old Feb 1, 2007, 12:36pm   #1
 
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REME Trading Method

OK,

Here's an idea thats been floating around my head for a wee while.

This is an approach I've been considering which puts all the emphasis on management and exit of a trade, REME (Random Entry Managed Exit) is the short form we'll use to refer to the method.

Basically, REME should be applicable across any market and any timeframe, its the expectations for profit targets and stops which should change depending on the market traded.

Ok, here's the science bit (not really) - entry to the chosen market is made entirely at random, I dont care how its done, flip a coin or whatever, but you make a random decision to go long or short your chosen market, pay no attention to current technicals or any indicator whatsoever.

In a normal probability distribution, this should be exactly the same as flipping a coin in that roughly 50% of the time your chosen direction will be correct.

Once we've made that decision and entered the market, the interesting part is in how to best manage the trade and the exit point to capitalise on the 50% when things go our way and minimise risk on the other 50%.

For instance, trading Cable will have differring profit/stop targets to trading euro$ or the Dow.

Exactly what these expectations are is open for discussion.

This may go no-where, but it may be interesting to develop the concept further, assessing which profit targets and stop losses should be used.

Happy trading all,

Dave.
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Old Feb 1, 2007, 12:49pm   #2
 
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there have been a number of threads, a while ago, regarding random entries etc.

I know Fettered Chinos had a few good ideas on this track, and posted several trades in this manner, so searching for them might help.

ATR could be used to quantify expected profits and risk, so you dont get stopped out on hard-targets.good

good luck with this, Dave.
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Old Feb 1, 2007, 1:18pm   #3
 
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dwaddell started this thread Yes, I should have looked first - its always easy to think you're the first one to have ever considered an approach, which is crazy when you think about it.

I'll have a look at those previous posts.

Dave
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Old Feb 1, 2007, 1:24pm   #4
 
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thought i would chirp in here, as this looks like being a constructive thread..which makes a refreshing change in this place.

dwads,
if you are going down the random entry route, you are better off using a trailing stop of some description, and relying on the outlier events to drive the profits.. if you just have a profit target and a stop, then you will basically break even before costs.. ie make an overall loss.

in terms of the type of trailing stop, you can either use an ATR stop, a fixed floating stop etc, or what i use now, which is a stop placed behind the 2nd most recent swing high or low.. the reason for this being is that too many times you see a high/low violated by a couple of points before the market then reverses the other way...

just offering my experience on this matter..

and if the worst comes to the worst, it is a great way to instill trading discipline.

toodles,

fc
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Old Feb 1, 2007, 1:37pm   #5
 
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dwaddell started this thread Thanks FC,

Have you done any extensive testing? And yes, thats precisley why I would favour an approach like this, it takes away the whole 'will I get in now, will I wait, what are my signals saying' element of trading and focuses on the bit that brings home the bacon, the managed exit.

The other aspect is that you ally the random entry to current price action - which removes an element of the randomness, but may lead to a higher win ratio...but saying that, that totally defeats the purpose of my original post...aaaarrgh!

At the end of the day, at any given point in time, there will be future movement north or south, thats the basis of trading, I suppose my question is how to best capitalise on that and is removing the entry criteria a valid approach, if so, I agree that a trailing stop is the best way to capture gains, but how do we measure or asses the level of pain (downside) to take in such a scenario?

Dave
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Old Feb 1, 2007, 2:04pm   #6
 
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Quote:
Originally Posted by dwaddell
Thanks FC,

Have you done any extensive testing? And yes, thats precisley why I would favour an approach like this, it takes away the whole 'will I get in now, will I wait, what are my signals saying' element of trading and focuses on the bit that brings home the bacon, the managed exit.

The other aspect is that you ally the random entry to current price action - which removes an element of the randomness, but may lead to a higher win ratio...but saying that, that totally defeats the purpose of my original post...aaaarrgh!

At the end of the day, at any given point in time, there will be future movement north or south, thats the basis of trading, I suppose my question is how to best capitalise on that and is removing the entry criteria a valid approach, if so, I agree that a trailing stop is the best way to capture gains, but how do we measure or asses the level of pain (downside) to take in such a scenario?

Dave
yes i did do some testing, both manually, and also on the limited intraday data i had.. confirmed my suspicions. just using a fixed trailing stop is profitable, but only marginally so after trading costs. still, if you wanted a basic system to automate and you didnt mind some sharpish drawdowns, then its as good, and simple as you can get.

if you however use a more dynamic exit, ie lowest low for 20 bars or whatever, you can improve things still further, but they tend to get a bit more complicated to monitor...

however, after literally years of developing mech strats, the best ones i have seen ignore charts completely, and use fundamental and seasonal factors. most people know that most tech patterns have only about a 50% chance of calling direction correctly.. no edge there. so why use the charts to trade.. external factors drive the markets, ie the ones the huge funds use... if its good enough for them.....

fc
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Old Feb 1, 2007, 3:42pm   #7
 
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I think the entry criteria are one of the most important factors in the punter's favour to make a profit.
But lets go with the random entry theory for sake of this problem. Although i haven't done any back-testing a possibly profitable scenario is that it is quite rare for the index ( Dow ) to just drop ( rise ) like a stone. It usually has sniff at least in the opposite direction. Perhaps one could make money by just going for a few points - maybe only 5. So one tosses the coin, puts the up/down bet on with a limit of 5 points. Perhaps someone could test the theory and let us know ?
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Old Feb 1, 2007, 4:12pm   #8
 
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Quote:
Originally Posted by Pat494
I think the entry criteria are one of the most important factors in the punter's favour to make a profit.
But lets go with the random entry theory for sake of this problem. Although i haven't done any back-testing a possibly profitable scenario is that it is quite rare for the index ( Dow ) to just drop ( rise ) like a stone. It usually has sniff at least in the opposite direction. Perhaps one could make money by just going for a few points - maybe only 5. So one tosses the coin, puts the up/down bet on with a limit of 5 points. Perhaps someone could test the theory and let us know ?

already have done using futures data on the Dow..

from what i recall. at the close put up 2 orders either side of the closing price.. sell +5 and buy -5.. makes a profit overall, but barely, and you would have to be trading with 1pt spreads..

in contrast, if you set the orders to buy +40 or so, and sell -40 or so, you have a profitable breakout strat, but be wary of the equity flatlines.
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