Chart of 10,000 coin tosses

bracke

Experienced member
1,286 12
Entertaining, funny but is it enlightening?
Are we any further forward or have we simply been engaged in a navel gazing philosophical discussion.
What have we acheived, where is the revised/new trading strategy based on the thoughts put forward?

Regards

bracke
 

damianoakley

Established member
542 57
I've been reading this thread with interest and thought i'd put in a comment or two.

I've actually posted these comments before on other threads, but they are worth repeating.

You can actually make money in the markets by letting a coin flip decide your entry (long or short). Van K. Tharp did numerous tests on this and showed a profit after every test. I've done my own tests and come up with similar results. The thing is, very few people would trade a system based on random entry because it goes against our basic instincs of wanting control over the markets.

The most simple things work best in the markets, and you can't get much simpler than a random entry based on a coin-flip. But most people would not even entertain the idea.

Just my thoughts.
 

bracke

Experienced member
1,286 12
damianoakley

What time frame are you talking about?
Does it matter if you sell or buy?

If I flip a coin today and decide heads is buy and tails is sell and I take a long view and am not concerned with the amount of drawdown eventually I will win . It may take some time but the market moves enough to give me a result but is it a practical trading strategy?

Regards

bracke
 

damianoakley

Established member
542 57
bracke

First of all - no particular time frame. The original tests were done on daily charts, but i've tested random entry from daily charts to 5 minute charts.

Does it matter if you sell or buy? - not sure what you mean by this. You flip a coin. If it's heads you go long (buy), if it's tails you go short (sell).

The coin-flip entry does NOT mean taking the long-view and waiting until you show a profit as you suggest. That's not a trading system, it's guesswork.

Once the direction of the trade had been determined by the coin-flip, the market was entered and a definite trailing stop set immediately. If the stop was hit, the coin was flipped again and the market re-entered accordingly.
 

damianoakley

Established member
542 57
Everyone trades their own beliefs about the markets. What works for one person does not necessarily work for another.

I did say in my post above that most people won't even entertain the idea.

Random entry has been proven to work. If people didn't instantly dismiss the idea and looked into it properly, they too would see that it IS possible to profit from random entry. Remember that it's only the DIRECTION of the trade that is determined by the coin flip. You still control how much is risked and when to exit.

Most people won't look at it at all however because it goes against human nature. They would rather laugh at people like me who suggest the idea!
 

bracke

Experienced member
1,286 12
damianoakley

If random entry has been proven to work do you use it yourself?
If yes with what result , if no why not?

Regards

bracke
 

damianoakley

Established member
542 57
No I do not use random entry, because, like most people, I would feel a bit daft flipping a coin each time I wanted to enter the market.

However, and this is my real point, the entry strategy I use is VERY simple and probably has about the same reliability as the coin-flip, but my method of deciding on which direction to trade takes less time than flipping a coin.

As for the results, I average about 5% to 7% return on total capital per full week of trading. Average hit rate is about 35%-40%. So for example, if I started the week with £10,000 trading capital, I would expect to clear about £500 - £700 profit on the week or there-abouts.

On my coin-flip entry tests, the hit-rate was 36% on a 200 trade test. The profit was 7% return on capital.

I will now be leaving my computer till the morning, so I can continue this discussion from 8:30am tomorrow if anyone wants to.


Cheers

Damian
 

bracke

Experienced member
1,286 12
damianoakley

Being daft in the privacy of ones own home is one of lifes privileges!

If your method is quicker than flipping a coin are you prepared to divulge it?

Regards

bracke
 

damianoakley

Established member
542 57
My method of entry is super simple. It's so simple that I don't mind divulging it, although I suspect that it's just too simple for most people to follow. Most people would want to mess with it, and fine-tune it with additional indicators. Most people, I suspect, would advise that I should spend more time on deciding on my entry, but I prefer to focus the majority of my efforts on position sizing and exits.

I trade 5 min charts, making on average about 20 trades per day. At the start of the day, I simply determine the short-term trend of the market using the MACD indicator, and immediately enter the market in the direction of the trend. I place my stop immediately after entering the trade, and then trail the stop as the trade moves in my favour. If i'm stopped out, I re-enter the market in the opposite direction.

And that's it! The above simply describes how I enter the market. It mentions nothing about how much I stake on each trade or how I calculate my stop. It's these two things that ensure I profit over the long-term.

Instead of focusing on trying to be right every time I enter the market, I cut my losses straight away and try to stick with trades moving in my favour for as long as possible. My strategy is probably difficult for a lot of people to trade because they would want to spend a lot more time on entry than I do.
 

bracke

Experienced member
1,286 12
damianoakley

Thank you for your reply

You appear to be operating a simple straight forward system:

1 Follow the trend
2 Set stop and cut losses immediately
3 Let profits run and trail the stop

Each to their own, simple and straightforward gets my vote

Regards

bracke
 

damianoakley

Established member
542 57
That's pretty much it mate. Plain and simple.

I didn't really want to get into describing my strategy in any great detail to be honest. The point I was trying to make (in line with the original post) was that most indicators and entry techniques have little or no advantage over a coin-flip.
 
 
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