Coin Flip Trading

[trendie]

Do you think that profitable speculative traders are lucky?

No.

I believe profitable speculative traders are innovative, thoughtful, willing to consider new ideas and willing to put in the effort to play out the maths.

I also believe that it is useful to start a discussion from a point of view of being conservative, rather than fantasising about having some wondrous edge that doesn't hold up to scrutiny, and randomness is my "shorthand" for that conservative start-point.

Once we can get past that, and you believe you have an edge, then the discussion can move on to maximising the risk/reward skew.

I have been at T2W long enough NOT to start a discussion with "I make 300 pips a week, how can I make more!".

Thus, a coin-flip is my "lets start from absolute basics".
I would then move onto applying such ideas to trading patterns, breakouts, pullbacks, fibs, moon-cycles, elliot waves, etc.

Hope you had a great week, and enjoyed the sun!
Have a great weekend, and best of luck (!) for next week.

 

[wackypete2]

Interesting discussion. Nice to see decent civilized threads around here

Peter

 

[kimo'sabby]

Once we can get past that, and you believe you have an edge, then the discussion can move on to maximising the risk/reward skew.


That is the skill of speculative trading, taking out of the market, more than you are willing to put in.

Takes the p!ss, don't you think?

The best do it with less risk and more profit. The edge is proprietary and non-transferable in word form.

T2W should take a step forward and create a platform. But i'm guessing that the Sunday morning OAP vendor debate is more their style.

 

[trendie]

That is the skill of speculative trading, taking out of the market, more than you are willing to put in.

Takes the p!ss, don't you think?

The best do it with less risk and more profit. The edge is proprietary and non-transferable in word form.

T2W should take a step forward and create a platform. But i'm guessing that the Sunday morning OAP vendor debate is more their style.

I would take the view that the possibly subjective speculative skill could be quantified into an objective technique such as the skew that I am proposing.

If by "skill" you mean human intution/insight intervention, then I am interested in whether that skill can be codified by "less risk and more profit", by this skew.
But, to start with, I propose equal risk and reward and looking to take more profit than a loss. The next step could well be risking 80 pips to make 100, etc.

I concede that "the best" traders may have some innate ability.
This doesn't mean other techniques are invalidated.
The "best" sportsmen and women are at the edges of a bell curve, such as tennis players or football, but this doesn't in any way invalidate the talents of very good players who still make a great living as professional athletes, in the lower leagues.

 

[DionysusToast]

No.

I believe profitable speculative traders are innovative, thoughtful, willing to consider new ideas and willing to put in the effort to play out the maths.

I also believe that it is useful to start a discussion from a point of view of being conservative, rather than fantasising about having some wondrous edge that doesn't hold up to scrutiny, and randomness is my "shorthand" for that conservative start-point.

Once we can get past that, and you believe you have an edge, then the discussion can move on to maximising the risk/reward skew.

I have been at T2W long enough NOT to start a discussion with "I make 300 pips a week, how can I make more!".

Thus, a coin-flip is my "lets start from absolute basics".
I would then move onto applying such ideas to trading patterns, breakouts, pullbacks, fibs, moon-cycles, elliot waves, etc.

Hope you had a great week, and enjoyed the sun!
Have a great weekend, and best of luck (!) for next week.

Here's the issue.

If you tested this coin flip system out, you would ABSOLUTELY be able to find a management technique that turned it into a profitable system historically.

For example, there's a book that "proves" money management can work on random entry. The problem is they only tested it on trending market.

So what they did was not to prove that random entries work BUT to prove that a trend following system works on trending markets, even with a random entry. To use the system profitably, you still have to make a call on whether the market will trend or not.

So - when you start making adjustments, how do you avoid changing your random system into a market specific system?

 

[kimo'sabby]

So - when you start making adjustments, how do you avoid changing your random system into a market specific system?

Excellent. A fully scrutinized method should be water tight in terms of it's logic.

 

[barjon]

Excellent. A fully scrutinized method should be water tight in terms of it's logic.

Which would be fine if the market itself was similarly logical, lol.

 

[DionysusToast]

Which would be fine if the market itself was similarly logical, lol.

So you think an illogical approach should be taken?

 

[kimo'sabby]

Which would be fine if the market itself was similarly logical, lol.

The market has non-random tendencies, this is how you should structure your own approach.

 

[new_trader]

The edge is proprietary and non-transferable..

Kinell bud! Excellent kimo! Very good, 1st class, top marks!

 

[trendie]

Here's the issue.

If you tested this coin flip system out, you would ABSOLUTELY be able to find a management technique that turned it into a profitable system historically.

For example, there's a book that "proves" money management can work on random entry. The problem is they only tested it on trending market.

So what they did was not to prove that random entries work BUT to prove that a trend following system works on trending markets, even with a random entry. To use the system profitably, you still have to make a call on whether the market will trend or not.

So - when you start making adjustments, how do you avoid changing your random system into a market specific system?

If a random system can show a skewed positive returns, then when applied to a system that has a bias might show even better returns.
I am merely positing the possibility that this might be worth exploring.

If you have a random event, where you risk 100 pips to win 100 pips, and you skew your trading in such a way that a 100 pip loss results in losing "300 pips", and a winning 100 pip results in "500 pips" or "380 pips", then when applied to a biased market, you would more likely hit the 500 pips rather than the 300 even for a coin-flip 50/50. If the market is biased, and you have identified the bias, surely you are ahead from the get-go.

I need to quantify this and apply to the markets as a test project.
I need numbers to crunch!

 

[kimo'sabby]

If a random system can show a skewed positive returns, then when applied to a system that has a bias might show even better returns.
I am merely positing the possibility that this might be worth exploring.

If you have a random event, where you risk 100 pips to win 100 pips, and you skew your trading in such a way that a 100 pip loss results in losing "300 pips", and a winning 100 pip results in "500 pips" or "380 pips", then when applied to a biased market, you would more likely hit the 500 pips rather than the 300 even for a coin-flip 50/50. If the market is biased, and you have identified the bias, surely you are ahead from the get-go.

I need to quantify this and apply to the markets as a test project.
I need numbers to crunch!

At what point do we all agree? Would it be fair to assume that the market is 50/50 at any one moment in real time?

I understand that this may seem basic and obvious, but at least we all have a common ground to work from.

 

[barjon]

So you think an illogical approach should be taken?

No, , but if you always insist that the market should respect your logic then you'll probably finish up disappointed and poorer.

 

[kimo'sabby]

No, , but if you always insist that the market should respect your logic then you'll probably finish up disappointed and poorer.

That's not the point though. To make money consistently, you have to apply yourself consistently.

 

[kimo'sabby]

No, , but if you always insist that the market should respect your logic then you'll probably finish up disappointed and poorer.

By the way, you have used the word 'always'?? Maybe you know something? Enlighten!

 

[barjon]

That's not the point though. To make money consistently, you have to apply yourself consistently.

Aye, for the most part. I'd say that you've got to be consistent in your overall strategy, but not necessarily wholly consistent in its application depending on the discretionary elements in it. To some extent there's a weighing of pros and cons to be done and you might not necessarily arrive at the same answer each time.

 

[new_trader]

Aye, for the most part. I'd say that you've got to be consistent in your overall strategy, but not necessarily wholly consistent in its application depending on the discretionary elements in it. To some extent there's a weighing of pros and cons to be done and you might not necessarily arrive at the same answer each time.

I don't understand how you can be consistent with a strategy but inconsistent in its application. This is a contradiction...unless you mean being consistently inconsistent!

From some of the things you've posted it looks like you are confusing logic and judgement. A sound methodology can only be developed if a trader consistently arrives at the same answer and consistently acts on their current understanding however flawed it might be at the time or with the benefit of hindsight. A trader should never deviate from their methodology until a new discovery is made which renders their previous understanding and actions obsolete. Always do the same thing until you've learnt something new. Just like all other fields, a discretionary trader often makes their greatest discoveries when they were looking for something else.

I'm not sure I follow what you mean by "discretionary elements". A trader either understands what they are seeing or they don't. The only element which cause a discretionary trader to act inconsistently is uncertainty which is the direct result of inexperience, or extraneous influences like the 'NEWS' which was mentioned earlier.

 

[barjon]

I don't understand how you can be consistent with a strategy but inconsistent in its application. This is a contradiction...unless you mean being consistently inconsistent!

From some of the things you've posted it looks like you are confusing logic and judgement. A sound methodology can only be developed if a trader consistently arrives at the same answer and consistently acts on their current understanding however flawed it might be at the time or with the benefit of hindsight. A trader should never deviate from their methodology until a new discovery is made which renders their previous understanding and actions obsolete. Always do the same thing until you've learnt something new. Just like all other fields, a discretionary trader often makes their greatest discoveries when they were looking for something else.

I'm not sure I follow what you mean by "discretionary elements". A trader either understands what they are seeing or they don't. The only element which cause a discretionary trader to act inconsistently is uncertainty which is the direct result of inexperience, or extraneous influences like the 'NEWS' which was mentioned earlier.

In simple terms the logic of my strategy suggests that if I see x then there is a statistical expectation that y will follow. That sets the primary "rules". There are a few associated "conditions", both for and against, which cannot necessarily be described in such clear cut "rule" terms and are matters of judgement.

 

[new_trader]

In simple terms the logic of my strategy suggests that if I see x then there is a statistical expectation that y will follow.

Would I be right if I said that x was a chart formation/pattern of some kind and that y was confirmation of that pattern?

That sets the primary "rules". There are a few associated "conditions", both for and against, which cannot necessarily be described in such clear cut "rule" terms and are matters of judgement.

Would I be right if I said the conditions was the "trend"?

If I am right, I would argue that you are trading in a mechanical rather than discretionary manner.

 

[barjon]

Would I be right if I said that x was a chart formation/pattern of some kind and that y was confirmation of that pattern?



Would I be right if I said the conditions was the "trend"?

If I am right, I would argue that you are trading in a mechanical rather than discretionary manner.

You'd be sort of half right . My strategy is to trade potential trend continuation after retracement, so a pattern thing with primary target high of the trend.

Yes, one condition is not to fight FTSE trend - sometimes clear cut, sometimes not. Another is about momentum which is purely a judgement call.

How you might pigeon hole that I dunno. I suppose I'd call it a mechanical based strategy applied in a discretionary manner.