A puzzle

[darvas_trader]

Suppose you invest a equal amount of money on randomly picked stocks all having comparable prices (like between 5-10$, say). You choose a particular time frame. You put a stop loss of 1% and take profit at 2% (or some number more realistic, ie most likely to be hit rather than most profitable, for your timeframe). My question is if you do this for thousands of trades would you more likely end up with a positive balance, given brokerage costs are low. If so then this could be used as a good example for newbies to show that the holy grail actually lies in recognizing money management as the MOST important component of trading.

 

[Splitlink]

Money management is simply making sure that you have enough money for the next trade if this one fails. Without it, I would have been gone years ago. There is no other part of trading that is more important than that.

Anyone who is absolutely convinced that he has a winner, and puts all his account on it, will fail. If not this time, then in the future.

Money management means working in a business like manner.

 

[ThomasJ02]

Suppose you invest a equal amount of money on randomly picked stocks all having comparable prices (like between 5-10$, say). You choose a particular time frame. You put a stop loss of 1% and take profit at 2% (or some number more realistic, ie most likely to be hit rather than most profitable, for your timeframe). My question is if you do this for thousands of trades would you more likely end up with a positive balance, given brokerage costs are low. If so then this could be used as a good example for newbies to show that the holy grail actually lies in recognizing money management as the MOST important component of trading.

No, you would not necessarily end up with a positive balance. All else being equal, more stocks would hit the 1% stop loss than the 2% take profit. You would have more stocks taking smaller (1%) losses, balanced out by fewer stocks taking larger (2%) gains.

 

[tomorton]

Even if you hit the exact same X% loss or gain, if winners and losers are equal in number, you would end up being wiped out.