Random entry systems

cedricthefrog

Junior member
18 2
you are welcome.

There is a serious point in there though (somewhere). Random entry systems are only good for measuring the quality of your money management system and exit criteria. Now which of the three is most important is debateable but i'd take a system with good* MM, entries and exits over a random entry system any day.

* 'good' is used as an objective term subject to the usual statistical tests
 
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SvenFoster

Well-known member
250 10
In the case of random entry systems you may want to consider the following..

Write a system that only trades in a single direction and let that direction be decided via a parameter long/short....
Can you make it profitable using everything else at your disposal, exits, position size etc...
You could use a random entry if you want or a simple signal, no matter.
It gave me a different take on the entry when I did it...

Entries are of course important as are exits. Systems are complex and each part affects the other.

Its my opinion, that you need a directional bias or belief of where the market is going. The entry determines your risk. If your entry sucks then that has a knock on affect to your stops. Your exit and directional bias will determe profit or loss. the Entry will play a part in that equation as to how much bang per pip you'll get.

Something else you can try for a laugh...
If I gave you a system with very simply entry criteria(lets say, C > previous C) and the following scope for change...
1) You can choose to ignore the signal.
2) you can change the position size/own stops/targets.

How may different systems could be made. I'm sure someone would make money but it just highlights the complexity of systems.
 

FXTrend240

Well-known member
292 10
To be honest all people need to do is :

identify an entry methodology within a trend (with trend or countertrend)
apply your personal money/risk management techniques
backtest too, make sure it has a positive expectancy

that's all, in fact i've been reading through a skype conversation i had about 8 months ago with a really good trader and he was telling me this semi-mechnical system and i just ignored it, didn't really listen, he then says if people just obeyed setups, detaching ego and 'money' they'd be a lot richer, and that this little method , he believes, could comnfortably make someone 1 mil.

whether it can or can't isn't the point, i've come to think that treating each setup as an 'investment' helps to make it feel more like a business. for example i'm allocating 60% of my capital to discretionary trend trading eurusd and ftse100 with a money management method i made up which i think is going to help me a lot , the other 40% is using the semi-mechanical system.

Another thing, people should stop flaming indicators, the reason why people think they suck was because that when they used them they were looking for the holy grail. Im pretty certain indicators, even retail, can be used effectively.
 

meanreversion

Senior member
3,398 535
There's another thread out there on discretionary vs automated trading.. somewhere along the way it disappeared up its own backside, but for a while there was some decent debate on the matter.
 

nunrgguy

Established member
656 118
My take is almost the same.
Run winners - how? Trail stop
Cut losers - how? Trail stop

Entry based on n criteria (are they random?...possibly)
Initial stop based on n criteria
Trade managed on smaller time periods than set up
Trade goes positive 5 pips or more after n amount of time (this depends on typical volatility on the time frame you manage on), move stop to break even, if more than 5 pips, b/e/ +1 etc
Trade in the red after n amount of time, trail stop to lower side of time period bar (i.e. approx swing low on smaller timeframe), trade then either subsequently stopped out or more opportunities arise to reduce loss with further trailing, or trade moves into the black.
Trade in the black: trail stop based on n time period

i.e. Trailing is discrete, not pip by pip.

So that's it. Cut losers, never take a full loss unless you get whipped and run winners. Trend is your friend...maybe, it is when you catch one, whether what you see visually on a chart is a trend or your mind playing tricks is something else. But I agree, trade your beliefs - if you believe trend exists, trade it, it will keep you from overtrading if nothing else.

Money mgmt. Very generally as I use a few more discretionary elements, initially 2% risk per trade. Keeping at that monetary value until account doubled then double monetary amount back so at 2% risk, during drawdown keeping amount at that value also (shock horror) unless the market is flat/spiking, then either stay out or reduce position size, increasing back up when market starts to move in your favour again.
 

Splitlink

Legendary member
10,850 1,232
Thanks for the link, her conclusions are the same that I've reached. It's only recently that I've started looking at random entry and the results are not far off the proper system. Which in itself raises some questions -

1. If entry rules are not that important, why do people seem to focus on it 90 pct of the time?

2. It's possible for a random system to perform as well as fairly well regarded fund managers, except it doesn't charge fees. Are fund managers adding any alpha to their clients, or just themselves?

3. How many people trade random systems? Do the banks/hedge funds have any money allocated to this (the mind boggles -- imagine a hedgie testifying to Congress saying "Yeah, we flip a coin to choose the direction")

My conclusion at this stage is that, amongst all the hundreds of trading expressions, the two which are most pertinent are

- let your winners run, and cut your losses
- the trend is your friend [this one is quite important]
Time passes! I've just been going through back threads and seen this.

People spend all that time on entry points because they need some kind of rule to get them into a trade.

I believe in random entries but, in practice, I say to myself, "When price reaches a certain point, I'm entering".

These points are, usually, something that has worked before so I have developed a certain confidence in them.

I do agree, though. Most random points are just as good

providing

that the direction is right.

That seems so obvious to me but lots of guys will try the hard and expensive way.
 

0007

Senior member
2,356 644
Its my opinion, that you need a directional bias or belief of where the market is going. The entry determines your risk. If your entry sucks then that has a knock on affect to your stops. Your exit and directional bias will determe profit or loss. the Entry will play a part in that equation as to how much bang per pip you'll get.
Agree. Get the entry right and life is so much easier. If you can nail the directional bias then you can join the trend and take multiple bites at the zigs while staying out of the zags. I'm talking of swing/position trading here.

I measure the quality of the entry by the MAE (maximum adverse excursion) ie how much did it not go my way before conforming to my prediction [or not]. I've found this useful in minimising my stop risk by being able to use a lower factor of ATR.

As the man implies: the better your entry then the closer your stop and the more profit you can extract from any given level of risk. All very basic but it works. Exit is important; I don't really agree with the fashionable idea that entry isn't.
 

Adamus

Experienced member
1,898 97
Just putting together a new system and when building the entry mechanism I just had equi-distant targets and stops of an appropriate size and took the percentage profitable trades (without comm or slippage) as the measure of the mechanism's effectiveness.

I'm thinking of trying to build an exit mechanism in isolation from entries and money management as well, and I'm thinking that random entries seem like a pretty good tool.

I guess I'm thinking out loud here, but I don't think percentage profitable trades would be so significant as a measure on its own as for entries, rather I'll be best served maximising profit per trade.

Any thoughts?
 

meanreversion

Senior member
3,398 535
I don't think percentage profitable trades is that relevant, at all. You could devise a profitable trend system with 25 pct winning trades. Or you could design a break-even Holy Grail system with 95 pct winning trades.

Where the percentage of profitable trades IS relevant, IMO, is in allowing the trader to stick to the system. If you have 10 losing trades in a row, the temptation is then to modify a parameter or skip the next signal.
 

tomorton

Legendary member
7,706 1,091
Just putting together a new system and when building the entry mechanism I just had equi-distant targets and stops of an appropriate size and took the percentage profitable trades (without comm or slippage) as the measure of the mechanism's effectiveness.

I'm thinking of trying to build an exit mechanism in isolation from entries and money management as well, and I'm thinking that random entries seem like a pretty good tool.

I guess I'm thinking out loud here, but I don't think percentage profitable trades would be so significant as a measure on its own as for entries, rather I'll be best served maximising profit per trade.

Any thoughts?

I fully support this reverse engineering notion. I was mulling this over at the weekend and wondered if it was possible to devise a 'universal' exit signal. I concluded I couldn't do it, as one person's exit from a long is another person's entry short, and there we are, back to the old problem of TA (and traders, including me) over-focusing on entries.

Maybe it can be done, but it wouldn't be easy. I have read many academic studies that say TA can't work and it aways seems they use the reverse of the entry signal for the exit - e.g. enter long on a MA golden cross and exit won a dead cross of the same two MAs. Not surprisingly, this crude but entirely rational approach does indeed not work acceptably.

But, perhaps we can use e.g. a sudden increase to an objectively measurable level of short entry signals to indicate exits from longs? Maybe its that obvious.
 

Adamus

Experienced member
1,898 97
MR, I meant percentage profitable trades only for entries with equidistant stops and targets without slippage or commission - surely percentage profitable trades is the only statistic that is relevant in that situation?

As for exits, I don't see why LBR's approach won't work. Random entries tested over 100 runs of the backtest. That would create a huge sample size. I guess that is what I would go with, but it's really not so easy to collate the results of 100 backtests into one result set compared to all the normal backtesting, optimization or walk-forward methods that NinjaTrader for example offers.

Just doing one backtest on an exit mechanism with random entries would just not give you a representative sample, would it?
 
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