Random trading systems - "monkey with a pin"

[new_trader]

whereas stocks don't and the movements are largely random.

Stock movements are largely random? No, that is utter nonsense.

 

[Liquid validity]

Stock movements are largely random? No, that is utter nonsense.

Some are some aren't.
Markets are not random, I agree, but then again
they aren't predictable before the fact either.

If everything is known in advance, no one would ever have a losing trade or drawdown...
If however you are talking about sitting on your hands waiting for no brainer conditions, then I agree.

 

[DionysusToast]

Bottom line is this - no matter what you do in trading, you are making a bet on some future outcome.

OK - so you can defer that bet from a directional bias to a specific management technique. An oft quoted but seldom understood study on 'random' trading showed that a random entry with a trailing stop yielded a profit.

Before you go out and buy a new shiny coin to toss, the fact is that this study proved nothing about randomness. The study merely proved that in a trending market, you can make money with trailing stops. The trades were not relying on calling direction but relying in specific market conditions prevailing.

So - just like a spread trade or an arb trade, these trades were not directional BUT they were 100% reliant on a certain future market condition prevailing. Just like an Iron Condor in fact.

It's a bet, it is predictive, it is just not directional.

Don't think that random entry + money management is not a bet on a certain future outcome because it is EXACTLY that.

Whatever prediction you make - revert to mean, directional, volatility - it's still you making a call on what the market will do after placing the trade. You take risk that the market will do that and if you are right, the market pays you for taking that risk.

So - stop d!cking about with cr@p you don't understand and embrace the fact that you have to make a call.

 

[ryandj2222]

Stock movements are largely random? No, that is utter nonsense.

If they weren't random then it would be really easy to trade - everyone would be right every time.

Maybe not random, but unpredictable. Not in a pattern.

 

[DionysusToast]

Not really as roads always travel in the same way, whereas stocks don't and the movements are largely random.

The point is shown in some of the links that although traders tend to think that their system works, it is no better than randomly trading over time.

If you believe that, you should give up immediately.

 

[DionysusToast]

Once direction has been decided, then, perhaps it is better not to have a chart, at all. A chart becomes a distraction to the trader.

Trading does not have to be directional. That is just what most retail traders gravitate towards.

Trading is predictive.

 

[ryandj2222]

If you believe that, you should give up immediately.

Sorry I should say "most traders" systems are no better than random over time.

 

[DionysusToast]

Unrealised PnL does me just fine.

Then you will do no more than lose the spread.

How for instance, do you judge when a trade is going against you that you should give it some room to breathe? Or do you just cut all losers at a pre-defined stopping point?

If you take a directional trade and have no way of assessing if the trade is worth holding after entry, then you have no edge.

If this is how you trade, I would like to offer my services as your broker.

 

[ryandj2222]

Don't think that random entry + money management is not a bet on a certain future outcome because it is EXACTLY that.

Whatever prediction you make - revert to mean, directional, volatility - it's still you making a call on what the market will do after placing the trade. You take risk that the market will do that and if you are right, the market pays you for taking that risk.

So - stop d!cking about with cr@p you don't understand and embrace the fact that you have to make a call.

I certainly don't fully understand it, that's why I made the post to try and learn a bit more about the idea and what's behind it

 

[Liquid validity]

Bottom line is this - no matter what you do in trading, you are making a bet on some future outcome.

OK - so you can defer that bet from a directional bias to a specific management technique. An oft quoted but seldom understood study on 'random' trading showed that a random entry with a trailing stop yielded a profit.

Before you go out and buy a new shiny coin to toss, the fact is that this study proved nothing about randomness. The study merely proved that in a trending market, you can make money with trailing stops. The trades were not relying on calling direction but relying in specific market conditions prevailing.

So - just like a spread trade or an arb trade, these trades were not directional BUT they were 100% reliant on a certain future market condition prevailing. Just like an Iron Condor in fact.

It's a bet, it is predictive, it is just not directional.

Don't think that random entry + money management is not a bet on a certain future outcome because it is EXACTLY that.

Whatever prediction you make - revert to mean, directional, volatility - it's still you making a call on what the market will do after placing the trade. You take risk that the market will do that and if you are right, the market pays you for taking that risk.

So - stop d!cking about with cr@p you don't understand and embrace the fact that you have to make a call.

I completely agree with all of that.
Especially the last line, I just chose to let a computer make the call.

 

[DionysusToast]

Sorry I should say "most traders" systems are no better than random over time.

Most traders will do much worse than random over time but that is nothing to do with the markets being random.

This is to do with a never ending stream of patsies entering the game.

 

[DionysusToast]

I certainly don't fully understand it, that's why I made the post to try and learn a bit more about the idea and what's behind it

The only thing you need to understand is that the market pays smart people for taking risk.

You can't make money trading without being smart and you can't make money trading without taking risk.

You also can't make money trading without dumber people in the market who do not realize the risks they are taking.

 

[Liquid validity]

Then you will do no more than lose the spread.

How for instance, do you judge when a trade is going against you that you should give it some room to breathe? Or do you just cut all losers at a pre-defined stopping point?

If you take a directional trade and have no way of assessing if the trade is worth holding after entry, then you have no edge.

If this is how you trade, I would like to offer my services as your broker.

Thus far I have done better than losing the spread.
Losers have a maximum predefined stop.
Any exit outside that is decided by other factors I'm not going into here

 

[DionysusToast]

Once direction has been decided, then, perhaps it is better not to have a chart, at all. A chart becomes a distraction to the trader.

I disagree - if a chart is what helps you decide to hold a trade or not, then it must be a benefit.

 

[the hare]

Most traders will do much worse than random over time but that is nothing to do with the markets being random.

This is to do with a never ending stream of patsies entering the game.

The reasons they do worse than random are fairly obvious and well established.

I'm almost tempted to post the rumpled ones story about a rat in a t shaped maze, for once it would be appropriate.

 

[ryandj2222]

The only thing you need to understand is that the market pays smart people for taking risk.

You can't make money trading without being smart and you can't make money trading without taking risk.

You also can't make money trading without dumber people in the market who do not realize the risks they are taking.

How smart do you need to be to make money?

 

[DionysusToast]

I completely agree with all of that.
Especially the last line, I just chose to let a computer make the call.

Are you trading outright positions?

 

[Liquid validity]

The only thing you need to understand is that the market pays smart people for taking risk.

You can't make money trading without being smart and you can't make money trading without taking risk.

You also can't make money trading without dumber people in the market who do not realize the risks they are taking.

Well I realise the risk I take, it could end anytime.
Do you know the long term affect of spread on your trading,
have you looked into earning or at least paying no spread with
limit ask entry and market ask exit for instance?

 

[DionysusToast]

Well I realise the risk I take, it could end anytime.
Do you know the long term affect of spread on your trading,
have you looked into earning or at least paying no spread with
limit ask entry and market ask exit for instance?

What's to study about entering and exiting at the same price?

Unless you can actually do such a thing, by entering a short at the ask, the whole point is moot. Plus that is only one way of "getting the edge".

On the ES, joining the offer when you think it will hold almost always guarantees you will not get a fill. If there's 2K ahead of you and you see buyers hitting it, then you need them to keep refreshing after you enter and for buyers to keep hitting it but not that much that it moves through.

Not only is that predictive but it is a very narrow prediction and is akin to betting that not only will the market go down but that it will go straight down.

IMO - there are certain times where you can join but if you want to get to b/e very quickly, then you are much better to hit a market order into a level that is about to break.

I know you know this. Join the ask and hit out at the ask is a theoretical discussion, the hands-on trading reality is that this is an extremely narrow prediction that will play out a very small percentage of the time.

 

[Liquid validity]

Are you trading outright positions?

Yes and so are you, so what is the point you are making?