True Random r.r Odds?

acerungood

Newbie
1 0
Hi All,

I'm currently working on a mathematical strategy based on taking random trades in random markets but wanted to double-check my figures.🧐

Obviously, we can be pretty sure that if you enter a trade in a random market, at a random time, in a random direction (short/long) with a risk of 1:1, you will be successful 50% of the time. Either it hits your stop or your target, it can't go in between.

However, I've applied similar logic for if you enter a "random" trade with a risk of 2:1 - you will be successful 33% of the time (1/3).

This is the intuitive answer, but I was wondering if this could differ slightly from the 1:1 example due to market volatility? Of course, in theory, you will be meeting a "random" amount of volatility which could favour or not favour your 2:1 but would you still expect a "true odds" return of 1/3?

Be interested to hear your thoughts.

Cheers :D
 

trilobite

Member
87 154
Hi All,

I'm currently working on a mathematical strategy based on taking random trades in random markets but wanted to double-check my figures.🧐

Obviously, we can be pretty sure that if you enter a trade in a random market, at a random time, in a random direction (short/long) with a risk of 1:1, you will be successful 50% of the time. Either it hits your stop or your target, it can't go in between.

However, I've applied similar logic for if you enter a "random" trade with a risk of 2:1 - you will be successful 33% of the time (1/3).

This is the intuitive answer, but I was wondering if this could differ slightly from the 1:1 example due to market volatility? Of course, in theory, you will be meeting a "random" amount of volatility which could favour or not favour your 2:1 but would you still expect a "true odds" return of 1/3?

Be interested to hear your thoughts.

Cheers :D
Best bet is to try it for yourself. Open a trading account and place random direction trades on a pair over a period of time and document what happens. You could use a demo account. I've tried this myself, results are pretty much as you would expect, gradually lose over time due to spread and commission. It is a useful exercise as it is surprising how you can get a run of good luck, which looks like an edge (but of course is not).
 

Rufus_Leakey

Active member
224 103
Some people claim random entry strategies are successful:
Performance Stats
CAGR
18.11%​
Max DD
33.57%​
MAR
0.54​
Monthly Std Dev
6.34%​
Average Monthly Rtn
1.59%​

And some claim they don't work:
bad news: all 100 tests out of 100, lost money. Their Compound Annual Growth Rate was negative. Exactly opposite of the book: 100 percent of the time, it lost money.

I guess you could flip a coin to decide.:)
 
 
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