True Random r.r Odds?

[acerungood]

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

 

[trilobite]

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

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]

Some people claim random entry strategies are successful:

Trend Following, "Monkey Style" | Au.Tra.Sy blog - Automated trading System

Test of a "random entries" Trend Following system to check whether/how exit and position sizing logic add value to a system compared to entry signals

www.automated-trading-system.com

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:

Trading using Random Entries (Van Tharp book method) - Traders' Roundtable

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.