Would you trade a coin toss?

[ZiggieCME]

This is what I mean. . .

Lets say your analysis tells you to enter a long position. But because your timing was off, you bought at 3.50 and the ES continued to dip to 2.00. Your stop is hit and you are out of the trade because you didn't want to take that much heat. Now the market rebounds and continues all the way up to 6.00. Your TA was right but because your timing was off, this trade was a bust and even if you did get back in. . . probably break even.

I've seen it cause I have made those mistakes in the past.

Z

 

[rog1111]

I'd happily trade a coin toss. On condition that I took twice as much on the winners as I lost on the losers ! Also on condition that if the coin was cocked, on its edge etc, then my stake was returned.

rog1111

 

[trendie]

I'd happily trade a coin toss. On condition that I took twice as much on the winners as I lost on the losers ! Also on condition that if the coin was cocked, on its edge etc, then my stake was returned.

rog1111

So, you have identified a stop-loss of X points.
Also, a profit-target of 2X points.

By identifying reasons for entering, whether it be breakout, MACD, MA cross-overs, you have identified a reason to enter at a specific point, rather than randomly. This is also a slight edge.
( equivalent to a unfair coin, but in OUR favour )

As stated above, doubling up would NOT be necessary (sp) or even recommended.

Long-term, randomness gives way to some semblence of order ?

 

[mauzj]

I sold a few ES on a coin toss to prove to a colleague that I had the balls to do it. Unfortunately I chickenned out after 5 minutes and scratched the trade. 2 minutes later ES tanked. Doh!

 

[trendie]

Can anyone think of a random generator that can be verified in retrospect ?
eg; the first word of an online newspaper headline

 

[TheBramble]

Can anyone think of a random generator that can be verified in retrospect ?
eg; the first word of an online newspaper headline

Eh?

 

[trendie]

Eh?

was thinking of another coin-toss experiment, using an easily accesible random-number generator that can be checked independently by others.

anyway, may decide to use pivot-points as heads/tails. not quite random, but useable.

 

[henry766]

you bunch of coin ******s!!, a point worth noting is that although the coin toss maybe random the betting on them isn't !!

 

[JenRuns]

In answer to the question of would you bet on a coin toss, you absolutely could trade very profitably on coin tosses. If only 50% of your trades were winning trades, you could make a lot of money. You would have tight stops on all the trades. The losers would stop out, the winners would keep running. The winners would more than offset the losers.

In answer to whether charts are useful because things seem random, charts show you the current trend. Your chances are better than even that a trend will continue.

None of it is about being right 90% of the time or even close to it. Just cutting losses on the losers and letting the winners ride.

 

[Roberto]

Your chances are better than even that a trend will continue.

You're right, of course, but will you get away with it? I've never managed to slip the words "continuation is more likely than change" into a post here without someone having a go at me over it. By the way, welcome.

 

[TheBramble]

In answer to the question of would you bet on a coin toss, you absolutely could trade very profitably on coin tosses. If only 50% of your trades were winning trades, you could make a lot of money. You would have tight stops on all the trades. The losers would stop out, the winners would keep running. The winners would more than offset the losers..

Jenruns (also welcome), can you give me an actual example of how you can have a tight stop on a binary head/tail outcome (not to be confused with a binary bet)?

And how any money management would give you the equivalent of letting the winners run?

 

[henry766]

good point bramble and with the coin toss trends to work you need one of those fancy coins that can remember what it was last time!! jenruns plllllease!!!

 

[JenRuns]

Bramble, Henry - I am no genius and I didn't make this up. This is a basic point of William O'Neill (Investor's Business Daily). Of course he doesn't advocate tossing a coin, he's all about how to pick them, but the point is with good money management, even tossing a coin to pick stocks would keep you profitable.
Here is the example as requested. Suppose you look at a list of stocks. You flip a coin to choose. The first 10 heads are the ones you buy. Just to keep the math easy, let's say they all are about $50/share. You buy 100 shares of each of these "heads" stocks. Let's forget commissions for simplicity's sake. For the tight stop, you set a $2 stop loss on each one. You have spent $5,000 each on 10 positions, a total of $50,000. Theoretically, 50% will be losers, 50% will be winners. Let's say in one month here's the value of each stock:
a= $48, b= $52, c=$45, d= $55, e=$47, f=$53, g=$40, h= $60, i= $42, j= $56
Actually I made them be pairs of losers/winners going up equally, so as to not skew the winners to do better.
On all the losers, you stopped out at $48, so you did not take the full loss. So your total losses are $2,000 ($2 per share, 100 shares per position, 5 positions).
Your winners equal $2,600 ($200+$500+$300+1,000+$600). Your net profit is $600. ($2,600 in winners, $2,000 lost).
If your stock picking method is a coin toss, and you have tight stops, theoretically half will win and half will lose, but your tight stops will get you out of the losers fast and you let your winners ride. Henry, the coin doesn't have to know what came first - statistically 50% of tosses are heads, 50% are winners. You pick the first 10 heads as your picks.
The real point is that you hopefully have a stock picking method that is way better than a coin toss (though this thread started out with someone saying some technical analysis amounts to little more than a coin toss) but, according to O'Neill, with proper money management, you could EVEN be profitable on a coin toss by cutting losses fast and letting winners move forward.

 

[TheBramble]

the point is with good money management, even tossing a coin to pick stocks would keep you profitable.

Totally agree.But that's quite different to betting on the simple toss of a coin and talking about keeping stops tight and letting winners run - which is what you were suggesting.

I wasn't trying to take you down - just wondered what I had missed.

 

[JenRuns]

I don't understand what you thought I meant, but what I meant and what I was responding to is what's above.
Anyway let's all hope we do better than worst case scenario statistics. Good luck to you.

 

[trendie]

JenRuns,

Thanks for providing an illuminating example.
I think many will not want to deal with the idea that coin-flips can make money.
We like to think we are clever, and it is our incredible intellects that make us money.
( this gives rise to a certain conundrum. In the long run, coin-flips should cancel each other out, resulting in a net zero result ( excepting transaction charges ).
In this case, how come people "lose" money using their incredible powers of intelligence and super-dooper computers, when a coin-flip, at worst, results in a net zero gain/loss ? )

Despite that patterns are not guaranteed 100%, and each pattern only has a possibility of going in our favour. People prefer not to consider this as the equivalent of an "unfair coin".

Another way of considering the "unfair coin" idea is to have a stop-loss of $2, and a stop-win of $3 or $4.
This is isnt as good as letting your winners run, but can also illustrate the idea.

anyway, I am going to put aside £1,000 and actually play this concept out this year !!!!!
So there !!

Oh, and Happy New Year to y'all.

 

[peto]

If only 50% of your trades were winning trades, you could make a lot of money. You would have tight stops on all the trades. The losers would stop out, the winners would keep running. The winners would more than offset the losers.

Except that you'd never get anywhere near to 50% .... The spread and the tight stops would create lots more small losers than the few winners that ran. Shame its not that easy really.

 

[peto]

You have spent $5,000 each on 10 positions, a total of $50,000. Theoretically, 50% will be losers, 50% will be winners. Let's say in one month here's the value of each stock:

You're assuming all your shares go straight up or straight down. In reality some of your 'winners' in the above example will have triggered your stop before rising. Your %ge of winners at the end of the month is likely to be much less than 50%.

 

[JumpOff]

You're assuming all your shares go straight up or straight down. In reality some of your 'winners' in the above example will have triggered your stop before rising. Your %ge of winners at the end of the month is likely to be much less than 50%.

Peto, this is the noise factor that is so often forgotten. The 'tight stop' must be large enough to encompass the noise and a little more.

JO

 

[henry766]

i give up!!