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Coin Toss Experiment (Strategy)
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Coin Toss Experiment (Strategy)

  #41 (permalink)
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bryanzim View Post
After implementing a random entry with a scale exit system in Multicharts.NET using the E-Mini(ES) open outcry system and exiting any open orders at the end of the day, the results confirm what has been expressed in this thread before. Basically with a risk/reward ratio of 1:1 for target 1 and 1:2 for target 2 and exiting 50% at target 1 and 50% at target 2 and no movement of the stop if target 1 reached, the result is that the expectancy is approximately 0 using 3 months of tick data.

Some runs have a small positive result and some runs have a small negative result depending on the initial seeding of the the random number generator but the average is very close to 0.

I haven't tried different Risk/reward ratio's yet but without an edge straight scale out at the above targets is a losing system when commissions and slippage are taken into account.

Suggest you include a reverse of the r:r so you include 2:1 or even 3:1. I find in all the testing I've done that a bigger stop than target is more profitable than the traditional smaller stop and bigger target. However, I've never studied this using a coin toss for entries. Would be interesting to see if the coin toss results show the same as what I've seen.

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  #42 (permalink)
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Quoting 
Suggest you include a reverse of the r:r so you include 2:1 or even 3:1. I find in all the testing I've done that a bigger stop than target is more profitable than the traditional smaller stop and bigger target. However, I've never studied this using a coin toss for entries. Would be interesting to see if the coin toss results show the same as what I've seen.

I ran the random entry with all-in/all-out at a 2:1 and 3:1 risk/reward ratio. The win percentages went up to 66%(2/(1+2)) and 75%(3/(1+3)) as suspected and the expectancy was basically 0 in both cases also.

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  #43 (permalink)
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bryanzim View Post
I ran the random entry with all-in/all-out at a 2:1 and 3:1 risk/reward ratio. The win percentages went up to 66%(2/(1+2)) and 75%(3/(1+3)) as suspected and the expectancy was basically 0 in both cases also.


bryanzim View Post
After implementing a random entry with a scale exit system in Multicharts.NET using the E-Mini(ES) open outcry system and exiting any open orders at the end of the day, the results confirm what has been expressed in this thread before. Basically with a risk/reward ratio of 1:1 for target 1 and 1:2 for target 2 and exiting 50% at target 1 and 50% at target 2 and no movement of the stop if target 1 reached, the result is that the expectancy is approximately 0 using 3 months of tick data.

Some runs have a small positive result and some runs have a small negative result depending on the initial seeding of the the random number generator but the average is very close to 0.

I haven't tried different Risk/reward ratio's yet but without an edge straight scale out at the above targets is a losing system when commissions and slippage are taken into account.

So, basically taking your findings. Trade management does not matter from a expectancy point of view. Over a large enough sample size all methods converge to 0. So it becomes a function of personal preference vs any mathematical gain caused by the usage of such methods. Basically the edge comes down to the trader, how he manages that edge in a specific situation may increase or reduce profits. But in the long run, no trading management technique is superior to any other.

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  #44 (permalink)
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treydog999 View Post
So, basically taking your findings. Trade management does not matter from a expectancy point of view. Over a large enough sample size all methods converge to 0. So it becomes a function of personal preference vs any mathematical gain caused by the usage of such methods. Basically the edge comes down to the trader, how he manages that edge in a specific situation may increase or reduce profits. But in the long run, no trading management technique is superior to any other.

I think you have summarized it pretty succinctly whereby the trader must have an actual edge for the straight long/short method of trading in order to make a profit. Management would be used to fit the traders personality as well as control drawdown along with sizing during adverse periods.

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  #45 (permalink)
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Now I guess the next step would be to do trailing stops, or break even stops. I just came to think of it. I think these may have skewing effects because they adjust during the lifecycle of the trade as opposed to being fixed. I may try to run this myself. My hypothesis is that its going to be detrimental, because in essence these things only occur when you have gotten MFE, not when you have incurred MAE. So your always taking your full loser when it comes straight down. But you take smaller winners in general because of the trail or BE stops.

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  #46 (permalink)
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Is there any difference between the expectancy and the edge? Or can both these terms be used interchangeably?

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  #47 (permalink)
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trendisyourfriend View Post
Is there any difference between the expectancy and the edge? Or can both these terms be used interchangeably?

they are interchangeable.

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  #48 (permalink)
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trendisyourfriend View Post
Is there any difference between the expectancy and the edge? Or can both these terms be used interchangeably?

In my opinion an edge is knowledge that a trader has developed about market movement which leads to a positive expectancy when properly applied. So if you have a positive expectancy then you must have an edge, but an edge does not guarantee a positive expectancy without proper application.

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  #49 (permalink)
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bryanzim View Post
In my opinion an edge is knowledge that a trader has developed about market movement which leads to a positive expectancy when properly applied. So if you have a positive expectancy then you must have an edge, but an edge does not guarantee a positive expectancy without proper application.

How do you differentiate between a stroke of good luck and an edge? At what point can you say 'I trade with an edge'?

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trendisyourfriend View Post
How do you differentiate between a stroke of good luck and an edge? At what point can you say 'I trade with an edge'?

That is the $64 question. In my opinion a stroke of good luck will eventually run out but a true edge will keep on going until the markets change which leaves you with another problem as to when to recognize that you no longer have an edge.

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