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

  #1 (permalink)
Market Wizard
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Coin Toss Experiment (Strategy)

I posted this in the Futures Trader Webinar Thread,
Big Mike suggested I create a new thread...
This is it


I've attached a strategy below.
It was created to show the results of trading with random entries.

It is just a quick attempt to code this and I've not tested this.
It may not be error free so only use it on Simulation.

After creating it I came up with several ideas to improve it:
  • A better random generator
  • Randomize the delay time for re-entry
  • Trail the stop on the first and/or second contract

If anyone is interested the strategy is below.
Freely modify, add, delete as you wish.

The merits of this type of strategy is not to see if it works
but to see how important STOPS and money management are.

Here are the assumptions:
  • Flip a coin.
  • Heads go long
  • Tails go short.
    (this is accomplished by a random class in NT Script)
  • A trade is taken either short or long as indicated by the random generator.
    -
  • Once a trade is initiated, a 5 Tick stop is added and two targets.
  • One target at 5 Ticks profit.
  • One target at 10 Ticks profit.
    -
  • When the trade closes either win or loss and is flat,
  • the script waits 30 seconds.
  • Then another trade is generated by a coin flip.
    -
  • This continues until the Sample Size is completed. (Default 30 trades)
The number of contracts traded, targets, stops, sample size and time to wait can be configured by the user.



CoinToss Strategy:

If you want to test this, use the one in post #7
The one attached to this post has an error in the stop

Rejoice in the Thunderstorms of Life . . .
Knowing it's not about Clouds or Wind. . .
But Learning to Dance in the Rain ! ! !
Attached Files
Register to download File Type: zip CoinToss.zip (2.1 KB, 67 views)

Last edited by DavidHP; May 3rd, 2012 at 05:45 PM.
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  #3 (permalink)
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DavidHP View Post
  • Flip a coin.
  • Heads go long
  • Tails go short.
    ....
  • Once a trade is initiated, a 5 Tick stop is added and two targets.
  • One target at 5 Ticks profit.
  • One target at 10 Ticks profit.
CoinToss Strategy:

First, what will this prove? Second, 30 trades is not numerically significant enough to draw any conclusions.

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  #4 (permalink)
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I am a big fan of quantum theory, and have often wondered if observation has an effect on outcome at the micro-scale. This will be interesting to test.

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Caveman View Post
I am a big fan of quantum theory, and have often wondered if observation has an effect on outcome at the micro-scale. This will be interesting to test.

See the Global Consciousness Project over at Princeton. Some astonishing results.

"...the degree to which you think you know, assume you know, or in any way need to know what is going to happen next, is equal to the degree to which you will fail as a trader." - Mark Douglas
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  #6 (permalink)
Market Wizard
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monpere View Post
First, what will this prove? Second, 30 trades is not numerically significant enough to draw any conclusions.

It is not designed to "prove" anything.
It is as the title suggests "expermental".

If you want to take the time to test long enough to make it "significant" then increase the sample size to the limits of your patience.

I do not have an opinion or an arguement about the value of such an experiment.
But if I did, then the experiment would probably be biased.

I think the most important thing to do in testing this is to use 2 to 1 or more Win / Loss ratios

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Knowing it's not about Clouds or Wind. . .
But Learning to Dance in the Rain ! ! !

Last edited by DavidHP; April 30th, 2012 at 01:47 PM.
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  #7 (permalink)
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I found an error in the code where it was not placing stops the total number of orders placed.

Please use this version and discard the first one.

Thanks,

Rejoice in the Thunderstorms of Life . . .
Knowing it's not about Clouds or Wind. . .
But Learning to Dance in the Rain ! ! !
Attached Files
Register to download File Type: zip CoinTossV1.zip (2.1 KB, 72 views)
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  #8 (permalink)
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Random contributions of dubious quality:

For an RNG, I'd suggest a mersenne twister.
Thoughts on implementing a trailing stop instead of a target?
Care to expand on "merits of stops and money management"?

Blargh there was something else but it's too late. Going to be a fun london open.



P.S. lulz from the good ole days of T2W (hard to believe there were any!) How not to make money trading the markets
P.P.S. There is an edge in that thread if anyone cares to look, nobody has ever mentioned it to me, but then again, it's probably too small to interest them.

Dovie'andi se tovya sagain.
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  #9 (permalink)
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so i have been extensively manually testing this approach on a realistic sim and it has a positive expectancy.

I have been trying to find the coding for tradstation or MT4 but i guess i will just have to make a strategy.

so the whole idea that makes this approach a positive winner is the 1/2 off at 1:1 and remainder at 2:1 reward to risk. dont touch the stop. very very simple. easy to code as well.

so far with coms factored in at $4 R/T it has an expectancy of $6.3 per trade.

42% winners 48% losers. 10% b/e. 98 trades over 3 days.

this definitely should be looked into further... especially if a system and be implemented to change to 50% winners.... the expectancy can jump to $25 or so.

this is simple probabilities really...

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Cryder17 View Post
so i have been extensively manually testing this approach on a realistic sim and it has a positive expectancy.

I have been trying to find the coding for tradstation or MT4 but i guess i will just have to make a strategy.

so the whole idea that makes this approach a positive winner is the 1/2 off at 1:1 and remainder at 2:1 reward to risk. dont touch the stop. very very simple. easy to code as well.

so far with coms factored in at $4 R/T it has an expectancy of $6.3 per trade.

42% winners 48% losers. 10% b/e. 98 trades over 3 days.

this definitely should be looked into further... especially if a system and be implemented to change to 50% winners.... the expectancy can jump to $25 or so.

this is simple probabilities really...


It is indeed simple, but even simple things need to be understood.





I know that I can be mean, but it is my vocation to stop all varieties of nonsense.

The experiment cannot have a positive expectancy by design.

The expectancy is at best zero before slippage and commissions, it is negative after slippage and commission.



@DavidHP: it is difficult to draw any conclusions on money management from an approach that does not have a positive expectancy. The objectives of money management are

-> to understand trading related risks
-> to understand the likelyhood of drawdowns
-> to calculate position size in order too obtain maximum growth within an acceptable framework of risk

However, if your expectancy is negative, the optimal position size is zero. There is nothing to be discussed.


Last edited by Fat Tails; May 3rd, 2012 at 03:13 PM.
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