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Coin Flip - bias of an edge
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Coin Flip - bias of an edge

  #21 (permalink)
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podski View Post
For many discretionary traders there is a temptation and an understandable drive to be in a trade all the time. After all if you are not trading you can't MAKE money. At the end of the day of course you can look at your chart and say ... well there were only a few candles where it really looked good so I shouldn't have traded so much.

I do believe that there is an advantage of say - having a bias and stalking your trades from one side only. Seeing the market from either the long or the short side stops a trader from trying to see it from both sides all the time.
p

Very good points here. I have found that early in my trading I traded from both sides all of the time(Long and short). It kept me in a state of mass confusion and led to over trading and revenge trading.

IMO, you should have a trading plan that at any time in the day clearly tells you to be doing ONE of 3 things(and only ONE):
1. Look for long signals
2. Look for short signals
3. Do nothing

Contextual bias like this has been one of my bigger leaps forward and made an immediate impact in my results..

Wolf

PS.. and contextual bias can be as simple as "look long above an ema and look short below it".

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  #22 (permalink)
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I was always under the assumption that how a trader exits is their edge.

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  #23 (permalink)
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I use very poor entry signals but I'm good at placing my stop in accordance to where I plan on getting out. My edge is how I trail my stop and judge whether or not the volatility will breach where I put my stop to minimize risk. When and how I put my stop at break even or let my position ride out is crucial to my success. I'm a huge proponent for letting price make me money rather than trying to guess where price is going. It's a tough pill to swallow. There are traders out there that only need to be right 10% of the time. Don't get me wrong, entries are important but I believe how you manage your trades are more important. That's my whole philosophy in a nutshell.

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  #24 (permalink)
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Traderwolf View Post
Very good points here. I have found that early in my trading I traded from both sides all of the time(Long and short). It kept me in a state of mass confusion and led to over trading and revenge trading.

IMO, you should have a trading plan that at any time in the day clearly tells you to be doing ONE of 3 things(and only ONE):
1. Look for long signals
2. Look for short signals
3. Do nothing

Contextual bias like this has been one of my bigger leaps forward and made an immediate impact in my results..

Wolf

PS.. and contextual bias can be as simple as "look long above an ema and look short below it".

I second that three things rule. It's tricky to trade in two directions through the day. It's much easier to focus on either just trading long, or just trading short. It's almost like you have to switch your state of mind and it takes a while to start thinking the other direction, lol...

However, the less discretionary your trading is the less of an issue it is. I use to have real issues switching directions, but it's less and less of a problem as years of experience tack on and my trading becomes less discretionary.

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  #25 (permalink)
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Itchymoku View Post
I use very poor entry signals but I'm good at placing my stop in accordance to where I plan on getting out. My edge is how I trail my stop and judge whether or not the volatility will breach where I put my stop to minimize risk. When and how I put my stop at break even or let my position ride out is crucial to my success. I'm a huge proponent for letting price make me money rather than trying to guess where price is going. It's a tough pill to swallow. There are traders out there that only need to be right 10% of the time. Don't get me wrong, entries are important but I believe how you manage your trades are more important. That's my whole philosophy in a nutshell.

A big part of the OP was that I believe successful traders are far more skilled than they give themselves credit for, and that possibly what they believe is an edge for entering a market... Is not the real success, but rather the real success is found in how well they manage their trades, and why they do certain things once in a trade. (Been a few great points made in this thread!)

Thus my point of trying a coin flip entry. I think many traders would be very surprised at the results, and how they THINK during that time.

I also am a huge proponent of letting price make me money... A critical part of trading IMHO.

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  #26 (permalink)
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Another thing you also might want to note is that just because traders make good use of any entry they have doesn't necessarily mean that they don't make better entries than other more passive market participants. On the other hand, there might be a link between traders with bad entry and the ability to trade a coin toss because if they can get by without great entries then they'll never really need to learn how to make them in the first place. Correlation does not imply causation...


Last edited by Itchymoku; December 17th, 2013 at 10:29 AM.
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  #27 (permalink)
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solotrader View Post
In addition to Cashish's answer take a look at Chernoff's bound. The problem with small samples of populations is that you do not know if they are i.i.d. If you know the win rate is X then a small number of trades is required to confirm that within 1% accuracy but if you don't know that and it may actually be 50%, the number of trades you need goes to infinite. Sad but true. It's the sample size curse.

I don't know maybe iI don't understand the experiment, but in statement:

Quoting 
The problem is that we do not know how much our coin is biased, or referring to the Labor Day example, if the market is actually biased to generate more gains than losses on Fridays before the holiday. If we assume the bias, then the number of trials necessary to choose the wrong side with a small probability is small but such assumption is not justified because it is ad hoc and amounts to wishful thinking. The same it true in general when descriptive statistics based on limited samples are used. If the sample is due to a random sequence and the apparent bias is a fluke, then the statistics are useless, something that is the case 99% of the time. Obviously, relying on statistical flukes leads to disasters but it appears that many in the financial blogosphere are not aware of this fact. - See more at: Descriptive Statistics Flood the Blogosphere | Price Action Lab Blog

Chernoff questions the Labor Day bias. In our example we know (doesn't matter how) that the strategy has win rate of 80%.
So please compare apples to apples.

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  #28 (permalink)
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I will admit that I haven't read all of the replies in depth here but I'm going to add my two pence anyway. I used to work for a prop trading house and we behaved like market makers. My boss used to say, "If you're not buying you should be selling". So first thing in the morning I would enter a bid and an offer however many ticks above and below the market. Whichever got elected first was how I was going to trade for a while. That's a coin flip isn't it? It was a mean reversion strategy so if I got short and the market kept going higher I would keep shorting it every so many ticks and buying it back another fixed number of ticks as it retraced trading all the noise that the market could generate and accumulating a massive position. Eventually it would come back and I would take profit from all the little trades long the way and from the accumulated position. Yes, I held some massive positions, yes I was profitable 86% of the time, yes my losing days were gigantic, but overall I made money. So yes, you can make money flipping a coin. You just need deep pockets and big balls.

/W

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  #29 (permalink)
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Except for 2008/09


WolfieWolf View Post
I will admit that I haven't read all of the replies in depth here but I'm going to add my two pence anyway. I used to work for a prop trading house and we behaved like market makers. My boss used to say, "If you're not buying you should be selling". So first thing in the morning I would enter a bid and an offer however many ticks above and below the market. Whichever got elected first was how I was going to trade for a while. That's a coin flip isn't it? It was a mean reversion strategy so if I got short and the market kept going higher I would keep shorting it every so many ticks and buying it back another fixed number of ticks as it retraced trading all the noise that the market could generate and accumulating a massive position. Eventually it would come back and I would take profit from all the little trades long the way and from the accumulated position. Yes, I held some massive positions, yes I was profitable 86% of the time, yes my losing days were gigantic, but overall I made money. So yes, you can make money flipping a coin. You just need deep pockets and big balls.

/W

I agree that most times this will work, but I was full time trading in 2008... When the financial world unhinged, and markets fell drastically and rarely looked back. Big accounts got blown up as they bet the market would come back. So it is fine, until one day it isn't....

I think great traders could be profitable just flipping a coin for their entry, because so much of trading depends on the exits and risk management which are completely determined by that great trader. Which is why the common belief of having an "edge" for your trading signals isn't really what will make someone successful as a trader.

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  #30 (permalink)
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Totally agree with the sentiments here regarding 'edge'. Edge is in the trade management, not the entries. I'll gve you are perfect example. I used to be in an ES e-mini trade room lead by a former market maker. He used a version of market profile for his set-ups (mean reversion type trades). He called his trades in advance so everyone in the room could do the same trade. He had specified targets and one scale in point also. Everyone in the room had the same game plan.

Yet, a lot of people in the room were losing money. While the moderator and many others were making a killing. How is that possible. ALL the people had the same entries!!! Success was totally dependent on managing the trades and having the proper size.

I am convinced that the moderator who lead that room could flip a coin for his entry and he would be profitable. All his trades were of three types: small losers, small winners, or an occasional huge home run (a few every week). It was that occasional home run that made him successful.

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