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Random Line Theory
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Random Line Theory

  #61 (permalink)
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Michael.H View Post
You have to apply risk reward in terms of probabilities. Yes if you randomly go long with a risk of 2 points and a target of 5 points, you'll probably get your ass handed to you.

If the market trades its daily range, and you know historically that going back 5 years, that once it hits that range, it tends to traverse 60% of the time and reverse X amount of points, and you use good risk reward measure to enter, then I don't see why you can't make money, or at the minimum break even.

If you don't believe me, do it on sim for a month and see how it trades.

Fat tails, I'm developing a better way or signal you can add which gives you better results in terms of fading ADR bands. I'm still testing it, but if you want in, i wouldn't mind. I could probably use your help doing some back tests, bounce some ideas of each other anyways. Send me a pm and well talk

I am the first to admit that the risk/reward model works for some traders but i prefer to take a much easier path where i don't need to predict but just take whatever the market is willing to give. The risk/reward model is insidious in that you might feel the need to invent all kind of procedures to finetune your prediction. You kind of always feel there is one more step to reach as the future does not reveal itself that easily.

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  #62 (permalink)
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Thats why we also scale out my friend. Its one way to reduce risk. Take this for example.

Stop loss 3 points

profit targets +3,+4

Average loss 3, average profit 3.5

Its one lousy point, but it will make a huge differnce at the end of the month. Your first target essentially finances the second trade. Once you hit your +3, your no longer risking anything. When you say i take what i can get, your assuming you know whats going to happen, so you close it out before it goes against you. Its actually your method where you would probably need to fine tune your prediction, unless i'm misunderstanding the whole argument.

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  #63 (permalink)
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learn a lesson my last set of random lines was not suitable for this environment. So what to do? another set of random lines of course. and lunch time update. afternoon update. and final update and final final update. and one more.

Attached Thumbnails
Random Line Theory-cl-02-11-12_30_2010-5-min-.jpg   Random Line Theory-cl-02-11-12_30_2010-2-5-min-.jpg   Random Line Theory-cl-02-11-12_30_2010-3-5-min-.jpg   Random Line Theory-cl-02-11-12_30_2010-4-5-min-.jpg   Random Line Theory-cl-02-11-12_30_2010-5-5-min-.jpg   Random Line Theory-cl-02-11-12_30_2010-6-5-min-.jpg  

Last edited by cory; December 30th, 2010 at 05:27 PM.
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  #64 (permalink)
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I'll resume in the New Year.



Mike

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  #65 (permalink)
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One of my random lines landed on the 1.3000 level and saw some resistance there .

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  #66 (permalink)
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These are the same random lines from earlier this week, I haven't changed them as I've had my charts minimized for the most part and busy with other stuff.

But just want to point out how well price interacted with these lines today --- look at how they acted as support and resistance so well.

Mike

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  #67 (permalink)
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Here are the random lines for Monday Jan 3. I hit the random button on random.org to make these within a range of 89.50 and 93.50 (roughly 200 ticks up and down of where price is now).

Mike

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  #68 (permalink)
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Big Mike View Post
Here are the random lines for Monday Jan 3. I hit the random button on random.org to make these within a range of 89.50 and 93.50 (roughly 200 ticks up and down of where price is now).

Mike

And here is how the random lines, picked yesterday at complete random, have played out so far this morning. I sure hope you guys are having as much fun with this as I am.

I also hope that any assigned properties like "support" and "resistance" that you may assign to your own indicators are now being called into question, as you can see just how incredibly easy these random lines can appear to have the exact same properties.

Mike

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  #69 (permalink)
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maybe we should all switch to random lines trading

some random benefits;
- unclustered chart
- know far ahead where is you "s/r lines" thus giving you plenty of time to react
- at the same time you know they are random thus you are not emotionally involved in being right or wrong
- become a PA trader automatically


Last edited by cory; January 3rd, 2011 at 02:08 PM.
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  #70 (permalink)
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cory View Post
maybe we should all switch to random lines trading

It's pretty neat, right??

I hope it will drum up some conversation about the psychological impact of lines. What I mean is how we, the trader, and our minds end up assigning these properties to lines, like support and resistance. It is so easy to make those assumptions, to assign those values. And we can go into a lot of reasons why it makes sense to do so.

But then we have now several days of purely random lines that would seem to exhibit the same properties. To me, what this means is the lines are not important, what is happening is we are assigning importance to them. I mean, what else could it be?

I will keep going and keep posting daily charts so we can continue to gather some more samples. The results so far are very fun, at least.

I believe it was @Fat Tails that said that these lines are not important because they are just random, but other lines, like pivots, are not random and therefore carry more importance (or weight) because they are based on something that has logic behind it, or at least they are widely used which automatically assigns them more importance.

While I totally see the point of his argument and I even agree with it, hell I use pivots in my own trading, this entire thread really makes you question some of those beliefs.

@redratsal in the very beginning of the thread questioned whether or not we were exploring the Random Walk Theory, and maybe that is indeed exactly what we are doing. Are the markets random? It's an aged old debate, where I believe that the majority of people have a feeling of "The markets are somewhat random, but not completely random because they are driven by peoples actions".

But if people/traders are making trading decisions at random (which one could argue the majority of retail traders are), does that mean that since those decisions were random that the result ("the market") is also random? What I mean is that a lot of retail traders seem to have a plan or a system, a method, in place, but if you actually look at either what powers that method or at how the trader is actually executing on that method, I believe the results would be random. Maybe chaos is better than random.



Thoughts?

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
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2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
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4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers.
6)
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