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Flip The Coin System

  • #1
  • First Post: Sep 25, 2007 5:43pm Sep 25, 2007 5:43pm
Here I would like to conduct a little experiment. I am sure other people have done this before. I was joking so much about deciding based on flipping a coin the direction that I decided seriously to try it. So how we gonna do this. Here is the idea. I am going to use a random number generator to simulate the coin.

So what's the point? The point is that I would like to demonstrate that with rigoruous money management any entry methodology can be profitable. It doesn't really matter whether it is one of the countless indicators, or price patterns, support/resistance, pivots and so on.

This is not true? Really? Not convinced? Thinking this is not possible? Well let us see. The rationale behind this thread.

I will post later the position management behind and I will post for 2 - 3 months every day the trades and the results. I will also post the executable to generate the random number next week and will start the experiment on Thursday.

Have fun
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  • #2
  • Sep 25, 2007 5:47pm Sep 25, 2007 5:47pm
I might totally fail here , but I want to know whether it is possible and I am just curious what other traders are thinking.
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  • #3
  • Sep 25, 2007 5:47pm Sep 25, 2007 5:47pm
Here's an excel spreadsheet that might do the job. It has to be posted as a zip since FF doesn't allow excel.
Attached File(s)
File Type: zip Coin Toss Stock Prices and Chart.zip   33 KB | 1,955 downloads
  • #4
  • Sep 25, 2007 5:51pm Sep 25, 2007 5:51pm
Quoting philmcgrew
Here's an excel spreadsheet that might do the job. It has to be posted as a zip since FF doesn't allow excel.
Oh, wow. Thanks for the contribution.
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  • #5
  • Sep 25, 2007 5:56pm Sep 25, 2007 5:56pm
Dying to see the results...

Well, this thread will either end up forgotten in the FF's basement or goes to Forbes... Awesome r:r. Worth the shot...

  • #6
  • Sep 25, 2007 6:00pm Sep 25, 2007 6:00pm
Quoting cesarnc
Dying to see the results...

Well, this thread will either end up forgotten in the FF's basement or goes to Forbes... Awesome r:r. Worth the shot...

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  • #7
  • Sep 25, 2007 6:05pm Sep 25, 2007 6:05pm
Quoting cesarnc
Dying to see the results...

Well, this thread will either end up forgotten in the FF's basement or goes to Forbes... Awesome r:r. Worth the shot...

Cesar, I was also thinking about "the let the monkey decide", "or drop the stones", or "read the stars", "ask my wife and daughter" systems. But I thought I am gonna keep this simple and take my magic coins. The monkey or my wife might no always available.
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  • #8
  • Sep 25, 2007 6:08pm Sep 25, 2007 6:08pm
From the excel in post #3:

This workbook is used to show that coin tosses can generate charts that look very similar to the types of charts that technical analysts use to forecast future stock price moves. You will notice all of the same patterns as seen in normal stock (High Low Close) charts. This includes support and resistance levels, trends, and all of the familiar patterns (head and shoulders, triangles, etc). Just keep "flipping coins" until you see the patterns for which you are looking.
Each time you click the "Flip Coins" button, 150 random coin tosses are generated. These are shown as either Heads or Tails (though they are really 1's or 0's). For a Heads, the closing price moves upward. If a Tails is thrown, the closing price moves down.
The exact closing price is determined by the average change and standard deviations specified in the worksheet. Specifically, the change is a normally distributed random variable with the mean and standard deviation specified. The high and low prices are based on a random adjustment to the closing price. This adjustment is based on the same average change and standard deciation as the closing price. Note that setting the standard deviation to 0 will result in more of a "pure" coin toss metaphor. That is, the stock price will always go up or down by exactly the average daily percentage change. Any other standard deviation will result in a chart that looks more realistic and less mechanically generated. Regardless, the chart is always random (well, as random as Excel's psuedo-random number generator).
You can also run this simulation directly from the "Coin Toss Chart." Just switch to the chart sheet and click the button in the upper-left corner.
Timothy R. Mayes, Ph.D
Associate Professor of Finance
Metropolitan State College of Denver
[email protected]

AWESOME. This is what I am talking about. I knew that from my probability studies but at least this is done now.
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  • #9
  • Sep 25, 2007 6:15pm Sep 25, 2007 6:15pm
What about the details?

Risk
Leverage
R:R

And.. i know the direction is decided by the flip, but are you allowed to "cheat" and let the profits run if the flip direction is equal to the trend?



btw, euro is 4 pips away from new all time high
  • #10
  • Sep 25, 2007 6:19pm Sep 25, 2007 6:19pm
Quoting Warper
What about the details?

Risk
Leverage
R:R

And.. i know the direction is decided by the flip, but are you allowed to cheat and let the profits run if the flip direction is equal to the trend?



btw, euro is 4 pips away from new all time high
Yes the reason why I said Thursday to start the experiment because I don't know the details yet. Good point. Good question... Maybe we just flip it... Then trail the SL until it is hit then flip it again... Thats the point. The position management is the key to the success. I work out the details tomorrow. Today actually...
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  • #11
  • Sep 25, 2007 6:24pm Sep 25, 2007 6:24pm
Quoting bullrock
Yes the reason why I said Thursday to start the experiment because I don't know the details yet. Good point. Good question... Maybe we just flip it... Then trail the SL until it is hit then flip it again... Thats the point. The position management is the key to the success. I work out the details tomorrow. Today actually...
Thanks.

For now, i just want to do go to the cable thread or any other and say if you don't mind...

"See.... why did you pissed against the wind???"

Euro at new all time high!
  • #12
  • Sep 25, 2007 6:26pm Sep 25, 2007 6:26pm
Quoting Warper
Thanks.

For now, i just want to do go to the cable thread or any other and say...

See.... why did you pissed against the wind???

Euro at new all time high!
Or post "I told you so" thingy
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  • #13
  • Sep 25, 2007 6:32pm Sep 25, 2007 6:32pm
Quoting bullrock
Timothy R. Mayes, Ph.D
Associate Professor of Finance
Metropolitan State College of Denver
[email protected]

AWESOME. This is what I am talking about. I knew that from my probability studies but at least this is done now.
I actually corresponded with him a couple times. He's a pretty cool dude. He said that he taught technical analysis to some college students and after they thought they had everything figured out he showed them this and blew thier minds.

Playing with this spreadsheet may cause irreparable damage to your belief about technical analysis and your ability to trade shapes that you learned on Sesame Street. You are not going to have a lot of fans on this experiment. I can't wait!
  • #14
  • Sep 25, 2007 6:40pm Sep 25, 2007 6:40pm
Quoting philmcgrew
I actually corresponded with him a couple times. He's a pretty cool dude. He said that he taught technical analysis to some college students and after they thought they had everything figured out he showed them this and blew thier minds.

Playing with this spreadsheet may cause irreparable damage to your belief about technical analysis and your ability to trade shapes that you learned on Sesame Street. You are not going to have a lot of fans on this experiment. I can't wait!
Exactly. You've hit the nail on the head as they say. I am a junior quant, with some financial engineering and mathematics background plus I've been trading stocks for many years and fores for 2 years now. Last years I've been busy to accumulate a lot of probability, financial mathematics and modelling knowledge and now I know what I am talking about and just would like to see the reaction. I believe, think that all the wizardry with all the TA, funnny-mentals and all is entirely not necessary. just blinds. What IS important is in-trade and position and money management. But let us see first the results...
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  • #15
  • Sep 25, 2007 6:41pm Sep 25, 2007 6:41pm
I love the idea! Quite funny really. It does sound like playing blackjack at the casino where the house edge is the spread.. Do let us know how it goes though! :-)

Good luck.
  • #16
  • Sep 25, 2007 6:47pm Sep 25, 2007 6:47pm
Quoting peterM
I love the idea! Quite funny really. It does sound like playing blackjack at the casino where the house edge is the spread.. Do let us know how it goes though! :-)

Good luck.
Check back daily and you will see
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  • #17
  • Sep 25, 2007 6:50pm Sep 25, 2007 6:50pm
This guy is going to be our thread commentator:
Attached Image
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  • #18
  • Sep 25, 2007 7:42pm Sep 25, 2007 7:42pm
Bullrock,

sounds great. I am sure you are familiar with this, but Van K. Tharp and Ed. Seykota have done this before. You are right, it will be a fantastic way for people to see that risk management is the key. I am looking forward to all of the discussion that you will generate.


Take Care,
RSQ955
  • #19
  • Sep 25, 2007 8:00pm Sep 25, 2007 8:00pm
I read a book a while ago called The Encyclopedia of Trading Strategies that had some interesting info on exit strategies based on random entries. This may be of some use to you in determining how to exit or at least lend some food for thought.

Best Regards,
Ah.
  • #20
  • Sep 25, 2007 8:05pm Sep 25, 2007 8:05pm
Found this link to get a pretty good preview of the book .....
http://books.google.com/books?id=VcC...=title#PPA2,M1
Same Whore .... Different Dress
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