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Coin-Toss Trading Strategy

  • #41
  • Edited 11:47pm Feb 9, 2008 11:14pm | Edited 11:47pm
Quoting Ronald Raygun
I'm assuming that this binary system is an application of anti-martingale.

In that case, perhaps we need to go a different route.

http://traderpsychology.blogspot.com...toss-game.html















I'm working on an EA right now for this system. However, in manual back-trading, it looks like I would have made money. (Manual back trading uses tick data and "replays" the market for you to trade.)
There is nothing Anti-Martingale about the coin toss exercise.
It doesn't say how, or if, he varies his bet size after a win or loss.

To begin with, I don't believe it. I don't believe you can make a profit with a coin toss.
Whether you can or not, it isn't about money management.

EDIT-
I just put a pencil to Woodies coin toss and, mathematically, it's a loser.

50% of the time you'll get stopped out.
25% of the time you'll break even
25% of the time you'll hit profit
These are rough, but they're within 1 or 2%

That makes it a break even game. Then you have to account for transaction costs. In futures you pay a commission, plus you have slippage, on every trade, that you don't have in forex.

He fuzzies up the results by closing the trade if it goes nowhere in a certain number of bars. I don't think it will matter. That will probably deny him as many winners as it does losers.

I think it is bogus.
  • #42
  • Feb 9, 2008 11:26pm Feb 9, 2008 11:26pm
Quoting bjcool74
One thing about the Anti-Martingale. Anti-martingale is used when these traders have better odds like 70-30 or 80-20. It might e hard with 50-50 odds. Might blow up account faster with anti-martingale then with martingale
For anti martingale to work, there has to be something inherent in your system that causes wins to cluster.
The system would have to ride cycles.
Even then, for it to work, the increase in bet size would have to be proportional to the expectation of a consecutive win ocuring.
  • #43
  • Feb 9, 2008 11:41pm Feb 9, 2008 11:41pm
Quoting billbss
For anti martingale to work, there has to be something inherent in your system that causes wins to cluster.
The system would have to ride cycles.
Even then, for it to work, the increase in bet size would have to be proportional to the expectation of a consecutive win ocuring.
I remember reading in a book, that a lot of traders use this. However, they used this if they are in the zone. If they are making the right decisions and they have a great feel for the market, they try to take advantage of this. Then, when they are on a losing streak they trade smiler or even paper trade until the are back in the zone. I think it has to do more with your state of mind of the trader and having faith in the system you are using. maybe so gen should have used this.
  • #44
  • Feb 9, 2008 11:52pm Feb 9, 2008 11:52pm
Quoting bjcool74
I remember reading in a book, that a lot of traders use this. However, they used this if they are in the zone. If they are making the right decisions and they have a great feel for the market, they try to take advantage of this. Then, when they are on a losing streak they trade smiler or even paper trade until the are back in the zone. I think it has to do more with your state of mind of the trader and having faith in the system you are using. maybe so gen should have used this.
That's starting to sound like some kind of ESP.
It may be valid. I don't know.
I know that the math will prove that upping your bet size out of proportion to your win expectation will cost you money.
  • #45
  • Feb 10, 2008 12:08am Feb 10, 2008 12:08am
Quoting Ronald Raygun
As for your coin-toss argument, it's true that a string of infinity heads is possible. But what's the likelihood?

If, out of 100 tosses, the first 20 are heads, it is assumed that the remaining possibilities are 30 heads and 50 tails. In that case, on the 21st coin toss, there is a 62.5% chance of tails. It's that sort of probability which I think is worth looking at.

.
I just saw this.
I agree with you that an infinite string of heads(or tails) is a mathematical impossibility.
I disagree with the rest of what you said.
We'll assume the coin is not rigged.
If you toss 20 heads in a row, the chance that the next toss will be heads is 50%.

The reason is that the coin has no memory. The coin does not know that it has landed heads 20 straight times.
  • #46
  • Feb 10, 2008 12:20am Feb 10, 2008 12:20am
I know that the way i explained it sounds like ESP. In come into my trading room by Dr. Alexander elder page 228 he talks about it. Position sizing. It talks about how the focus of psychology and money management. How some traders where making millions and a few were losing, trading the same system. The traders were permitted to buy up to 700 shares per clip. There was one trader that lost 13 day in a row. He was told only to trade 100 share at a time. once the winning day out number the losing in a week increase your size 100. If the other way around drop 100. until your back up to 700. This is more to do with a psychological factor. I know we have all been there when your system is working great and your on top of you game making money. But what happens when you are on a losing streak with your system? Start to second guess yourself, and worry to much about losing money. What would you do? some would try to risk more to make that money back others might stop believing in that system. It make more sense to step back and trade smaller so you don't blow up your account or paper-trade.
  • #47
  • Feb 10, 2008 12:24am Feb 10, 2008 12:24am
Quoting bjcool74
I know that the way i explained it sounds like ESP. In come into my trading room by Dr. Alexander elder page 228 he talks about it. Position sizing. It talks about how the focus of psychology and money management. How some traders where making millions and a few were losing, trading the same system. The traders were permitted to buy up to 700 shares per clip. There was one trader that lost 13 day in a row. He was told only to trade 100 share at a time. once the winning day out number the losing in a week increase your size 100. If the other way around drop 100. until your back up to 700. This is more to do with a psychological factor. I know we have all been there when your system is working great and your on top of you game making money. But what happens when you are on a losing streak with your system? Start to second guess yourself, and worry to much about losing money. What would you do? some would try to risk more to make that money back others might stop believing in that system. It make more sense to step back and trade smaller so you don't blow up your account or paper-trade.
If you risk a fixed percentage of your account (say 2%) that will take care of itself.
If you're losing, you're automatically trading smaller lots. If you're winning, you're trading larger lots.
  • #48
  • Feb 10, 2008 12:40am Feb 10, 2008 12:40am
Quoting billbss
If you risk a fixed percentage of your account (say 2%) that will take care of itself.
If you're losing, you're automatically trading smaller lots. If you're winning, you're trading larger lots.
2% still adds up if your system has a bad month. I would trade 2% per trade with a max draw down of 6% for the month. Once you have hit 6% stop trading for the month and paper-trade. It might be just a bad month for the system. However, you are right about if you are losing 2% automatically you should be trading smaller lots. But it would be the same if you winning, your automatically trading larger lots. anti-martingale
  • #49
  • Feb 10, 2008 3:38am Feb 10, 2008 3:38am
The coin toss entry and MM (bet sizing, scaling in/out etc) topics have been done to death elsewhere. For example, my thoughts on MM here: http://www.forexfactory.com/showthread.php?p=1535129

IMHO, the most informative thread on MM on the entire forum is here:
http://www.forexfactory.com/showthread.php?t=34484

Anybody who believes that, for example, if a coin toss has produced an excessively high number of heads is now more likely to produce a tail, is suffering from "Gambler's Fallacy". Explained in this thread: http://www.forexfactory.com/showthread.php?p=1786938
Billbss is correct - the coin has no memory. Each toss is an independent event.

David
  • #50
  • Feb 10, 2008 5:34am Feb 10, 2008 5:34am
Quoting bjcool74
2% still adds up if your system has a bad month. I would trade 2% per trade with a max draw down of 6% for the month. Once you have hit 6% stop trading for the month and paper-trade. It might be just a bad month for the system. However, you are right about if you are losing 2% automatically you should be trading smaller lots. But it would be the same if you winning, your automatically trading larger lots. anti-martingale
You're trading larger lots after a number of wins, but not in relation to the size of your account. You're keeping the percentage constant. I don't believe that would qualify as an anti martingale.

Let me put it this way:
The only time you should raise the amount of your bet (as a % of your total bank) is when your expectation of winning increases.
  • #51
  • Feb 10, 2008 8:19am Feb 10, 2008 8:19am
Quoting billbss
Let me put it this way:
The only time you should raise the amount of your bet (as a % of your total bank) is when your expectation of winning increases.
That statement is very subjective my friend. The problem is how do you determine whether your expectation of winning increases? See what I mean?
  • #52
  • Edited 8:41am Feb 10, 2008 8:25am | Edited 8:41am
Quoting forexmoments
That statement is very subjective my friend. The problem is how do you determine whether your expectation of winning increases? See what I mean?
No.
The statement isn't subjective. The statement is a cardinal rule of sound money management. A person may not be able to determine that their chance of a win has increased. In that case they would continue risking the 2% (or whatever).
  • #53
  • Feb 10, 2008 9:38am Feb 10, 2008 9:38am
Quoting damonl
Paris, I enjoyed my time using the BES. If you have a system that wins more then 70% of the time with a 1.6:1 RR ratio, the BES should really shine.

Where can I find information on this Daily Oscilator System you are talking about?

Cheers,

Damon
The Daily Stochastics Oscillator System in on the Trading Systems forum and you will find a thread there stating Daily Stochastics Oscillator System #2. The take profit is 120 pips and the stop loss is 75 pips. v1.4 EA has been back tested for the full year of 2007 and has a 66% win rate with never losing more than 4 times in a row in that year. It should work as good as anything and better than most with binary equation. I doubt the luck of a coin toss can do any better. We know that binary equation is not martingale or anti-martingale. It's a diffent money management system but it is a progression. A coin toss with money management sounds very iffy and alot like gambling. So maybe this is better. Paris
  • #54
  • Edited 11:35am Feb 10, 2008 11:20am | Edited 11:35am
I originally meant for the coin toss to IMPROVE money management. Not to replace a trading system.

The whole point of this was to take an entry system with 50/50 chance of the trade going sour, and then develop a MM system to work off of it.

Does anything think this is reasonable? Or should I go a different route?
  • #55
  • Feb 10, 2008 4:06pm Feb 10, 2008 4:06pm
Since you are trading inside the volatility it doesn't change anything if you are going to buy or sell - just do it as you like and in most of the cases you are going to win, but since you will loos much more then you can win you will earn very very small amount each time.

Where is the original thread ???
  • #56
  • Feb 10, 2008 8:46pm Feb 10, 2008 8:46pm
Quoting Ronald Raygun
I originally meant for the coin toss to IMPROVE money management. Not to replace a trading system.

The whole point of this was to take an entry system with 50/50 chance of the trade going sour, and then develop a MM system to work off of it.

Does anything think this is reasonable? Or should I go a different route?
To begin with, you could say that no matter how you enter atrade, there is a 50/50 chance of you losing that trade. You will either lose or you will win is the bottom line. I would think that it is reasonable as long as your T/P was > 1:1 ratio. Anything less would be for a loss or at best break even.

The ultimate would be a 2:1 ratio where you could lose 2 and make up for it by winning one. Paris with a 1.6:1 with a 66% win rate is pretty darn good. The key is having the system that can do this for, then the MM is easy.

Cheers,

Damon
"Keep your eyes on the helpers" - Mr. Rogers
  • #57
  • Feb 10, 2008 10:39pm Feb 10, 2008 10:39pm
Damon,

I was under the impression you were going to use your Binary System or something and apply it to the Daily Stochastic entry system. The MM in the Binary System can't be THAT simple, can it?
  • #58
  • Feb 10, 2008 10:56pm Feb 10, 2008 10:56pm
Quoting Ronald Raygun
Damon,

I was under the impression you were going to use your Binary System or something and apply it to the Daily Stochastic entry system. The MM in the Binary System can't be THAT simple, can it?
Ronald,

It is and it isn't. But it does take into account a lot of factors. Everything is on a very nice spreadsheet where you plug in your beginning balance, risk, and results of your trades and all the calculating from there is done for you. I honestly don't know much about the formula, but I understand the concept.

First i am going to try the Daily Stochastic System and also my Pivot Point Trading Strategy. If you get a high % of wins the BES will be great, if not you can use your balance exponentially quicker then you can without it.
"Keep your eyes on the helpers" - Mr. Rogers
  • #59
  • Feb 10, 2008 10:58pm Feb 10, 2008 10:58pm
I thoroughly examined the Binary System, and billbs is correct. There is no risk reduction using the method. In fact, the way the "profits are up" e-book presents the advantage is flawed, and IMO the e-book should be pulled from circulation.

BTW, just because you made profits with binary in the past doesn't "prove" anything. You were merely lucky.
  • #60
  • Edited 11:34pm Feb 10, 2008 11:09pm | Edited 11:34pm
Quoting tdion
I thoroughly examined the Binary System, and billbs is correct. There is no risk reduction using the method. In fact, the way the "profits are up" e-book presents the advantage is flawed, and IMO the e-book should be pulled from circulation.

BTW, just because you made profits with binary in the past doesn't "prove" anything. You were merely lucky.
If you use your imagination, there is a very simple way to reduce your risk.

I've done some thorough research on Bulls as well and my buddy was correct. Where ever there is a bull there is bull****. And that is a true statement and it is also very funny....LMAO
"Keep your eyes on the helpers" - Mr. Rogers
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