TEB: Random Entry - Coin Toss Great with R.R.R. | Forex Factory

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TEB: Random Entry - Coin Toss Great with R.R.R.

  • #1
  • First Post: Edited Apr 22, 2014 7:43am Apr 17, 2014 3:43pm | Edited Apr 22, 2014 7:43am
Hi Guys :


I wanted to have some fun and show, what I believe is R.R.R, (Risk to Reward Ratio) is more important a systems.

Random Entry - Coin Toss Great with R.R.R.
Trying to predict whether a currency pair will go up or down is almost impossible. Some say we would have the same chance of success if we tossed a coin, and put a BUY trade if it came up heads and a SELL trade if it came up tails.
Though I do not believe this, I do believe GOOD S.E.T. (Stop/ Entry/Target) Rules & R.R.R. is more important. It's all about money management (M.M.). As long as the stop loss and take profit ratio are big enough so they cover the probability of making a loss, I should be profitable in the long run. Each trade will be 3% of account. I will start with $500.
I will place my trades on the hour chart each day between 4am and 9am by throwing a coin. The pair order is set. A trade will go until it is over. If a pair is being used and if used again would take out an older trade, we with substitute the GbpJpy for that trade . I will start to trade on Tuesday.

1. Random Setup Entry
Place a BUY trade if it comes up heads.
Place a SELL trade if it comes up tails.

2. Money Management
Exit – Stop Loss and Target will be 3 to 1 – 4+ to 1 RRR
1. Find a Stop Loss - Based on SDZ (Supply/ Demand Zone) and RN (Round Number) the Stop Loss must be at least 25 pips
2. Find a Target that is between 3 to 4+ times the size of the Stop Loss. Find this target using SMZ and RN..
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  • #2
  • Apr 17, 2014 4:15pm Apr 17, 2014 4:15pm
This seems a good system, but i have one question,:

Does the currency of the coin tossed makes a difference?

For example do I have to use a Euro coin to trade the EUR/AUD pair and a Aussie coin for the AUD/USD, or it doesn't matter?

EDIT: Also does trading with correlation with this method get a higher probability? For example In the pair EUR/AUD toss two coins one Euro coin and a aussie coin, and only if the two are in agreement you enter the trade.
  • #3
  • Apr 17, 2014 5:05pm Apr 17, 2014 5:05pm
Quoting Demos4x
This seems a good system, but i have one question,: Does the currency of the coin tossed makes a difference? For example do I have to use a Euro coin to trade the EUR/AUD pair and a Aussie coin for the AUD/USD, or it doesn't matter? EDIT: Also does trading with correlation with this method get a higher probability? For example In the pair EUR/AUD toss two coins one Euro coin and a aussie coin, and only if the two are in agreement you enter the trade.

I do not think it matters
- I have chosen 10 pairs to make it as random as possible
This is so I do not get one hot pair in trend or worse a chop pair and really make a differance.
I did not take odd pairs as they have more spikes.

Correlations again I am not sure it will matter - but again just in case I have a lot of pairs
  • #4
  • Apr 17, 2014 5:31pm Apr 17, 2014 5:31pm
Quoting Demos4x
Does the currency of the coin tossed makes a difference?

Quoting TEB63
{quote} I do not think it matters - I have chosen 10 pairs to make it as random as possible
Either someone is not very good at recognizing sarcasm or even better at returning it.
  • #5
  • Apr 17, 2014 5:34pm Apr 17, 2014 5:34pm
attention

paging mr. hanover
  • #6
  • Apr 17, 2014 5:55pm Apr 17, 2014 5:55pm
Should be interesting.
Will definitely follow.
Good luck!
  • #7
  • Apr 17, 2014 6:13pm Apr 17, 2014 6:13pm
Quoting spyderman
{quote} {quote} Either someone is not very good at recognizing sarcasm or even better at returning it.
you will have to flip a coin to get your answer
  • #8
  • Apr 17, 2014 6:14pm Apr 17, 2014 6:14pm
Quoting saussiche
attention paging mr. hanover
ok I do not get this
  • #9
  • Apr 17, 2014 6:25pm Apr 17, 2014 6:25pm
Quoting saussiche
attention paging mr. hanover
A coin flip determines whether to enter long or short (so programmable) but an automated system cannot look at a chart & make a rational decision about where to put the SL & TP. I know Hanover is a good programmer but that would be quite a program to pick the best SL & TP.
  • #10
  • Apr 17, 2014 7:18pm Apr 17, 2014 7:18pm
Quoting srt
{quote} A coin flip determines whether to enter long or short (so programmable) but an automated system cannot look at a chart & make a rational decision about where to put the SL & TP. I know Hanover is a good programmer but that would be quite a program to pick the best SL & TP.
ok I understand - I think you are right
  • #11
  • Apr 17, 2014 7:23pm Apr 17, 2014 7:23pm
TEB, you are right with your idea. The most important think - in my opinion - isn't the entry itself but how you will manage a trade once entered.
MT4/MT5 EAs/Indicators/Alerts coder
  • #12
  • Apr 17, 2014 11:26pm Apr 17, 2014 11:26pm
You are right R/R is the main factor.

I will be looking forward , keep posting about your results.

Good luck.
Discussion is an exchange of knowledge;argument is an exchange of ignorance
  • #13
  • Apr 18, 2014 3:21am Apr 18, 2014 3:21am
Lol, pretty sure this doesn't work. If it was that easy, there would be lot more profitable traders imo. Anyway, interested in your results.:-)
  • #14
  • Apr 18, 2014 3:33am Apr 18, 2014 3:33am
Quoting pbylina
Lol, pretty sure this doesn't work.
As he said in the 1st post, he wanted to have fun ... So let's see ... and have fun.

Anyway that's not trading but gambling ... There's a lot of gamblers (casino) who are profitable by using the right money management.
MT4/MT5 EAs/Indicators/Alerts coder
  • #15
  • Apr 18, 2014 4:32am Apr 18, 2014 4:32am
Van Tharp argues in Trading Beyond the Matrix that position sizing (his term for money management) is far and away the most important factor in determining the profitability of any trading system.

He phrases it in R multiples, where R is the initial risk. In experiments he uses a bag of marbles, where 80% of the marbles are losers (70% are 1R losers and 10% are 5R losers). The remaining 20% are 10R winners (you win 10 times as much as you risked)

The net effect of this is a positive 0.8R system (20% x 10 + 10% x -5 + 70% x -1)

In his experiments where marbles are drawn out of a bag (so the only variable is position sizing), and the starting equity is $100,000, around one third of his students lose all their money. Of the remaining two thirds, almost everyone has a different amount of equity after 30 marbles are drawn, ranging from a few thousand dollars to over $1m

He has also backtested random entry sytems and proved them to be profitable, albeit with very heavy drawdowns
  • #16
  • Apr 18, 2014 5:18am Apr 18, 2014 5:18am
Quoting TEB63
{quote} ok I do not get this
You can find Mr. Hanover an the string "does the martingale system really work. He is very experienced and has many insightrul comment on many threads.

He would probably laugh:

This would probably work as well as anything if the market were truly random. Just avoid tossing heads on a pair screaming downward with every pulse of your body, etc.

It could work in range-bound markets if you play this system for a while.

Play it long enough and you, will find very little profit for your efforts.

Ah, yes, what is randomness: a truly random infinite series would contain within it every non-random finite series that is possible: so how can you tell?
  • #17
  • Apr 18, 2014 5:26am Apr 18, 2014 5:26am
Quoting Andy B
Van Tharp argues in Trading Beyond the Matrix that position sizing (his term for money management) is far and away the most important factor in determining the profitability of any trading system. He phrases it in R multiples, where R is the initial risk. In experiments he uses a bag of marbles, where 80% of the marbles are losers (70% are 1R losers and 10% are 5R losers). The remaining 20% are 10R winners (you win 10 times as much as you risked) The net effect of this is a positive 0.8R system (20% x 10 + 10% x -5 + 70% x -1) In his experiments...

I think "10 baggers" are easier in Forex then stocks.
Forex is the best trending market in the world
  • #18
  • Apr 18, 2014 5:28am Apr 18, 2014 5:28am
Quoting Rap Skallion
{quote} You can find Mr. Hanover an the string "does the martingale system really work. He is very experienced and has many insightrul comment on many threads. He would probably laugh: This would probably work as well as anything if the market were truly random. Just avoid tossing heads on a pair screaming downward with every pulse of your body, etc. It could work in range-bound markets if you play this system for a while. Play it long enough and you, will find very little profit for your efforts. Ah, yes, what is randomness: a truly random infinite...

I think the range-bound market or "chop" would be its worse case
  • #19
  • Apr 18, 2014 5:43am Apr 18, 2014 5:43am
Quoting TEB63
{quote} I think "10 baggers" are easier in Forex then stocks. Forex is the best trending market in the world
I agree, in terms of individual stocks, but the stock indices tend to trend very well. I trade the Dow, FTSE, DAX, CAC and the Nikkei, and recently started trading the Swedish index too. The Dow can be a bit choppy because it only has 30 stocks within it, but the others trend very nicely. Gold and oil are favourites of mine too, more so than currencies. I do trade a number of currency pairs but on a longer term basis (using the 1H charts rather than the 15M charts I use for indices and commodities), as the daily movements on most currencies is rather sedate, other than exotic pairs but I hate the spreads on those!
  • #20
  • Apr 18, 2014 5:57am Apr 18, 2014 5:57am
The Law of Large Numbers dictates that at the end of your experiment you will break even...minus the spreads
You cannot be extraordinary by being normal
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