Thread: Random Price Movement

95328Very thread here. As a new Currency Market trader, I've been so overwhelmed with all the information available concerning trading my head began to spin. I have decided that for my own trading egy, I'd give priority to developing a good money management plan. I'm of the view that someone with technical analysis skills and a money management strategy has a higher probability of failure compared to someone with a money management plan that is strong. Can profitability in trading exist using a coin toss and a money management egy?

I'd love to run an experiment using a demo account someday using a coin and a simple money management strategy to find out how it stands out. I believe in keeping things simple, so perhaps something like the following:

throw coin.
Heads=long 1 lot
Tails=brief 1 lot
Risk=20 pips
Bonus =80 pips

With the odds of a head or tail coming up at 50%, and my cash direction risk/reward ratio at 4:1, I'd need to be erroneous 4 times to every 1 time that I was right, simply to be even. If I was right 4 times, I'd need to be erroneous 16 times to break back to even. Shouldn't I be profitable in the long run with this money management plan and a coin toss?

I'm still quite new to trading but it seems to me that a good technical analyst must do better than a simple coin toss and will improve the odds of a trade going in his favour. I know I have simplified this and have not taken into account spreads and interest expenses, but you get the idea. I'm sure something like this has been discussed and debated already but I have not stumbled across it . I'd really like to hear everybody's thoughts.

95328

Originally Posted by ;

Very interesting thread . As a new Currency Market trader, I've been so overwhelmed with all the information that my head began to spin. I have decided that I would give priority to developing a money management plan. I am of the opinion that somebody with good technical analysis skills and a bad money management strategy has a greater probability of failure compared to somebody with a money management plan that is strong. Can profitability in trading exist only with a currency management egy and a coin toss?

I'd love to conduct an experiment with a demo account using a coin and a very simple money management strategy to find out how it pans out. I believe in keeping things simple, so maybe something like the following:

throw coin.
Heads=extended 1 lot
Tails=brief 1 lot
Risk=20 pips
Bonus =80 pips

With the probability of a head or tail coming up at 50%, and my money management risk/reward ratio at 4:1, I would need to be erroneous 4 times to every 1 time that I had been correct, just to be even. I would need to be erroneous 16 times to break, When I had been correct 4 times. Shouldn't I be profitable in the long run with this money management plan and a coin toss?

I am still quite new to trading but it appears to me that a fantastic technical analyst should do better than a simple coin toss and will improve the probability of a trade moving in his favour. I realize I have simplified this and haven't taken into account spreads and interest expenses, but you get the idea. I am sure something like this has been debated and discussed already but I haven't stumbled across it yet in this sea of information. I'd love to hear the thoughts of everyone.

Only for haha's I looked at the GBP/USD out of 7/31/06 through today (hardly a complete data collection ). I used a quarter to ascertain long or short (heads long, tails brief ). I purchased the price and used your stoploss/takeprofit. Positions were stored until win or lose or until the bar that was 3am. No move to B/E. I did account for disperse.

Out of 23 transactions 5 were winners. Web pips = 20.

I have a lot on my plate at this time but if I get a chance I'll signal a egy at Tradestation so that I will change the variables and run it on larger data collection.

Kind of amusing to look at but I will agree with you that Ris quite important. I would go so far to say that lots of folks would do better by focusing a little less on trying to post crazy triumph % and more on improving their R:R.

95328

Originally Posted by ;

I got to thinking about it and that brings up a fascinating point. There was no prejudice here, since it was random and yet here is the pattern. What caused it? Well it would be simple to say regarding a market that there were more sellers than buyers or tail than heads, however on a deeper level is not true. What there was, was congregation of tails to heads in a data set. Since there is not any prejudice in this instance it is random, this tells nothing of trend at all.

It makes no sense at all to look at little data sets in almost any market and attempt to ascertain a cause for movement... Only using a larger sample can even a trend be seen. And that is due to a self fulfilling prophecy.

Hi!

First thanks to Phil for this interesting contribution!

BUT I have to generate some comments:

Already about 15 years ago I prgrammed a tiny program that did exactly the same (no EXEL,pure DOS). So far as I can recall you had to perform the following in order to achieve
these amazing similarity to actual chart-movement:

* create a random number (random walk,but limited in its movement by particular rules;as
Professor Mayes pointed out in his XLS-file)
* AND (and this is my point) one has to RESTRICT THE
DIRECTION of those movement.Otherwise there is no
chart-like behavior.
This would be done by tossing another coin along with the easy rule which the new price follows in ca.67% the
movement of the preceding price. Only in 33% there
would be the likelihood of change in management.

This would mean that there IS A CERTAIN BIAS programmed.

So it is not quite as simple as throw a coin and place a commerce
(BTW there is alos a third possibility: going sideways).


Sorry to disappoint you, !

But on the other hand,there ought to be a similar prejudice in
the actual market (a pure thing).

And that ought to be the actual reason why one can produce
random numbers which look quite similar to chart-movements.


But,still it is amazing and well worth being mentioned!

Thanks,

95328

Originally Posted by ;

Very interesting thread here. As a new Currency Market trader, I've been so overwhelmed with all the information available about trading that my head began to spin. I've decided that for my own trading egy, I'd give priority to developing a money management plan that was good. I am of the view that somebody with good analysis skills along with a money management plan has a higher probability of failure compared to somebody with a solid money management plan. Can profitability in trading exist simply using a coin toss along with a solid currency management egy?

I'd love to run an experiment using a demo account someday using a coin along with a very simple money management plan to see how it pans out. I believe in keeping things simple, so maybe something like the following:

Toss coin.
Heads=extended 1 lot
Tails=brief 1 lot
Risk=20 pips
Bonus =80 pips

With the odds of a head or tail coming up in 50 percent, and my money management risk/reward ratio at 4:1, I'd have to be wrong 4 times to each 1 time that I had been correct, just to be even. I'd have to be wrong 16 occasions to break When I had been correct 4 times. Should not I be profitable in the future with this money management plan along with a coin toss?

I am still very new to trading but it appears to me that a good technical analyst should do better than a simple coin toss and will improve the odds of a trade going in his favour. I understand I've simplified this and have not taken into account interest and spreads expenses, but you get the idea. I am sure something similar to this has been discussed and debated but I have not stumbled across it in this sea of information. I would really like to hear the thoughts of everyone.

Hemico,

I wish I had concentrated more on money management and less on technical analysis when I started trading. Money management isn't sexy. Telling your friends that you are will bring you a lot more compliments. 1 thing I'd caution you against however: Just saying that you need 4:1 reward doesn't make it so. I visit a lot of people tell the market how much they would like to create and it doesn't work that way. The more accurate your system, the reward you want to reside on. 4:1 is great and that is great in the event that you can get it. But to be honest, I know men and women that come remotely close to that.

Phil

95328While I agree with Phil that you can not simply pull a number out of your hindquarters....

Really, I agree with Phil on a lot of things. I've found it is a smart thing to do as he is among the traders I've ever met. Enough of the

For a specific entry you are able to test the potency of a specific exit egy say such as a trailing stop or ema cross. You are able to test a exit the same manner. That info can be helpful in determining 1) goals 2) reasonable R:R.

I utilize static goals as a guide. I utilize exit to be determined by TA. I really do have. Unless I feel I have a reasonable expectation that 4:1 could be reached, I really don't input those installments.

95328

Originally Posted by ;

The more accurate your machine, the less reward you need to reside on.
Phil

I'm not certain if I know your position concerning randomness in market prices. How would one expect to achieve some degree of accuracy if price action could be explained by motions?

95328I disagree. I also have composed a coin toss generator, but for your example here it isn't vital. All one must do is plot the throw of a coin, Heads or tails out of. If heads graph = 1 if tails graph = -1 and then take a cum(throw (n))

This could create a running total of the and - 1s to a chart and it's arbitrary and therefore has no bias. It is merely a total. This produces the very same patterns we have seen here.

I am never disappointed. Occasionally I am wrong, but never disappointed. As a trader, I don't have that luxury.

Thanks Scott

Originally Posted by ;

Hi!

Initial thanks to Phil for this interesting contribution!

BUT I need to make some remarks:

Already about 15 years back I prgrammed a little program that did just the same (no EXEL,pure DOS). As far as I could recall you had to do the following in order to achieve
these amazing similarity to actual chart-movement:

* produce a random number (random walk,but limited in its motion by certain principles;as
Professor Mayes pointed out in his XLS-file)
* AND (and this is my point) one must RESTRICT THE
DIRECTION of the movement.Otherwise there's no
chart-like behaviour.
This could be carried out by pitching another coin and the simple rule that the new price follows in ca.67% the
motion of the previous price. Only in 33% there
are the CHANCE of change in management.

This would indicate that there IS a particular BIAS programmed.

So that it isn't quite as simple as throw a coin and place a commerce
(BTW there's alos a third chance: moving sideways).


Sorry to disappoint you, !

But on the flip side,there ought to be a similar bias in
the actual market (a natural thing).

And that ought to be the actual reason why one can produce
random numbers that appear very similar to chart-movements.


But,still it's amazing and well worth being said!

Thanks,
McD

95328

Originally Posted by ;

I'm not sure if I know your position with regard to randomness in market prices. How would one expect to achieve any degree of accuracy if price action could be explained by random movements?

For the record, I do believe in technical analysis. As stated previously, we could count on greed fear, and a herd mentality. I guess that my point is that some movement is purely random and a little luck does not hurt. I think when folks say things such as the USD can go up 30 pips and then pat themselves when it happens may have become the unknowing recipient of a movement rather than a skilled tech. I highly recommnd the book called Fooled. I believe that the more you understand that there is an element of randomness in the market the more you should realize that you better have some sound money management practices.

You'll be able to hope to achieve precision by investing in a system which you belive gives you a slight advantage and then letting risk management and money management manage the rest. It is the best we could do.

95328Certainly that the idea of randomness in the markets is intruiging, but I only have a difficult time reconciling the influence of randomness on the markets with the forces of supply and demand. I can't help but believe it's a minor one if randomness does play a part. Where's this article by Darkstar?

95328

Originally Posted by ;

Surely the idea of randomness in the markets is intruiging, but that I only have a difficult time reconciling the effect of randomness on the markets with the forces of demand and supply. I can't help but think it's a minor one if randomness does play a part. Where's that article by Darkstar?

Supply and demand is created by traders taking action on their beliefs. I believe that the question is whether their beleifs are based on analysis or if there's a little randomness. I am not out to change the entire world. It takes all kinds to create a market. There would be no one to take the side of our transactions if all of us thought. You believed what I needed to say and I appreciate that. I hope you're among those that gave it a try and downloaded the dictionary. I wish you the best.

Phil