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In a message dated 9/23/98 10:28:26 AM, logical@xxxxxxxxxxxxx writes:
<<I've long wondered if there is a way to treat things essentially as random,
flipping a coin for long or short. The essence of the system would then be
to manage the trade according to some clever profit/loss plan. Has anyone
tried such an approach? Is it viable? Is it patented?>>
Dr. Van Tharp (Market Wizards fame, has a website at http://iitm.com ) and
Tom Basso (Trendstat, a CTA firm amanging about 700 million) have done
studies along these lines and have concluded that money can indeed be made by
using random entries combined with trend following exits that let profits run
while cutting losses. The problem is that you need lots of capital to trade
lots of markets and the drawdowns are huge.
I have often wondered if you couldn't make a reasonable amount by entering
five or more uncorrelated markets simultaneously on a random basis and then
employing this exit technique. No new trades would be entered until all
positions were closed and then you repeat the process by entering all the
markets again. Many years ago I used to win bets by allowing dinner guests
(usually commodity brokers) to give me trades to put on in my account the
next morning. Their objective was to give me the worst trades they could
think of so I would lose money. My goal was to handle the exits so that the
net result after closing out all the trades was a profit. I never lost a bet
and it wasn't that difficult but I wouldn't recommend this as a trading
method. (Although fading broker advice might be the ideal entry method come
to think of it.)
Here is a good exit to test against random entries. If you are long, sell on
a stop only when the price declines three average true ranges from the highest
high since you entered the trade. Do just the opposite if the random entry
puts you short.
Chuck
http://traderclub.com/
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