Random entry with good money mgmt

[ASD]

Hi folks,

I can't remember where but I have heard of a test that was done in the FX market a few years back. The details might be slightly out but it went something like this...

A successful spot trader had two lights placed on his desk, one green & one red. If the green light came on he was to assume he had a long position at the current market price, if the red light came on he had to assume he had a short position at the current market price. Once either light came on he had to trade that position accordingly.

Interestingly, he was able trade these random entry positions successfully simply by immediately cutting the positions he didn't like and holding on to the ones he did like.

Can anybody point me toward a web site or book that mentions this test? Was it Market Wizards? I just can't remember. I'd like to mention it in my upcoming book but can't really do that without some sort of reference....

Cheers,
Alex.

[bobnat]

I've read the Market Wizards books and never saw that. Maybe it was the third one, which I didn't read.

However, it's an interesting story. If you do find the source, could you please post it here?

Whether true or not, it drives home the importance of money management and the relative unimportance of entry.

The last few weeks I've done a lot of work crunching numbers and deeply exploring money management. It's fascinating to see how a system with a 35% win rate can make so much money.

Nat

[foamgod]

Originally Posted by bobnat

I've read the Market Wizards books and never saw that. Maybe it was the third one, which I didn't read.

However, it's an interesting story. If you do find the source, could you please post it here?

Whether true or not, it drives home the importance of money management and the relative unimportance of entry.

The last few weeks I've done a lot of work crunching numbers and deeply exploring money management. It's fascinating to see how a system with a 35% win rate can make so much money.

Nat

Nat, do share............

[bobnat]

Originally Posted by foamgod

Nat, do share............

Send me an email.

Nat

[foamgod]

Originally Posted by bobnat

Send me an email.

Nat

Sent.....................

[xtsunami]

bobnat,

It is funny especially if you put things in the context of this forum where a majority seem to think the robustness of a strategy is based on the won-loss percentage rather than the management of risk-reward.

My goal is to be profitable even if the win-loss precentage slips to 30% or below, much less stressful than trying to be perfect.

XT

[yasirdxb]

Originally Posted by xtsunami

bobnat,

It is funny especially if you put things in the context of this forum where a majority seem to think the robustness of a strategy is based on the won-loss percentage rather than the management of risk-reward.

My goal is to be profitable even if the win-loss precentage slips to 30% or below, much less stressful than trying to be perfect.

XT

I would like to ask our members, when they claims that they made 90% or

100% last month,how much they were risking to gain that profit.most of them

have no idea about it. everything goes fine until a few trades goes wrong and

they are out of the game.you should consider the risk you take in a trade,

when you calculate the gain.

trader A risking 2% in each trade and made a 20% monthly gain.
trader B risking 10% in each trade and made a 50% monthly gain.

who is better than the other? if you ask this question to our members, most

of them will say its trader B,becoz he made 50%.

Yasir.

[bobnat]

Originally Posted by xtsunami

bobnat,

It is funny especially if you put things in the context of this forum where a majority seem to think the robustness of a strategy is based on the won-loss percentage rather than the management of risk-reward.

Xtsunami,

I'm reminded of something Van Tharp wrote. He had met a successful trader who was teaching his trading methods at a seminar. It was back in the 80's and I think it was Tom Basso. VT asked him if he were afraid of having hundreds of people trading his system that it might not be as effective. The trader replied that not at all because he knew that only about 1% of them would trade it EXACTLY the way they were taught.

VT became interested and they worked for the next two years tracking people who took the trader's seminar. At the end of this time they found that less than 1% of the participants were successfully trading the system. At least 60% NEVER traded it, and the other 39% tried it, modified it, then gave up.

To address your point, I guess it's an evolutionary thing with traders. I doubt any start out thinking about money management. Most go broke, and the few that can get to the point of understanding it have a chance of surviving and making money. But considering we're all chasing the same dollar, that's a good thing in the long run.

My goal is to be profitable even if the win-loss precentage slips to 30% or below, much less stressful than trying to be perfect.
XT

I have also arrived at the point where I understand the need to be right has nothing to do with making money. It's amazing how much stress has been removed from my life now by this one change in my thought patterns.

Nat