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Strategies & Market Trends : The Great Coin Toss Experiment II -- Ignore unavailable to you. Want to Upgrade?

To: Sojourner Smith who wrote (179)	6/17/2003 5:43:37 PM
From: Sojourner Smith	Read Replies (1) \| Respond to of 188

I think it is humbling to think that even knowledgable traders can't beat a coin toss. So I am going to try and give up my ego and develop some ideas win both ways. First lets talk about the coin toss: My position sizing method I came up with is risker than I would feel comfortable with, I had to double it to cover prior losses. However, I think there should be a limit the entries or way to do a different optimized ratio. Lets look at comparing a coin toss to daily market direction like Jorge was using. He would use his TA to pick the daily move. He had a slight edge over the coin. One could approach this several ways (1) heads is an up day and tails are a down day. or 2) one could use TA as the coin. For instance, the developer of the Cyclone system has a free Tradestation indicator that read the market during the start of the day and guesses the direction. It is claimed to be right 80% of the time better than a coin. So one could "bet" on it and if it fails then double the bet say no more than 2 times. The argument I had with WLD was really about that neural nets would be worthless if they are right only 50/50. I contend that such a indicator could still make money if position sizing is used. (or if the payout favors the trader.) The difference between TA and a coin is the payout would be different unless a target as well as a stop loss were used. So the goal is to have a high probability "coin" (80/20 funny coin) and position sizing to make up for mistakes and maybe stops and targets. (works better for daytrades than holding overnight. My goal was the replace the stop and the target with a hedge strategy. Next post...

To: Sojourner Smith who wrote (179)	6/17/2003 6:16:41 PM
From: Sojourner Smith	Read Replies (1) \| Respond to of 188

typos corrected: Thanks you brought up some good points. The problem I had when I started trading was risk of ruin could be achieved quickly, but I got lucky and hit the high tech bubble. But then I lost most of it to taxes and making some big blunders. Now I have a healthy account, through inheritance, and I am determined not to lose it this time. More money actually makes it harder, since being fully invested is difficult and diversification does not do much good if the markets are correlated. The first step is I have to admit I can be right 80% time and still lose money. I was really surprised how I misjudged the rally over the last month or so. Or the gold rally last year. I have doing this for over 6 years and apparently I can still make big mistakes, so now I am going to plan more for possible mistakes. I could never find a good stop loss system, most still get caught on gap-ups and gap-downs. So that is way I have been drawn to position sizing. Many systems that are based on breakouts are also too risky to fully invest, since drawdown can be high. Even after 6 years I still don't have a consistant method either fundamentally of TA-wise that will make money consistantly, and I have only found a few people who can. Usually after I start following them they stop posting. So that is why I have been rethinking my whole approach. more

To: Sojourner Smith who wrote (179)	6/17/2003 6:30:04 PM
From: bbgold	Read Replies (1) \| Respond to of 188

Hi SS, If you have a sizeable account then you might want to drop a post to Tom Veale and look into AIM. It is an interesting concept and has been providing him with a comfortable living for quite some time. Member 3168285 investorshub.com Here is another interesting concept on wealth building that started with a relatively small investment but managed to have substantial growth through the use of good stop loss placement and cyclical stocks. investorshub.com I do not venture over to SI often so I am not sure what might be available here. iHub is a sister site now so it would not hurt to give it a view. I have read quite a few different views on maintaining a profitable and growing account and in my opinion the most successful ones have some type of position sizing and risk management through stop losses or hedge trades. I think that most who have become relatively successful have dropped out of posting though, or started charging for a service. I too have been hit by some losses the last three years by not using good stop loss or position sizing limits. Most of my losing trades also did not have any type of a hedge. Whether looking into trading stocks, funds or options I believe that you should definitely give some thought into how to hedge any position. Position sizing is the start but as you mention a gap up or gap down can still offer a sizable loss if against your position. I have moved to trading only options as they can still offer decent returns with limiting your risk through small positions. They are also usually easy to hedge as you can set up an opposite position to your initial trade as a hedge if uncertain. Trying to determine a stock or index direction is indeed a part of determining which position direction to trade. Something that Bernard Ng has been working on with the MKTSS board, which I participate on. investorshub.com I cannot comment on our success ratio as the board is primarily geared towards market direction and not pinpointing specific trades. We have had comments that the board and the website have helped others with positive trade decisions though. I am still working how best to determine a position size and stop limit for most of my trades and so far the only way I have found to limit my risk is to limit the amount of money that I put into a trade. Currently I only trade options contracts with less than $1000 committed to each trade, no more than two positions open at one time also. Usually the initial trade and if needed some type of hedge. Not having a hedge was costly last year. I am hoping that with good money management and position sizing I will be able to achieve a profitable outcome over time. It really is an entire subject when getting into position sizing and money management though as it can be different depending on personal account value and risk tolerance. I have not seen a good system that would cover the topic for any type of trading account and risk level. The 1% rule definitely seems the most conservative and practical though. Do you have any links for boards, websites or seminars that you have found useful? Most that I have found deal primarily with Trading and little with risk management. I did attend a free seminar by Alexander Elder at one time though and his approach to position sizing and risk management was interesting, very similar to the 1% rule. I hope that you can find the answers to some of your questions SS! I keep asking them also. Sincerely, Bob :^)