Episode 184: Making Heads or Tails Out of Trading

by robbooker on September 11, 2013

Play

Episode 184 of The Traders Podcast will probably go down in the archives as one of our most provocative shows since Greg K. told us he could divine the future back in Episode 128. This episode explores what may be one of the simplest, yet craziest trading “systems” around… Your host Rob Booker catches up with his old friend Chris Mystic, a veteran of the currency market who decided to start trading randomly and entered a contest against other traders!

The premise: Chris works for Traders Laboratory, and in an attempt to keep the subscribers entertained, he decided to conduct an experiment for one month: At the New York open, he’d flip a coin and if it was heads, he’d go long on the Euro dollar, and if it was tails, he would go short on the Euro dollar. He’d flip the coin 30 minutes before actually taking the trade. And he set some rules, such as it would be a 1:1 risk-to-reward, and 20 pips take profit, 20 pips stop-loss, and if the trade hasn’t closed by 5 p.m., then he’d close it manually. And as mentioned above, Chris entered this random trading account into a trading contest with some intriguing results!

So, as you might expect from your intrepid host, Rob tries to make sense of this madness and discusses how to turn it into an actual trading system. Naturally. Why wouldn’t we? Thanks for listening.

Links for this episode:

Look for the thread “Let’s Try an Experiment” at: Traders Laboratory.com

E-mail Chris at: MysticForex ( AT ) TradersLaboratory ( DOT ) com

TFL365.com

Rob on Twitter: @RobBooker

The Traders Podcast on Twitter: @TradersPodcast

E-mail us! Producer@TradersPodcast.com

{ 3 comments… read them below or add one }

Chris September 11, 2013 at 10:57 am

I backtested trading randomly once on the EURUSD (or maybe GBPUSD, I can’t remember)
The rules I used were:
– Trade the daily chart.
– Flip a coin: Heads you go long, tails you go short.
– Risk only 1%/trade.
– Reward/Risk = 3.
– Once the trade hits the target, or stop-loss, flip the coin and run the process again.
I tested that from 2000 through 2010 and the return was like 3% per annum.
It wasn’t fantastic, but it proves that even random trading with disciplined stop-loss and target could make money.

Reply

Pete M September 13, 2013 at 4:12 am

Hi Rob

Excellent podcast as usual. There is a piece of free software called Forex Strategy Builder (www.forexsb.com) that will allow you to set up (and backtest) this strategy in a couple of clicks. I don’t have access to it at my work PC, but I’ll fire it up over the weekend and report back.

Regards

Pete

Reply

Pete M September 15, 2013 at 1:42 pm

Hi Rob

I implemented the strategy in Forex Strategy Builder (www.forexsb.com), which is a free program which can pull in MT4 data and also connect to MT4 for trading. Rules I took from the podcast:
– Random entry at 9:30 NY time (16:30 broker time – Pepperstone)
– 20 pip stop loss
– 20 pip take profit
– close at 17:00 NY time (0:00 broker time)

Backtesting from 1 Jan 2013 to 13 Sept 2013 was not positive:
http://www.mediafire.com/download/0nxj5bq25k2amrd/Rob_Booker_Random_Standard-EURUSD-M15.csv

Win/loss ratio was 0.46, but the biggest killer was the spread (which I fixed at one pip).

Forex Strategy Builder has an optimisation feature. I ran it on the SL & TP (you could also optimise entry and exit time), and the optimum stop loss was 440, and take profit was 30.

This optimisation is based on 70% in sample, 30% out of sample. Win/loss becomes 0.98. Results are here:
http://www.mediafire.com/download/qcypfl2t5h1wfxh/Rob_Booker_Random_Optimised-EURUSD-M15.csv

If any wants to run this strategy live going forward, Forex Strategy Builder Strategy file is here:
http://www.mediafire.com/download/2n98n3pf8o2lac2/Rob_Booker_Random_Standard.xml

Hope this was useful!

Regards

Peter

Reply

Leave a Comment

Previous post:

Next post: