Hi GeeSeven
So as not to further hijack the thread in the link http://www.forexfactory.com/showthre...38#post1492238, this is in response to your post here:
I respect many of Van Tharp’s views. I’ve read Trade Your Way to Financial Freedom, subscribe to his free e-mailed newsletters, and have watched a couple of his videos. However, just because he’s written a couple of best-sellers, and runs seminars across the US, doesn’t make him infallible, especially if people choose to quote him out of context.
On the surface, Van (and his mate Chuck LeBeau) apparently believe a profitable system can be built around random entries. But it should be pointed out that their views were publicized, in the context of trading stocks, during the strongly trending bull markets of the 1990s. When markets trend, accuracy in entry becomes less important.
Look at the chart below of the Dow Jones Index, especially the 1990s. The extreme case of letting profits run is “buy and hold”, and the chart shows why this policy paid investors off handsomely during this period. Even for swing and position traders, there are clear benefits, probability wise, in taking long positions and letting them ride. It should be mathematically self-evident that the more strongly prices trend, the greater the benefits of letting profit ride as long as possible.
It’s important also to define what is meant by random entries. Van, Chuck and others are talking about the timing of the entries, not the direction. If the coin toss being described in the link above had initiated short trades when the market is trending strongly upward (or vice versa) – which it would have done 50% of the time – losses are the likely result. I’m sure that Van would agree that the trend is indeed your friend, and a totally random coin toss entry system ignores this.
[Incidentally, in a recent video of Van’s that I viewed, he states that he doesn’t actually trade himself. If I understand him correctly, he is a psychologist and trading coach who allows a portion of his investments to be managed by his most successful students].
Forex brokers claim that one of the benefits of forex trading is that prices trend better than stocks’. Wanting to increase their client base provides a good motive for them to say this. If I may be permitted to generalize, nations’ economies tend to move in boom-bust cycles, which means that over time there is a certain amount of reversion to a mean. You can’t make a fortune using “buy and hold” over a lifetime, by “investing” in forex, like you can with blue chip stocks (I know a gentleman who died recently aged 94, leaving behind a $23m fortune, courtesy of a lifetime of “buy and hold” of a basket of NZX stocks, and simply exchanging the dividends for additional units). Moreover, with forex one is trading a currency pair, which amounts to the strength of one country’s economy relative to another. Not so with stocks. This suggests to me that different approaches are required.
Sorry if this sounds high-handed, but surely it’s unwise to take one quote from an author, and without providing anything in the way of an explanation, assume that it was intended to apply to all situations at all times. Like I said in my original post, if there was one simple rule that guaranteed trading success (e.g. random entry + let profits run), it could be rightfully packaged as the holy grail, and everybody would be using it. But trading is a zero (actually, negative) sum game, involving willing buyers and willing sellers, and these facts alone necessitate that different strategies are required for different situations.
I believe that, where there is no significant trend bias, entry is at least as important as exit. I respectfully submit the following posts for your consideration:
http://www.forexfactory.com/showthre...66#post1441266
http://www.forexfactory.com/showthre...77#post1452677
I'm very willing to eat humble pie. If anybody can show me a system based on coin-toss entry that delivers a higher profit factor, on balance across all market conditions, than my currently evolving method, I'd make the change without hesitation.
David
So as not to further hijack the thread in the link http://www.forexfactory.com/showthre...38#post1492238, this is in response to your post here:
DislikedDr. Van Tharp demonstrated in one of his books that sound money management, exit strategy and postion sizing can make random entry a profitable system. Weird.Ignored
On the surface, Van (and his mate Chuck LeBeau) apparently believe a profitable system can be built around random entries. But it should be pointed out that their views were publicized, in the context of trading stocks, during the strongly trending bull markets of the 1990s. When markets trend, accuracy in entry becomes less important.
Look at the chart below of the Dow Jones Index, especially the 1990s. The extreme case of letting profits run is “buy and hold”, and the chart shows why this policy paid investors off handsomely during this period. Even for swing and position traders, there are clear benefits, probability wise, in taking long positions and letting them ride. It should be mathematically self-evident that the more strongly prices trend, the greater the benefits of letting profit ride as long as possible.
It’s important also to define what is meant by random entries. Van, Chuck and others are talking about the timing of the entries, not the direction. If the coin toss being described in the link above had initiated short trades when the market is trending strongly upward (or vice versa) – which it would have done 50% of the time – losses are the likely result. I’m sure that Van would agree that the trend is indeed your friend, and a totally random coin toss entry system ignores this.
[Incidentally, in a recent video of Van’s that I viewed, he states that he doesn’t actually trade himself. If I understand him correctly, he is a psychologist and trading coach who allows a portion of his investments to be managed by his most successful students].
Forex brokers claim that one of the benefits of forex trading is that prices trend better than stocks’. Wanting to increase their client base provides a good motive for them to say this. If I may be permitted to generalize, nations’ economies tend to move in boom-bust cycles, which means that over time there is a certain amount of reversion to a mean. You can’t make a fortune using “buy and hold” over a lifetime, by “investing” in forex, like you can with blue chip stocks (I know a gentleman who died recently aged 94, leaving behind a $23m fortune, courtesy of a lifetime of “buy and hold” of a basket of NZX stocks, and simply exchanging the dividends for additional units). Moreover, with forex one is trading a currency pair, which amounts to the strength of one country’s economy relative to another. Not so with stocks. This suggests to me that different approaches are required.
Sorry if this sounds high-handed, but surely it’s unwise to take one quote from an author, and without providing anything in the way of an explanation, assume that it was intended to apply to all situations at all times. Like I said in my original post, if there was one simple rule that guaranteed trading success (e.g. random entry + let profits run), it could be rightfully packaged as the holy grail, and everybody would be using it. But trading is a zero (actually, negative) sum game, involving willing buyers and willing sellers, and these facts alone necessitate that different strategies are required for different situations.
I believe that, where there is no significant trend bias, entry is at least as important as exit. I respectfully submit the following posts for your consideration:
http://www.forexfactory.com/showthre...66#post1441266
http://www.forexfactory.com/showthre...77#post1452677
I'm very willing to eat humble pie. If anybody can show me a system based on coin-toss entry that delivers a higher profit factor, on balance across all market conditions, than my currently evolving method, I'd make the change without hesitation.
David