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Could this be exploited somehow? for example random trades with RR 1:2 or 2:1 or some other optimal ratio to exploit the fact that in wider distances they all lie outside and in narrow areas they are inside the bell curve and with some magic ratio it would become
nwin/nloss < reward/risk?
I tryed that a few weeks ago, my idea wos a little bit different. I could not belive that i cannot build a profitable moneymanagemant when i know the fakt that i will have 49% winning trades in the long run(Risk/Revard = 1. After a few calculations i implemented follwing MM which should theoretically bring you at breakeven if you realy get the 49%Wins:
basically its a inversed Kelly strategy somehow. unfortunatly the results based on random entry's shows really different results. I assume due the limits in fine adjust the lotsize this strategy does not work in real life. or i missed a big point in the math.1005, Wow! That is a truely perfect bell and sigma curve, exactly what I would expect from a random strategy.
You've given a lot of food for thought.. So what I conclude from it is, a "random" strategy is actually a "really-really simple" strategy, because I do bias the trailing stops (cut the loosing, and let the winning run free) - which in the long run as I tested last night, will result in a nice upward slope do to the mathamatics.
But what is to be said then, that a "random-Entry" trailing stop EA really does make profit, I guess so, that is just such a simple answer to the weighty question of creating a profitable EA - it really is -->that<-- simple? As randomly entering trades, and setting trailing stops?.........
Yes, it can be that easy...there are differing schools of thought here but in general the attitude is that making money on average is not the ultimate goal. The goal you are really striving towards is making money with as little risk of loss as possible.
So you are supposed to be assessing your returns in a risk-adjusted fashion. When you do that you will find that a strategy of the type you propose may well have a net postive ROI but on a risk-adjusted basis it stinks compared to just putting your money in a bank and collecting the interest payments.
The acronym to carry with you is RAROC - risk adjusted return on capital.
Could this be exploited somehow? for example random trades with RR 1:2 or 2:1 or some other optimal ratio to exploit the fact that in wider distances they all lie outside and in narrow areas they are inside the bell curve and with some magic ratio it would become
reward/risk > nloss/nwin?
Yes, yes it can. There are many more degrees of assessment to be carried out on the data generated by an EA like that. Since "time" was my indicator I naturally pursued analysis of "time to MAE" and "time to MFE", for example. It is easy to implement analytical expressions that output the risk versus reward actuary table (yes, just like the insurance companies use when they determine your premiums and viability for life insurance, etc) such that the EA takes action to trim trades that are expected to be headed towards an early death (or early profit) based on price-evolution characteristics.
I use my EA's to cull these market characteristics such that I can then simulate the market in a biased montecarlo fashion and result in a timeseries that is statistically equivalent to that of the modeled currency pair. Then I use these simulated markets to test the robustness of my EA's as the simulated markets are as foreign to my EA as tomorrow's actual market will be.
In a lot of ways it is not all that different than how weather is modeled and forecast.