In theory discussion

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In theory discussion

Postby MarkD » Thu Jul 29, 2010 9:25 pm

If I role a dice, the chances of rolling an odd or even number are 50 / 50.
Supposing I ignore all indicators and strategies and on the hour I role a dice and will buy on an even number or sell on an odd number.
The SP and TP are both 10 pips. At the end of the hour I'm either 10 pips up or down ( it's 50 / 50 in theory) or I close the position as neither have been hit.
In theory, over a period of time wouldn't this strategy just break even? Wouldn't it?

So, what if I had a 20 pip TP and a 10 pip stop? In theory it would make more than it loses.

I suspect this isn't the case, but why isn't it?
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Re: In theory discussion

Postby muddeman » Tue Aug 10, 2010 11:45 am

Hi MarkD, in answer to your question about whether trading randomly using a 20 point profit target/10 point stop would be profitable long-term, just setting aside the spread for a moment which of course would reduce the 2:1 ratio anyway, you are not going to get anywhere near 50% wins over a period of time, probably more like 20%.
If it were that easy we would all be millionaires!
The profit/loss ratio of 2:1 is fine but you have to have a strategy which will stack the odds of winning heavily your way.
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