Breakout trading vs. Coin toss

biyasc · #1 1st April 2008, 12:00 PM

breakout trading

assume that you are a breakout trader, you find a particular set-up which worked many times in front of your eyes. you concentrated on this pattern & now ready to trade the setup in market with real money. but i have few simple query/s in my mind.

why you are going to follow this particular pattern/setup?

because you have seen that this setup worked many times during your test period. always price break the particular level & jump to a romantic level where you should book your profit if you wish. or sometimes it breakout & come back to your support/stop level, take support & then again hit new highs. or sometimes it hits your stop level. but it does not matter to you. because you have already calculated all the risk involved on this setup & also very much aware about the sound risk:reward ratio. thats fine. very good. that means there are lots of traders following these pattern. they are taking position with you & they are also very much informed about the setup. so everyone is making money with this setup by calculating the risk & risk:reward & other important things. congrats you have got the right path.

but i heard the statistic that "95% traders are loosers". so as per the statistics there should be lots of losing traders even with this wining setup. but why?

now if i guess that lots of traders are not following your breakout setup. so you wouldn't get lots of buyers on that particular breakout level. so there is very less chance (practicaly) to win the trade with your tested setup. or it may move up by chance (by luck?). so again you come back to the reality (probability?) that trading is a 50:50 game. it may or it may not be. technical analysis has nothing to do with your success except your money/risk management/correct position sizing.

so guys what about a random entry system by coin toss with the same money/risk management/correct position sizing?

note, - i dont have any knowledge in chart patterns/indicators. i dont have any intention to hurt/argue with anyone. i respect the whole subject of t.a while i am not using it for my own trading descisions. this points are just pop-up in mind & i decided to post it here for knowledge sharing purpose, thats all.

regards,
biyas chatterjee.

amarnath · #2 1st April 2008, 12:41 PM

Hi,

We can only talk or compare in terms of probabilities of break out wrt to random entries not absolute.

beginner_av · #3 1st April 2008, 02:59 PM

Quote:

Originally Posted by biyasc

breakout trading
that trading is a 50:50 game.

I can write a lot of stuff on this. But I dont want to torture the readers with my blah. just to ask you - where did u get that number 50% and not 33 1/3%? or 20%?

biyasc · #4 1st April 2008, 03:38 PM

Quote:

Originally Posted by beginner_av

I can write a lot of stuff on this. But I dont want to torture the readers with my blah. just to ask you - where did u get that number 50% and not 33 1/3%? or 20%?

looking for your valuable replies.

i just compared it in between "it may" & "may not be".

darsh_goswami · #5 1st April 2008, 04:25 PM

dear biyasc ,..
True and false too... it all depends on when u find the correct breakout... sometimes it happens that a stock gives u false breakout and it hits ur stoploss.. but not to worry coz as much i hve seen it works better then indicators. Moving avg based indicators and other indicators may show u whipsaws in ur system but a good pattern breakout is far more better in this sense ,..
now u said 50-50 ratio.... Well if u have experienced it then i m sorry as much as i can see with a good volume based stocks ,.. the winning ratio can go upto 90% too.
now next is coin toss ??/ r u a small kid ??? coin toss can be a good strategy for those who doesnt know anything about market. but for a smart person who works with reality not probeblity n fate n luck ... shd never go for it..
rest is all upto u ...
regards,..
darsh

biyasc · #6 1st April 2008, 04:54 PM

Quote:

Originally Posted by darsh_goswami

dear biyasc ,..
True and false too... it all depends on when u find the correct breakout... sometimes it happens that a stock gives u false breakout and it hits ur stoploss.. but not to worry coz as much i hve seen it works better then indicators. Moving avg based indicators and other indicators may show u whipsaws in ur system but a good pattern breakout is far more better in this sense ,..
now u said 50-50 ratio.... Well if u have experienced it then i m sorry as much as i can see with a good volume based stocks ,.. the winning ratio can go upto 90% too.
now next is coin toss ??/ r u a small kid ??? coin toss can be a good strategy for those who doesnt know anything about market. but for a smart person who works with reality not probeblity n fate n luck ... shd never go for it..
rest is all upto u ...
regards,..
darsh

actually i m not smart enough. & u didn;t understand the fact what i wanted 2 say.

beginner_av · #7 1st April 2008, 08:50 PM

Quote:

Originally Posted by biyasc

breakout trading

a
but i heard the statistic that "95% traders are loosers". so as per the statistics there should be lots of losing traders even with this wining setup. but why?

.............................

regards,
biyas chatterjee.

20% will not know or bother to know how many times it worked. so will not be able to utilize the statistics.

20% will not know under what broad mkt conditions and other factors the BOs work. So most of the times they would be faded.

20% will know everything, but would not know how to put it in a system

20% will know everything and put it in a system and then override it/not act on it

and final 20% would wait and wait and see no breakout happening, so would yawn, chat, get up and watch some tv, go out and comeback and see that the breakout has happened and they have missed it.

unfortunately no more 20% left

arm · #8 1st April 2008, 10:28 PM

I am not a very experienced trader or a losing trader. However I dont toss a coin either.

The answer to the question is there in the question itself. If we backtest the coin toss method with past data you will have a losing strategy. So which one is better to follow, a stategy with which one is sure to lose, or one which at least in theory works.

I am not too sure about the 95%, but my experience tells me that if one is losing in actual trade with a proven winning strategy, then the person is letting his/her emotions take part in the trading decisions. Keeping out emotions is not very easy as it means going against powerful instincts (Greed / Fear). That could be the difference between the 95% and the 5%.

uasish · #9 2nd April 2008, 12:16 AM

biyas,

The break out system works in Mkt.Rather this is one of my Best methology till date,it gives very good return when Mkt is in (+)ve bias.I some time share my trades with another traderji member of Kolkata,both of us have earned good money on this since Oct'07.We can discuss this in the Meet,here Entry are to be made with Stop Loss method well in advance otherwise the order will jump & Exit is few mins later with Mkt order.
With mulitlpe contracts the earning is good.Plz pursue this for few points SURE to gain.

Asish

biyasc · #10 2nd April 2008, 10:42 AM

thanks to av, arm & asish for your logical replies.