Coin-Toss Trading Strategy - MT4/MT5 Resources
I encountered something interesting on my way to school this morning.
Apparently, there was one trader/investor who developed a money management system that was so effective that he entered trades based on a coin toss. Despite the random nature of coin tossing, money management always makes money.
This is my challenge to you:
Develop a money management strategy that, when applied to any sound trading system, can result in profitability within a year.
For some brainstorming ideas, here’s what the traders above did:
Apparently, there was one trader/investor who developed a money management system that was so effective that he entered trades based on a coin toss. Despite the random nature of coin tossing, money management always makes money.
This is my challenge to you:
Develop a money management strategy that, when applied to any sound trading system, can result in profitability within a year.
For some brainstorming ideas, here’s what the traders above did:
We determine the market's volatility by averaging the true range of movement with a 10-day exponential moving average. Our initial stop loss is three times the volatility reading. Once entered via a coin toss, the same triple swing stop will trail from the close. However, a stop loss will only work in our favor. Therefore, every time the market moves in our favor or volatility shrinks, the stop will move closer. We also use a 1% risk model to adjust position size.
That's it! That's what the system is all about; random entries, plus trailing stops at three times volatility, and a 1% risk algorithm for position sizing. We ran it in 10 markets. And it's always in every market, either long or short, depending on the flip of a coin. It's a great example of how simplicity works in system development.
Every time you run a random input system, you'll get different results. When only one contract is traded in each futures market, the system is profitable 80% of the time. When adding a simple 1% risk money management system it becomes 100% profitable.
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