Bitcoin Forum

I'm thinking of starting a trading experiment based on randomness. I tend to believe markets, like complex systems in general, are mostly chaotic and unpredictable. If this is true, then a random trading strategy should be as good as any. So, I figure it's time to put to practice an idea I've considered, as dictated by fine, ancient Persian customs, both sober (earlier) and inebriated (now): Starting 7th January 2012, 10 AM GMT, I intend to start a trading account, fund it with, say, 100 dollars (dollars to keep better protected from BTC volatility, 100 to make it a bit more interesting), and choose, by flipping a coin, every 24 hours whether to buy or sell. If I hold BTC and the coin says sell, I'll sell, if it says buy, I'll hold on, and vice versa.

I'd like input on a few things, keeping in mind I'm obviously willing to take total loss on my investment here:

-Is there any difference to starting an account on Bitcoinica or Mt. Gox, given that I intend to take a very low risk profile to prevent some sudden zhoutonging from mucking up the experiment. Currently I'm leaning towards simply making a new Gox account, but having a 1:1 Bitcoinica account would let me just take a screenshot of the current net value every day.

-How much should I trade with? I guess without leverage I may as well go all in, simply trading my entire balance at a time either way, as dictated by the coin toss.

-Apart from "this is a tremendously bad idea", is there anything I'm not considering here?

Why not apply your strategy to historical market data?  You can run a full simulation of how well your idea would have performed.

I love the idea..  curious as to the result..

How will you decide the start of this?  This should be a random hour of the day too ?

That's what I thought of first, but where's the fun in that? If I do it live, we get something to look forward to each day...

Anyway, I'd need to run several simulations, each of which would likely yield completely different results. What I'd need is historical data of many people using, and actually sticking to, other strategies to compare the random strategy to. I don't think anyone's likely to have such data, or if they do, to share it.

If someone feels like outlining a strategy now, though, and showing that they can beat my random strategy, that'd be interesting, though. Of course really we'd need several examples of the random strategy being played out to really compare, though... Maybe I should start several smaller positions instead?

That might be useful, but it wouldn't fully test the theory because in real practice his trades affect the market (even if they are small)

And if markets ARE inherently chaotic and unpredictable, there's the butterfly effect to consider.

True, but in the interest of actually seeing this through for any length of time, I think it's best it's a time when I'm likely to be awake and ready to execute the transaction. Until I can be bothered to figure out how to code a simple bot to take care of the whole thing for me, anyway.

This is a variation of trading techniques based on randomness.  I've read about people picking stocks by using a dart board, seeing on which stock ticker their cat would walk and where their pet bird would poop.  Quite often these stories hit the media when the stock market is booming, and it seems no matter which stock is picked there are sure to be plenty of winners.  The stories disappear when the market turns.  

Bitcoin is in a mini boom at the moment, and the random trading returns  :D

Yes. My intuition is that, assuming I take a low-risk approach without leverage, and avoid getting wiped out completely, the returns should in the long term closely follow the market trends in general. That's actually the biggest objection I have to this myself - it might not be that interesting, at least without the ability to compare to more analytical trading approaches.

I'd use a random generator rather than a coin flip to distance it from your sub/un-conscious influences as much as possible, e.g.:

http://www.random.org/

there're also cool ones based on atomic decay for free out there

& with a 3 option outcome: sell, hold or buy

start with a float of say $100 then each 24 hrs s/h/b $10 worth

& bitcoinica for the screen shots, but constant buying selling there will just lead to being eaten up by the spreads, so perhaps factor in a 1 in 10 chance of either selling or buying & a 9 in 10 chance of just holding your position

- I'd be interested in mirroring your trades too, perhaps with added variables

The answer is quite obvious, the average profit you should expect is half the performance of the BTC / USD since on average you will hold bitcoin half the time and USD half the time.

So it is not really useful, you would obtain as well the same average by keeping half your money in BTC and the other hald in USD without the variance :)

The idea is still fun however xd

It's random though! It would be different each time ;)

I'd stay away from Bitcoinica for a randomness experiment -- even at 1:1 leverage, you're still likely to get Zhoutonged. You could try two tests, though: one is to do a 50-50 coin toss, and the second would be a 33-33-33 (really 67-33 or 33-67) with the sell/hold/buy strategy. That would give you a 67% chance of continuing your current strategy (e.g. sell and hold are the same if you've only got USD; buy and hold are the same if you only have BTC).

When will you go public and offer the IPO for the new "FlipCoin" investment concept ?

 :)

I expect your results will depend more on what % amount and % time you spend in coin than anything else.

If you flip in and out in a way unbiased by price you'll do about half as well (or half as bad) as buy and hold, less fees.

hmm... interesting idea.

wouldnt be too hard to test this though as stated above.

tempted to give it a try myself with as much data as i can find and excel...

Null it, man. Null them all.

I think this is a great use of an extra 100 bucks. Imagining how it would scale though is more interesting.

Maybe we can bet btc on the outcome :)

I really love this idea.

Bitcoinica might be a good solution for you because you can hold negative coins if you want. You can buy/sell say 5 BTC at a time, so that you can buy/sell multiple times in a row. (You can use our RESTful APIs for this too! It'll be even better.)

The account ledger feature can show you the balance changes everyday very clearly.

I'll match $25 if you deposit $75 into a new Bitcoinica account. Just PM me the username.

Good luck with your experiment! :-D

OK, it seems 10 GMT was optimistic for getting this show running.

I intend to take zhoutong up on his generous offer, so the trading will be done on Bitcoinica.
I need to sell a few coins to raise the full 75 dollars of my investment in this, and Gox seems to be pretty sluggish at the moment, taking a long time to execute transactions. Once that's done, though, we'll be live, probably in the next 10 minutes or so.

I guess this is one way of randomizing the time for the experiment...

I'll be using random.org to choose a number between 1 and 2. If it's 1, I go USD > BTC, if it's 2, I go BTC > USD. If my position already is the one indicated by the "toss", I hold my position.
That's about it, I guess. The experiment runs as long as I can be bothered with it. I make no guarantees of any kind. I don't know what I'll do with any money left once I stop the experiment.

I hope to post the first results in a moment.

Hi Zhoutong, I suggest you to host a Bitcoin speculation competition. Every participant start a new account with 100 USD and no further deposit and withdraw allowed. After one week or one month, the most net balance participant win the competition. What do you think? ;)

Path of crocodile:
http://i42.tinypic.com/f9h3ma.png

(Crocodiles can't go back)

OK, I wish I could say this is the dumbest thing I've ever done, but I doubt it.

The flip was 1, so I bought BTC with my USD.
First trade FINALLY conducted at 10:41 GMT, or thereabouts, as it turns out I can't just buy 100 dollars worth of BTC on bitcoinica, at least not via the web interface, so I had to do a bit of back and forth and ended up buying 14 BTC.

Here's the current status:

edit: whoops: here:http://img833.imageshack.us/img833/254/20120107.th.png (http://imageshack.us/photo/my-images/833/20120107.png/)


And thanks again to zhoutong for his donation to Flipism!

One more thing I'd like input on: Should I keep open the option of going short? I was going to just either hold USD or BTC, that is to say, long or no position, but in those terms it seems I should go short too, when the "coin" says so. I just worry the experiment might be ended too soon with such a risky approach. What say you?

I like this idea & the winner gets to win all the gains of all of the runners up say, it would be a good trading learning tool with positions/trades posted daily or weekly

Also good luck with the flipping OP

edit: yep I'd go short if the flip tells you to

This is a cool idea!

I will see if I can do anything in the future few weeks to make it happen.

Thanks for the great suggestion!

I think so, because this resembles more closely the available options you have on Bitcoinica.

Flip 1 - BUY, Flip 2 - SELL.

I would do this if I were you:

(Assume you buy 10 BTC at a time.)

1 - BUY           10
1 - HOLD         10
2 - SELL          0
1 - BUY           10
1 - HOLD         10
2 - SELL          0
2 - SELL          -10
2 - HOLD         -10

Thanks for your consideration, looking forward to participate the competition and win the big prize :D

Today's toss is: 1! So we hold our BTC!

http://img207.imageshack.us/img207/3908/20120108.png (http://imageshack.us/photo/my-images/207/20120108.png/)

So, currently there's an unrealized loss of 0.508%. We'll see what the next 24 hours bring...

How about I bet you 15 BTC that after 2 mo of this type of trading you will be down?

I'm assuming right after the flip of the coin in the case of a sell you will execute your order via the Instant Execution tab by hitting the bid price for a sell just to make your experiment "clean".

You will lose the spread after every sell tx which will eventually grind your acct down to zero.

https://bitcointalk.org/index.php?topic=57178.msg680888#msg680888

yes this looks like the most obvious flaw of flip plan trading, I think you need a bias towards holding your position or adding to it rather than a 50/50 switch direction & also if you do get a switch signal to then place a limit order at the current price of the instant buy price if you're selling & for the current instant sell if you're buying

I'll pass, thanks, since you're probably right. I've already taken up one losing bet, don't care to add another to it.
The spread is a mean SOB. Maybe this experiment will make it a bit more concrete just how important a factor that is.



Wouldn't the limit order actually create a bias towards the position I'm in? I may do that.

yep, it would help I'm sure

but as it is your whole "flipist" experiment goes out the window.  not a fault of the idea, just the design.

Yes, in a sense. Of course it's clear when you're making a choice randomly the real issue is how you decide what kind of choice you need to make... Maybe I should hold positions longer, that way the spread won't kill me as quickly.

OK, to be honest, it seems the thing to do would be to not do this on Bitcoinica, but the 25 bucks zhoutong put up should cover the spread for some time. If the issue becomes intolerable, I'll consider moving to some exchange instead.

How about a third choice by random to do nothing? This would give you more time for the market to move between buying/selling.
1 buy
2 sell
3 do nothing

Essentially a lot of the time I do nothing anyway. Let's think of this as state changes. The states are: BTC, neutral and USD. I threw a 1, therefore went into BTC. This was a state change. Then I threw a 1 again, so I did nothing, but kept my state. Now I threw a 2, and therefore liquidated my position and will hold until the next day to see what happens next.

Hm. Maybe you have a point there. There is no option to hold in the neutral state. If I first did a roll to see if I do something or not - 1 being act, 2 being do not act, then rolled to see what to do, that would certainly add to the odds of holding. Too much? I don't know if there's an objective way to say. I'll probably introduce this extra flip tomorrow, if I (or someone else) don't come up with a reason it's a bad idea.

Anyway. It's flipping time again, and as stated above, it's a 2! So, I liquidated my position.
http://img717.imageshack.us/img717/295/flipism20120109.png (http://imageshack.us/photo/my-images/717/flipism20120109.png/)

P/L thus far: -0.50 USD.

My idea was to increase the periods of time where you do nothing. It's more likely that the market price will be more different then.
With your two choice system you change about every 2 days. With a three choice system you change about every 3 days.

I introduced the "to do or not to do" flip. This time, it told me to act, and the second flip told me to buy BTC. So I'm now long:

http://img21.imageshack.us/img21/4562/flipism20120110.png (http://imageshack.us/photo/my-images/21/flipism20120110.png/)

The coin is bullish! First flip: 1 - act! 2nd flip: 1: buy!. So since I'm already long, I hold my position.

http://img685.imageshack.us/img685/2954/flipism20120111.png (http://imageshack.us/photo/my-images/685/flipism20120111.png/)

This leaves an unrealized net value of 103.85 USD currently.

http://en.wikipedia.org/wiki/The_Dice_Man

"The Dice Man is a novel published in 1971 by George Cockcroft under the pen name Luke Rhinehart and tells the story of a psychiatrist who begins making life decisions based on the casting of dice."

shouldn't you be buying more that time, doubling your position or adding another $10 long or something

Without leverage I can't really double up if I'm already mostly all in. I guess I could have bought 1 coin more or so.

ah yes I see, I'd forgotten that you weren't using leverage, that also could be a flip option for 1:1, 2.5, 5 or 10 x

I think it's best you stay at 1:1 so the test lasts longer.

Yes, that way you're sure to lose.

Well, the first flip today was 2, so I do nothing. Just as well, as Bitcoinica seems to be having some issues... It's showing a buy price of 6.39 and a sell of 6.25, which is way off the mt gox charts. Not that I'd mind buying at that price but it's just a glitch as far as I can tell.

Oh yea, I should update here. Not much to show, it's a bullish day again, according to the flip, so I'm keeping long. Unrealized profits around 1.5%.

Again the first flip is 1 for act, the second 1 for Bullish. So I'm sticking with my BTC, currently holding 15.0 BTC at a base price of $6.4299, unrealized loss of 0.155%. I sure hope the price doesn't drop below 0.12 or so or I get zhoutonged... ;)

Today's first flip said to hold off from doing anything, so I stayed long. Looks like that bullishness was justified, with the exchange rate up to 6.9 or thereabouts, the profits are now a solid 7%. Unrealized, of course...

Got to the second flip this time, which said to hold long. So still bullish, in the face of turbulence. P/L currently 2.522% in the green.

Well, folks, we live in uncertain times. The flips told me to sell, so I did. I also did an extra flip to see whether to short or not, but the god of the coin says wait and see. So I have no position today, and my holdings are now 103.55918 USD.

does look like a coin is smarter than most analytics in this market :)

This is a good idea. I will read this. It would be better if you could get a squirrel to roll the dice for you though.

(Yes, they will pick up dice and drop them if you don't scare them off... I was walking around with dice in my pocket one time)

You need to account for time of the day.  Randomize that as well.  Also, I would use multiple coins.  If you want historical data pm me.

The coin says we're still in turbulent waters: It's a "do nothing" day, so I'm standing at the sidelines, watching the action.

I'll look into randomizing the time for trading if I get around to figuring out how to use Bitcoinica's API and automate this trading.

What do you mean by multiple coins?

that coin is smart!  ;D

The coin you use could be biased.  Maybe part of the coin is worn down leaving one side heavier than the other.  To truly test for stochasticity there should also be 1000 people tossing the coin.  I will run a simulation within the week and post my results here.

Basically what I will do is take 5 dice using random.org's algorithm.  If 3 out of 5 of the dice are even numbers then that is buy bitcoins with USD, if 3 out of the 5 dice are odd then sell bitcoins for USD.  If a buy position is already set then further buys will be a hold position.  If a sell position is already set then further sells will be a hold position.

Keep up the experiment.  I love stochastic processes.  It is what I work on in my day job.

Oh yes. Almost forgot to update. Seems we're in bull mode now, so I bought 15 BTC on Bitcoinica @ 6.2(ish).

I'm considering moving my trading to Gox or something, though, I had a hell of a time getting the buy to even go through today thanks to the lack of reserve. I'll reimburse Zhou's 25 bucks if I do that, of course.

http://img196.imageshack.us/img196/6915/flipism20120120.png (http://imageshack.us/photo/my-images/196/flipism20120120.png/)


Nothing doing today. It's a bull market... At least according to random choice.

I may not be able to perform these trades this weekend, will have to see.

i'm calling bs... this coin is right more frequently than anyone else ;D

this coin is obviously the manipulator just toying with us all - for a heads up  ;D

I ran two simulations over the mtgoxUSD price from Jan 1, 2011 to Dec, 31 2011.  One simulation gave me a rate of return of about 100%, another gave me a rate of about -300%.  When I get some more time I will bootstrap this model to get a better estimate.

OK. Back to trading now that I'm at a computer again. The flips today had me liquidate my long position at a profit of 0.456%, but told me not to go short. Back to uncertaintyville then!

My balance now:103.98USD

The flip says to hold off from doing anything today, I guess that means the sideways movement will continue!

LOLO

i only read the first post, but: this is madness! :D I LIKE IT!

Again, there's no fucking way this is a coin...
Hey if you want to sell me that coin, that'd be great ;D

Why am I not subscribed to this thread yet? I love it :)

Technically, it's not a coin. To be clear, I'm using random.org to generate a number between 1 and 2 to decide what to do.

Today, it's another 2, so I'm still holding. Yesterday was neutral, it seems - the numbers said to hold at no position, but didn't say to short, so I didn't take any losses, but neither did I profit. Perhaps the subatomic particles aren't pleased enough with me yet, but they don't seem terribly displeased, either.

And again, I am doing nothing today, as much as my fingers itch to press a button... Not that I know which one I'd press, but fortunately I don't have to worry about that kind of thing!

I guess this means the price will go down. Or up. Or maybe it'll stay about the same for the next 24 hours.

And the third 2 in a row! Maybe I should start taking bets on the results of the flip...

Aand I'm in again!

BTCUSD    18.0    $5.6715    -$1.79    -1.752%

Long! Going up guys!

Or maybe the powers of randomness are displeased with me. We shall see! I'll now go do something random to gain favour.

You win (kinda). According to my calculations here (https://bitcointalk.org/index.php?topic=61495.msg718443#msg718443), a flipist method that closes its position out at the daily close versus a trading strategy that uses the EMA10/21 crossover and closes its position at the daily close loses only $4.0892 compared to $-45.00281.

Today I do nothing!
Here's where we're at currently:

BTCUSD   18.0   $5.6715   -$2.27   -2.224%

Interesting. I seem to recall Goomboo posting the results of backtesting they'd done for the 10/21 EMA crossover method, with rather phenomenal profits. Have to go take a look to see why the difference is so huge to your test.

If I am doing it correctly then it is probably that people are a little more selective.  It looked like they used hourly time scales but I may be wrong.  On daily time scales the EMA10 and 21 only crossed once for the six month period I looked at.  For hourly data there was enough crosses to go short 82 times and long 82 times.  My model also assumes that the position was liquidated at the end of the trading day.  Most currency traders are not going to wait to take their profit when a sell signal is given.  By that time they have lost their unrealized profits.  They will have a stops to take their profits.

Whoops, I forgot to update yesterday. It was another hold day.

Today, however, I'm liquidating my long position, at a loss.

My position just before liquidation:
BTCUSD   18.0   $5.6715   -$1.60   -1.563%

My account status currently:
USD   $102.38714

Well! Interesting times, huh?

My method tells me to do nothing today. I'm calling this spike up a trap!

Damn, another missed update. I did flip though, and did nothing due to the result. Today, however, I'm going long!

At least I will if I can buy on Bitcoinica... * all the way!

Holding today. Long with a base price of 5.96.

Another day of not touching anything.

Aaand today I got as far as the second flip, which told me to go long. I already am, so I'm holding.

lol

Today it was time to liquidate my long position, losing some 5.3 USD in the process. Not going short, though.

$97.01837 is the balance now.

In the face of uncertainty, the flip gives me confidence. Staunchly holding on to no position.

And again I'm doing nothing.
Maybe I should only post when my position changes?

You have been doing this for a whole month now and still have 97% of your dollars? Impressive. Especially considering that you started out when the clear bull market was over/paused.

I'm telling you, that coin is unnatural :o

It's a trick! rebuilder is using a magic coin!
If you end up being profitable I suggest you auction off the coin after your experiment.

It is not really unexpected.  If you look at my post here (https://bitcointalk.org/index.php?topic=61495.msg718443#msg718443) it is actually expected.  It is good to compare any trading method to some kind of random trading model like this.  If you decide to trade on a moving average signal and your back-testing shows you can make a butt load of money that really does not tell you much.  You need to compare it to a random trading model.  If both the technical indicator trading model and the random trading model are similar then your technical trading model is not very good.  This just means that the market is trending.

I calculated on a 6 month period between July 23 to Jan 22 that the flipist method going long would win 52.69% of the time and going short would profit 46.67% of the time.  I did it slightly different that it is listed here.  The position closes out at the end of the day.  There is also no hold toss, only buy or sell.

In this type of random trading method, the fewer times traded the more likely for big losses or gains.  The more times traded the more likely for breaking even over a long period of time.

This thread is awesome. Why didn't I find it before?

Ok, I'm back in the game again. Short 16.5 btc @ 5.6844

lol

works - what else

I'm still holding. Current position:
 amt    base        P/L($)        P/L(%)
-16.5   $5.6488   $18.51   19.860%

So far, so good.

Turnaround time!

Liquidated:
-16.5    $5.6488   $12.91   13.854%

13.85% profit this time! Went from rom 97.10 to 110 USD, so overall I'm up 10% over the course of this experiment. Right now, that is.

AND went long 22 BTC @ base price of 4.8667.

And it's another full turn for me! Liquidated with a P/L -$13.78   -12.867%, leaving my funds at 96.197 USD.

Also went short 22 BTC at a base price of $4.2405

that is one of the main problems I have with libertarians and many people who dont understand math. Chaotic, does not equate to perfect randomness. A tree growing is chaotic, but in the end, the end result will be very tree like. If it was random, sometimes a tree would look like a bear. The only thing chaotic math says is that your answers will be in probabilities rather than exact numbers. THAT DOES NOT MAKE IT UNPREDICTABLE, just less exact.

Think of it this way.  The normal non libertarian weather man, gives us weather reports. He gives us the probability it will rain based on what happened the last time conditions where this way. It does mean he is never officially wrong. But generally speaking if he says there is an 80% chance of rain, it most likely will rain that day.

with your totally random method.. say flipping a coin, you are going to be wrong about half the time, way way way way way worse than the weather man and his chaotic system.


it drives me absolutely nuts to read milton or mises and listen to them claim that chaos is totally unpredictable and as such totally useless in economics. Do they not grab a fucking umbrella when the weather man says 80% chance of rain? why the fuck do they think he gives percentages? Chaotic math is not the every day math we are used to, just like realitivity described a time we are not used to in our every day non light speed traveling lives. That doesnt make chaotic math wrong or useless or equated with randomness.

Chaos math is not primarily to do with randomness, in fact chaotic systems run in a clockwork universe (for our purposes).

It is more that a chaotic system has a large change in output for a terribly small change in input. In the real world we cannot measure these inputs with infinite precision making the output unpredictable.

Markets are chaotic because there is no way to know all the actors and their motivations. We cannot predict that tomorrow a bitcoin proponent will win the lottery and pump a load of advertising into the world.

Equally... some large player with 50k coins could have his finger over the mouse button right now and reading this post distracts him for 30 seconds, long enough for the phone to ring and him to leave his desk. Small input large output.

Mathematical chaos is not literary chaos.

+1

Also @joulesbeef... why are you bringing libertarians into this.  Misunderstanding math is not politically discriminatory.  Also, you don't understand chaotic math as well as realnowhereman. Your point about patterns is valid, but that's more fractal related.  To your credit, these two subjects are often studied together because they are analyzed with similar tools, and sometimes appear together.

I think the problem is that people think stochastic or randomness means that a person cannot predict was is going to happen.  Really the definition of stochastic is a system whose behavior is non-deterministic.  A deterministic system will always produce the same outcome with the same inputs.  A non-deterministic system can produce different outcomes using the same inputs, but some outcomes maybe be more likely to occur than other outcomes.

I've liquidated my short position and went long. The liquidation netted me a 3.668% loss, or 3.42 USD. I'm now 20.5 BTC long @ $4.3963

Well stated.

Looking good, current bitcoinica bid at $4.48.

Don't count your hens until they've hatched... I don't know when I'll be liquidating again.

I wonder how many people actively trading here have done better than I have with this method, and how many have done worse.

Daytrading: no.
Arbitrage: Better.

I could have sworn I posted here but apparently I forgot to click "post".

on the 24th I liquidated my long position at a profit of around 13% IIRC and went short, liqudating that position yesterday (didn't have time to come write here as I was on the move) at a profit of around 0.4% and went 21 BTC long @ 4.9461. Currently I have $104.98754.

I've liquidated my long position , at a P/L of  -$1.11, or -1.066% and swap of -$0.09

This leaves me with $103.81294 in my account.

The flips seem to be pretty action-oriented lately, and the same trend continues. I went short 20.5 BTC @ $4.8934

I've divined from my readings of random.org that the exchange rate will go  up, down or sideways. In the face of uncertainty, I've
liquidated my short position at a loss of ~2.37% and now hold no position. We'll wait and see!

my balance: "$101.52193"

Even if your balance does average to $100 over time, this is good practice for deciding on a strategy and sticking with it, despite what your emotions will tell you.

Well... not trading at all is a strategy too, if you look at it that way. I expect I won't be able to outperform that one in the long term.

You need to get your money management correct.  Let's say we do a coin toss and every time it lands on heads I give you $2 but every time it lands on tails you give me $1.  Your expected value per coin toss is $0.50, but your optimal bet is not $1, it is 25% of the money you are willing to trade with.  So if you started with $1 then you would bet $0.25 each time.

So for this example the optimal f is 0.25.  For this example the equation is:

f = ( ( b +1 ) * p - 1 ) / b

f = the optimal fixed fraction
b = the ratio of amount won on a winning bet to the amount lost on a losing bet
p = the probability of winning the bet

Doing some backtesting you see that the player before you had a win and loss string of:

-1, +2, -1, +2, -1, +2, -1, +2, -1, +2

10 bets, 5 winning, 5 losing or a total of $10 won and $5 lost.  If you originally bet $1 then you would have made a 90% return.

Here,

b = $10 / $5 = 2
p = 0.5

so,

f = ( ( 2 + 1 ) * 0.5 - 1 ) / 2 = 0.25

What this f value means is that if you bet 0.25 of your total stake then you will leave with the optimal amount of winnings.  So for example if you only had $1 your optimal bet is $0.25.  If you had $10 your optimal bet is $4.  If you bet too much, for example your whole stake of $1 then you could quickly lose all your money and can't bet anymore.  If you bet too little then you don't win enough money to make up for the times you lose.

For your flipist strategy, you won't have only two outcomes.  You can lose or win any amount of money.  So the equation is a little more complicated and you need to do backtesting.  The backtesting will show if there is a positive expectation to your strategy.  If there is no a positive expectation then no type of money management will help you win money.  It is like those people that go to the casino and think their "system" works.  In a casino they have a negative expectation of winning so nothing they can do, besides not gambling, will lead to a positive expectation.

Then with that positive expectation you are able to see which f is optimal.  You run the equation below with f in a range from 0.01 to 1 and see where the geometric mean reaches its peak.

G = { Sum( 1 + f * (- Trade i / Biggest Loss ) ) } ^ (1/N)

- Trade i is the profit or loss (with the sign reversed) on the ith trade
Biggest loss is a negative number of the largest drawdown
N is the total number of trades

With your current strategy you are making 3 decisions.
1) you flip a coin and based on the flip you buy, sell, or do nothing. 
2) you decided how much to risk
3) you decided to reinvest any profits

Stochastic, thanks for your input. I'll formulate a reply tomorrow, too tired now.

Just updating since I forgot to earlier:

I'm long again, 21 BTC@4.7145

Liquidated my long position when the profit was showing $3.72 or 3.760% with a swap of -$0.13.

I'm now holding no position with 105.20559 USD in my account.


Stochastic: sorry I didn't get around to replying earlier.

As you point out, no system will turn a losing strategy into a winning one. This is a losing strategy. That's kind of the point, actually. I'm a complete moron when it comes to trading, but you don't have to take my word for it - the strategy I'm applying is also completely moronic. It's a monkey's trading strategy.

The speculation forum is full of, well, wild speculation and curious methodology. I'm providing a base to compare against, a guaranteed bad strategy. If you can't beat me, you should get out of the game.

In case you are still interested here is a link (http://www.mediafire.com/?71bd2zzpnzx) to a pdf download of a money management book.

I've gone long again, 20BTC @ $4.8983   

Thanks for the link, stochastic, I'll have a look when I have time. One reason I'm not interested in any more involved trading than this is I have little enough free time as it is...

I liquidated my position, taking a loss of 1.12 USD. Now it's the waiting game again, with no position.

Well, that was a longer time on the sidelines than usual! Now I'm back in again:
Short 19.2 BTC @ 5.3116   

And a quick 180 here. Liquidated my short for a loss of 1.04 USD, or 1.017 %. My balance stands at $103.16374, and I've gone long again,
19 BTC @ $5.374

More action.

Liquidated my short position and am on the sidelines again.

Lost    $3.19 or 3.120%    on the liquidation. I now have 99.93 USD in my account. Less than I started with!

You only lost 7 cents over more than 3 months of flipping a coin

I love this thread.

Anticipating more drops to come, I've gone short 20.5 BTC @ $4.7114

Maybe this is a bottom after all? I've liquidated my short but now hold no position. Lost $3.19    or 3.306%

The trading is just relentless!

I've gone long again. Holding 19 BTC @ $4.8753

The losses are piling in now!

I liquidated my long,
lost $4.30   or 4.640%.

Current balance:
$92.47656

I'm starting to get a bit bored here. I think I may stop this experiment in mid-May, as I know there'll be a few weeks there I won't be able to trade daily.

Man up... 

This is bigger than you now... lol

the end result of such a strategy is destined to be a balance of zero due to the cost of getting in and out.
more often then not the price will stay within a range which will slowly eat away at any money you have in action.

I'm back in.
Long 19 BTC @ $4.7103

I liqui dated my  long , gaining $1.96 or 2.190% with a swap of -$0.25.

This leaves me with  $94.34976 in my account.

Furthermore, I went short 19 BTC @ $4.8134

Pretty early to be short in a 3rd of 3rd wave up mega-rally. But thanks anyway for the 19 BTC.

The flip giveth, the flip taketh away. Anyway, I haven't closed the position yet, so it's premature to say anything about how it will turn out.

You may be in the money before too long.

This is hilarious! Imo go long for 4/20.

I liquidated today for a profit of 1.26 USD or 1.381 %. No position now.

Nice (/ lucky) trade. You went short before the asks started building up, which was contrary to the charts, indicators, and sentiment.

Though I'm disappointed that it didn't break out, I'm pleased that there wasn't much selling when the winds changed, even though the lack of bids on the order book was nerve-wracking. I take it as further evidence that selling already climaxed, and that the real breakout will be to the upside sooner or later.

this. the wall was removed because it was redundant.

I've done it again!
short 19.5BTC @ 4.7052

the charts never said that there was going to be a breakout to the upside when we were trading in the $4.9s...if anything they said exactly the opposite

This chart (http://chart.ly/uploads/utc8jfy.png) is one that indicated an upside breakout.

If you claim that the charts were saying the opposite at the time, you should provide evidence by sharing them publicly after-the-fact.

How does touching resistance indicate a breakout?

The wave count in that chart is impossible as drawn. There are rules in charting that cannot be broken and this chart is breaking a big one. And no, I will not share my charts publicly, even after the fact, since there is crucial information in them that will help trade into the future. Moreover, it would be extremely unfair to my subscribers if I provided free content here. I don't just merely post projections without explanations, as many do, and in order to see these explanations, you will have to subscribe like everybody else.

I was merely pointing out a flaw in your bullish comment that would otherwise turn many away from technical analysis because the market failed to go up 'as the charts indicated.' The charts were in fact warning you to sell, not buy there.

I want more people to become interested technical analysis and its predictive capability, and posting charts like the one you provided and saying that it is a valid count is just frustrating because when these predictions fail, which they will more often then not because they are inherently flawed, those who are following them become disgusted in technical analysis instead of the people who drew them. Technical analysis works, as long as you know what you are doing.

There are only three rules for Elliott waves (http://en.wikipedia.org/wiki/Elliott_Wave_Principle#Elliott_wave_rules_and_guidelines), and this count is not breaking any of them.


And when the 'the charts' told you to buy near $5.5 a few weeks ago, your subscribers bought right down through the 'textbook correction' to $5.18 before it fell to $4.3. I suppose that was the charts warning the market not to faithfully follow those who claim to have the ability to draw them.



Market predictions fail because the people making them are inherently flawed. There's a harsh lesson in store for any participant who's convinced that they know what they are doing. Anyone who claims otherwise is probably trying to sell something. (and who would need to sell something if they could read charts into the future?)


I think we're in agreement that some humility helps. Actually, its essential to market survival.


If the explanations aren't making sense, maybe try some charts based on rebuilder's coin flips? It signaled a sell in the $4.9's too..

How do false breakouts indicate a breakout? It wasn't just the weekly trendline (which is being gradually pushed higher by falsy breakouts and sideways movement). The other indicators I was looking at (as an alternative to flipping a coin) were bid depth, difficulty, and OBV. OBV still neutral/bullish btw.

Best to wait for the next signal from the coin flip.

They don't list the rule here because it is so fundamental. If you cannot figure it out then you have not followed Elliott Wave Theorem for long


I specifically said that once we fell to $4.9 that the trend was down. Don't put words in my mouth. Moreover, I said to buy around $5.2 not around $5.5. Furthermore, I was never extremely bullish after we broke $5, as many others were, since I knew that we were eventually going to be headed back down according to wave rules; ask any of my subscribers. I just didn't expect the rally to be as short as it was. Also, I never said the fall to $4.9 was impossible; I merely said that what happened was extremely unexpected from a technical standpoint...not impossible. Furthermore, if you were a subscriber after that fall, you would have known that I went 'all-in' at $4.3 because of an excellent argument from looking at the charts and rode most of the wave higher along with played the correction perfectly to $4.6 and afterwards. Do not pretend to believe that I have not given my subscribers excellent advice.


I can guarantee you that people who know what they are doing (because they took the time, money, and effort to learn) will be more successful than people who have not. Why do you think education is so important. Most people that subscribe to my service are very pleased since they actually learn to think for themselves and have the tools and mentality necessary to become successful at charting and trading. Ask any of my subscribers. If you don't know anything about technical analysis, you will learn pretty quickly from my service. I don't just predict...I educate.


I told all my subscribers that I would stop trying to predict using Elliott Wave with regards to the day to day smaller wave movements. The amount of volume needed to skew these counts was nothing so there was inevitably going to be errors. But that is not to say that Elliott Wave does not work with regards to the larger picture, and, your chart is definitely a larger picture with a clear error. You can continue saying that Elliott Wave doesn't work all you want as your argument, but don't post a chart with Elliott Wave used as your justification for a breakout. Doing something like that is extremely hypocritical.

Bid Depth: worthless
Difficulty: it overshot on the way down, it will overshoot on the recovery because of the delay between purchase and operation of hardware
OBV: Can't really see the bullishness you are referring to

You guys have been busy here, I see.

Action again. Time to cut my losses and liquidate the short I had.

took a loss of -$2.50 or -2.726%.   Luckily for me, there was a dip just before I liquidated... I'm holding $93.17130 currently, and going long again.

18.5 @ $4.8391

That was a quickie. I liquidated again, with a profit of a whopping 0.43 USD or 0.483%. No position now.

And again I'm long.
18.0 BTC @ $5.0059 (!)

Taking profit:
Liquidated my long for a profit of $1.25 or 1.386%. I'm now holding onto my $94.78539 with no position.

Who dares, wins! Or something.

Long again,
17.5 BTC  @ $5.2629

Some more losses here:

liquidated my long, lost $2.39 , 2.590%, leaving me with $92.47598.

I'm now short 17.5 BTC @ $5.1279

You kept that long for less than a day! Switching positions that quickly will bring losses from the spread more often than not.

That you decide when to open and close positions means these results are influenced by you way more than the flip of the coin. You should set some limit, like every position will be held for at least 7 days (with a stop-loss, of course).

Buy High Sell Low!  :D

I'm not sure what you mean by me deciding.

Perhaps it's time to reiterate the M.O. here: Every action is decided at random. My system is slightly biased towards holding whatever position I hold, if any. Every day I perform between 1 and 3 flips, depending on what the outcome of each flip is.

First flip: Action or no  action?

if "action", flip again:

2nd flip: Long or short? If I'm not holding a position at the time, I take one up. If I am holding a position already, and the flip tells me to go in the same direction, I  hold the position. If the flip tells me to go in the opposite direction, I liquidate.

if I liquidate, I go for the 3rd flip:
U-turn or no position?
This tells me to either go short if I just liquidated a long position (or vice versa), or to hold no position.

I agree that the spreads will kill me eventually, if I keep going long enough. This is, as I've said before, a losing game. It's not even particularly enlightening in the sense that backtesting will give you a good idea of what this kind of strategy is likely to lead to. Read back a bit to see what that looks like if you're interested, someone did the work already. However, I think there's something to be said for the exercise as a performance of sorts - this is more interesting than just looking at a graph of backtests, and having a running experiment gets more eyeballs. I'm trying to provide a sanity check here. Statistically, mine is a bad strategy, I think we can all agree on that. But can you beat it? Is your performance any better? If it isn't, what makes your system, if you have one, is worth a damn?

Ah, thanks. Its been a while since I read your OP, and I've just been seeing the updates when you were switching or closing positions. Not daily updates of all three flips.

Anyway, lucky short! hopefully you get to close it for some profits ;D

Just posting to note I'm not dead. But I am still holding on to that short, maybe my longest-held position ever?

Well, that was a long short position!

Finally liquidated today, for a stunning profit of $0.86, or 0.959% and a swap of -$0.26... No position currently.

Now I'm long again, 17.5 BTC @ $5.1232