Trading based on random entries

I am researching on a system which is based on random entries.
So far, my research shows that if we place trades randomly with risk/reward ratio of 1:2,
then over the longer period of time, we will mostly end up positive.

The idea basically comes from betting on roulette. If a bet is placed on any 12 numbers(out of 36),
e.g. 1-12 then it has 33 percent chance of winning and with this bet, it gives RR ratio of 1:2
I am attaching a spreadsheet in which I have experimented this for large amount of random numbers:
> In column C, there are random numbers generated from 1-36 (and rounded) >>> lets say there is random number generated for particular bet
> In D, we evaluate whether the number was from 3rd dozen or not, i.e. 25-36 >>> Bet was always placed on 3rd dozen
> Column E applies the RR ratio of 1:2 and gives the profit/loss >>> If the bet was lost, we lost -1, if the bet was won, we gained 2
> We start with balance with 100 and track the equity in column F.
> Starting from sheet location U38, there are some graphs displaying the equity increasing or
decreasing over a certain number of bets. For example, the 1st graph shows the equity increased to around 160 over
925 trades.

Every time we type anything on the spreadsheet produces these 14k random numbers again and plots the results on the graphs. This shows us that, on shorter number of bets i.e. 1k-3k, the results can be negative
but over the longer period of time, the results are ‘mostly’ positive.

Now, coming back to trading, I am comparing the same to trading forex based on random entries,
i.e. lets say if we placed around, 10k trades randomly with RR of 1:2, since the odds are comaprable to
above scenario, would the results be still positive ?

I don’t know programming so I can’t write an EA and backtest easily.

Let me know what do you think about the idea…


I am not able to attach the spreadsheet for some reason (maybe because of macros). I think my explanation should give an idea but feel free ask me for the spreadsheet in an email if interested.

Forex ain’t roulette and your system loses on roulette as well.

Using random entries and a r/r of 1:2 you will stop out twice as often as you win but will win twice as much as you lose, essentially breaking even. It is the same as using the much easier to calculate r/r of 1:1 where stop outs are just as likely as wins. It doesn’t matter how many trials you do or how large your sample is, you will always break even.

Now, remember that you have your broker’s spread to cover and thus you NEVER have a r/r of 1:1 where the chances of winning and losing are the same with a random entry. The amount the move must go in your favor is now ALWAYS greater than the distance to the stop out. Since you are looking at random entries the stop out will now be hit more frequently than the take profit.

Example: Random entry long. 100 pip take profit and 100 pip stop loss. If truely random then you will simply break even over time. It is unavoidable. Add in the spread and you now have, for example, 102.8 take profit and 100 stop loss. If truely random then the stop loss will be hit more frequently because the take profit is further away.

You lose.

Just like the purpose behind the zero and double zero in roulette. You may get lucky for a while but eventually the casino takes your money, a little at a time (just like a broker will take your money a little at a time).

I disagree with the above, if things were truly random and its 50/50 then if we were getting 1:2 every time then we would obv profit. even if we only hit 4/10 then we would still profit, 3/10 then we break even. I think quibbling about a couple of points spread for the purposes of this discussion doesn’t help to much (no offense intended at all :slight_smile: )

Now if you add even one thing that ‘should’’ give us an edge such as random entries with 1:2 target but only when the bar closes in the direction of the trend then things start to get interesting

You’re getting caught up in the 1:1 scenario. In a random price move environment the odds would work out such that a 1 pt move would happen about twice as often as 2 pt move. That would produce breakeven results before the spread, and once you factor in the spread it means the more you trade the worse you’ll do, so it’s not “quibbling”.

Now if you add even one thing that ‘should’’ give us an edge such as random entries with 1:2 target but only when the bar closes in the direction of the trend then things start to get interesting

In which case you’re no longer talking about random entry. The real value of using a random entry system is to evaluate your exit strategy.

Rhodytrader explained it well. We are not talking about a system that has a 50/50 chance of going 2:1. That is a winning system. If you have such a system then you want to pour as much money into trading that system as often as you can.

The premise of the OP was using completely random entries. As such, it is mathematically impossible to come out ahead using fixed TP and SL levels with random entries. Even if the greatest money management scheme ever devised is applied, it cannot defy the immutable laws of nature.