I researched many trading strategies online, and in books, and most of the strategies said that a good risk management system was possibly more important than the strategy itself. I heard phrases like this: "What separates professional retail traders from novices, Is just good risk management." I eventually got a bit fed up with researching strategies (not because they didn't work, but because the sites made you watch like 15-minute videos before they gave you one sentence of advice) and I started changing my focus to risk management I was pretty happy with what I had found, I even made a comment to someone that "Heck, even flipping a coin with good management could be profitable." Of course, the receiver of that comment said that if doing that was profitable, everyone would do it, and I returned with "Just because it is profitable, doesn't mean it is as/more profitable as a strategy that gives an advantage." My curiosity was piqued. I wanted to find just how profitable would this be. I did the only sensible thing anyone would do. I googled it. I found plenty of comments on trading forums that said that this was "gambling" and not "real trading", but no actual results. I decided to do an experiment to see if this strategy would make you any money at all.
Good risk management means good position sizes, stops, take profits. My question is this: can you flip a coin as a strategy to be profitable trading the stock market? You would do something like this:
- Find a random time to enter a trade in a random security;
- Flip a coin to decide the direction of the trade you will take;
- Use risk management (RR ratio, Volatility adjusting: Stop Losses, Take Profits; Position Sizing) to enter and then exit the trade.
NOTE: I am taking some advice from StackExchange to "share your knowledge, Q&A-style" My answer and the result are the results of my own experiment and will be posted on March 16-18. Feel free to answer with your own tests, insights, or probabilities.