Recently did on the topic of random trading on the Russian market. Now let's apply the same random strategy for the American market.. Let's take stocks from the SP100 index, which includes 100 the coolest American companies and we will randomly open and close positions. Up to ten positions can be opened at the same time, that is, we divide the capital into ten different parts and open one position for each. Tests will be in the last ten years, without shoulder. After running the test on historical data, we apply the Monte Carlo method — we make a thousand randomly generated tests and see the results.
At first we will only play long:
On the picture schedule, based on thousands of tests, shows the dependence of the probability of making a profit / loss. We see that the probability of getting a loss over ten years in case of random long trading, at all, No, There is, for example 90% the likelihood of what 10 years would have earned at least 75% arrived. Or 50% probability of getting 125% arrived. I.e, all this depends on luck, since positions are opened and closed randomly. But the fact is that the probability of getting a loss for ten years of trading is zero.
Here we see that the average profit for 10 years is approximately 130%:
This is the equity of the MOST UNSUCCESSFUL test out of a thousand tests with a profit for 10 years in total 27% or 2,44% per annum:
And this is the equity of the MOST SUCCESSFUL test — 478% behind 10 years:
Now, do the same, but only short. That is, we will randomly open and close short positions.
And we immediately see that the probability of getting a profit for 10 years is zero. Best case scenario, with probability 0,001% we can lose about -57% from capital. And yes, average 50% chance of being lost -74%.
This is the distribution of losses of a thousand tests with an average loss -74%.
This is the equity of the most unsuccessful test out of a thousand tests at a loss. -85% ten years:
And this is the equity of the most successful (lucky) test, where received all -57% loss for ten years:
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What are the conclusions from this? Think, that they suggest themselves. If even the very last newcomer came to the American market and began to randomly open long positions and close them in the same way, then it would be impossible to drain the account or even be in the red over the past ten years. And at the same time, I would have earned more than the American rate.
But if I got sick playing short, then at a long distance, practically, would lose my capital.
If I started trading mixed, then in long, then short, then the result would be unpredictable and most likely would fluctuate at zero and below.
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Well, I will say the same about my trading experience., when i started doing it in 2005 year. I have no system, naturally, did not have. I just RANDOMLY bought stocks of companies, who knew, e.g. Microsoft, Bank of America and others., but most importantly, ONLY IN LONG. That is why I have not had a single unprofitable year since that moment.. On the other hand, I remember considering themselves very experienced., how fundamental, so technically, who, with clever justifications, stubbornly shorted Amazon all the way through his ascent…. in other words, as they say, considered themselves smarter than the market. I believe they are very smart and intelligent., but they just didn’t know that it was NOT POSSIBLE to short the American market. :)
