Here's one to think about before open Was revising my strategy...

Here's one to think about before open Was revising my strategy on the weekend and wondered how a coin toss long/short strategy with a stop loss would perform.

Back tested it and guess what. It consistently made money.

Each day pick a random number, either 0 or 1 and go short/long accordingly. I used a fixed at risk amount and worked out the number of shares assuming 1/4 of a std deviation as the stop loss point so that if the stop was hit the loss was at most that fixed amount.

In the end it makes sense, losses are limited, gains aren't.

In fact the tighter the stop the higher the gains - although the probability of successive stops goes up.

Humbling Actually.