A trader entering a market with no prior experience, knowledge or discretionary biases has an equal chance of being right as they do being wrong. This idea was made popular in 1973 by Burton G. Malkiel, an economics professor at Princeton University and it has been coined the ‘Random Walk Theory’.
I believe this theory to be true, I also believe markets trend up and down over different timeframes. Unlike Malkiel who believes it’s best to buy and hold over the long run. I believe that if a trader enters a position in the direction of the prevalent trend, then that trader has an increased chance of his position being profitable for an unknowable amount of time while that position is open. Adding the 200-day EMA to any market chart can display trending markets. If this is true, then what percentage of time are open trades profitable? And, how can a trader control their risk by managing their open trades? We can back test these questions using past market data, but past results don’t predict future profits, and it defeats the opening statement. For this experiment to work properly it needs to be front tested. There is also an issue in front testing this strategy, every time an open position becomes a closed position it is now considered past data. Meaning that the results from front testing can’t be used to predict the future either. If this is true then the opening statement must be true and flipping a coin and entering a trade can be just as profitable as trading with the trend.