Has anyone ever read up about this concept?
It is an idea that suggests it is possible to have a winning strategy simply by switching between 2 losing subjects, in all areas of life not just the markets.
eg. insects and birds destroying a crop, if you have just 1 of them, there is a problem, your crop is going to be destroyed some what, but if there were both, the bird and the insect, there is a high chance the bird would eat the insect and the actual damage to your crop would be less, but each individually would be a negative impact on your crop, but mixing them together and swapping between the 2, the damage is actually less by having 2 "negative" impacting things...or something like that
http://www.eleceng.adelaide.edu.au/G...l#introductionPLAYING THE MARKET
Interestingly, people already exploit switching strategies similar to Parrondo's in everyday life though not, of course, because they are applying theoretical insights about Brownian motion. But whenever someone changes jobs to get a salary increase, for instance, or sells peaking stocks and buys slumping ones, Parrondo's paradox comes into play. Moreover, many ordinary events are governed by random-seeming fluctuations, from the ups and downs of the financial markets to the succession of political parties in power. Economists and mathematicians have begun to ask whether the principles of Parrondo's paradox could apply to decision making in those realms.
The physicist Sergei Maslov of Brookhaven National Laboratory in New York has shown that principles similar to Parrondo's paradox can be applied to the stock market. Maslov found a way that the value of a stock portfolio can increase even if all of its stocks decline in the long run: The entire portfolio must be sold periodically even daily and the proceeds must be quickly plowed back into repurchasing the stocks in the same proportions as they were in the original portfolio. The net effect of such periodic rebalancing is to apply the gains from stocks that are doing temporarily better than average (and have therefore increased their relative proportion in the portfolio) to buy more stocks that are temporarily underachieving. The beauty of Maslov's proposal is that one need not know anything about particular stocks; simply sell them all and then buy them back in a rebalanced portfolio. Unless the balance of investments is shifted in that way, the long-term prospects for a portfolio full of duds are grim indeed, says Maslov, since all of the stocks tend to decline with time. But Maslov's tactic can generate better returns than the buy and hold policy that is the current favorite of many economists. (It should be noted, however, that the declines in technology stocks mentioned at the beginning of this article might well overcome even Maslov's strategy.)
I find this sort of thing very interesting, whether it can be used effectively is another matter, but this is just purely for discussion. It would be interesting to try this theory out, but I'm not sure how that could be done, anyone got any ideas or ever experimented with this sort of thing?
I have only just discovered this and been reading about it, so I don't know if its a common known thing or not, forgive me if it is, but I have never heard of it before.