It's difficult to trade sucessfully

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Shakespeare
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Re: It's difficult to trade sucessfully

Post by Shakespeare »

Someone must make above average profits especially if the majority loses.
It doesn't always have to be the same someone. And, if your probability of loss is greater than your probability of win, you will eventually lose.

Added: there's a game theory math for this, but I forget the name - basically if you have a finite wallet and keep gambling against a house with a larger wallet you will eventually be wiped out.
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
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newguy
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Re: It's difficult to trade sucessfully

Post by newguy »

Shakespeare wrote:
Someone must make above average profits especially if the majority loses.
It doesn't always have to be the same someone. And, if your probability of loss is greater than your probability of win, you will eventually lose.
If your expectancy, not probability of wins, is negative.

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ghariton
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Re: It's difficult to trade sucessfully

Post by ghariton »

Shakespeare wrote:
Someone must make above average profits especially if the majority loses.
It doesn't always have to be the same someone. And, if your probability of loss is greater than your probability of win, you will eventually lose.

Added: there's a game theory math for this, but I forget the name - basically if you have a finite wallet and keep gambling against a house with a larger wallet you will eventually be wiped out.
Yes.

Think of a roulette wheel as an analogy to day trading. Many will lose a little. A few will win a lot. Their identities will change with every spin of the wheel. Over time, some will win many times in a row -- they are having a "hot" streak, or perhaps they have perfected a system. And often they can convince other people to follow their system.

Just like a roulette wheel, day trading is a zero-sum game, minus transaction costs (day trading) or the house cut (roulette). There is not enough time for new wealth to be generated, so all you are doing is redistributing existing wealth. By contrast, longer-term investing at least might benefit from a general upward trend (even if not in the last decade); it is a positive-sum game.

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deaddog
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Re: It's difficult to trade sucessfully

Post by deaddog »

Shakespeare wrote: Added: there's a game theory math for this, but I forget the name - basically if you have a finite wallet and keep gambling against a house with a larger wallet you will eventually be wiped out.
Again it’s a theory. If you have an edge you can overcome the house. That’s why the casinos ban card counters.
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Re: It's difficult to trade sucessfully

Post by deaddog »

ghariton wrote: Just like a roulette wheel, day trading is a zero-sum game, minus transaction costs (day trading) or the house cut (roulette). There is not enough time for new wealth to be generated, so all you are doing is redistributing existing wealth. By contrast, longer-term investing at least might benefit from a general upward trend (even if not in the last decade); it is a positive-sum game.

George
But if you use poker as an analogy the skilled players end up taking money from the less skilled and overcome the rake.
"And the days that I keep my gratitude higher than my expectations, well, I have really good days" RW Hubbard
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newguy
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Re: It's difficult to trade sucessfully

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deaddog wrote:
Shakespeare wrote: Added: there's a game theory math for this, but I forget the name - basically if you have a finite wallet and keep gambling against a house with a larger wallet you will eventually be wiped out.
Again it’s a theory. If you have an edge you can overcome the house. That’s why the casinos ban card counters.
It's true but the other side has to basically have an unlimited wallet if your expectancy is high enough. It's called unbounded variance or something, but that may be just the statistical term.

In reality you always figure risk of ruin with some realistic numbers and you still only get a probability that you won't go bankrupt or give up.

newguy

add: most casinos don't ban card counters, they just change the expectancy by adding decks and shuffling. The one deck venues only ban successful counters. They love the other kind, sort of like markets love newbies.
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Re: It's difficult to trade sucessfully

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newguy wrote: add: most casinos don't ban card counters, they just change the expectancy by adding decks and shuffling. The one deck venues only ban successful counters. They love the other kind, sort of like markets love newbies.
And can you explain why the market loves newbies? Has it got something to do with easy money for skilled traders? :wink:
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newguy
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Re: It's difficult to trade sucessfully

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deaddog wrote:And can you explain why the market loves newbies? Has it got something to do with easy money for skilled traders? :wink:
Well, that's kind of anthropomorphizing on my part. But you must admit that in a zero sum game it's nice to see so many people show up and lose a bundle.

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deaddog
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Re: It's difficult to trade sucessfully

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newguy wrote: Well, that's kind of anthropomorphizing on my part. But you must admit that in a zero sum game it's nice to see so many people show up and lose a bundle.
Anthropomorphizing: wow; now there’s a word you don’t hear every day. Even after looking it up I’m not sure what you mean.

Getting back to the original question, do you think that trading is difficult and if so why?
Do you think that it is a skill that can be learned?
"And the days that I keep my gratitude higher than my expectations, well, I have really good days" RW Hubbard
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newguy
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Re: It's difficult to trade sucessfully

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deaddog wrote:
newguy wrote: Well, that's kind of anthropomorphizing on my part. But you must admit that in a zero sum game it's nice to see so many people show up and lose a bundle.
Anthropomorphizing: wow; now there’s a word you don’t hear every day. Even after looking it up I’m not sure what you mean.
Pretending the market has feelings or intent like a human.
Getting back to the original question, do you think that trading is difficult and if so why?
Very difficult due to human nature. It also seems more difficult than 'normal' because of the low barriers to entry. Would you say surgery is difficult? How about after 10 years of training?
Do you think that it is a skill that can be learned?
I'm certain of it.

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Re: It's difficult to trade sucessfully

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newguy wrote:
Do you think that it is a skill that can be learned?
I'm certain of it.
Maybe I'm too confident.
Is the environment in which the judgment is made sufficiently regular to enable predictions from the available evidence? The answer is yes for diagnosticians, no for stock pickers.
It's an article by Kahneman on the illusion of skill. He's always a good read.

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Re: It's difficult to trade sucessfully

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newguy wrote:
Maybe I'm too confident.
Is the environment in which the judgment is made sufficiently regular to enable predictions from the available evidence? The answer is yes for diagnosticians, no for stock pickers.
It's an article by Kahneman on the illusion of skill. He's always a good read.

newguy
In a lot of the studies and article I have read lately, overconfidence was given as one of the main reasons that traders fail.

I will of course suggest that one way to compensate for this is to have a methodology to cut your losses short and let your winners ride.
"And the days that I keep my gratitude higher than my expectations, well, I have really good days" RW Hubbard
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Re: It's difficult to trade sucessfully

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deaddog wrote:I will of course suggest that one way to compensate for this is to have a methodology to cut your losses short and let your winners ride.
I would suggest that you instead come up with a way of objectively analyzing your performance.

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Re: It's difficult to trade sucessfully

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newguy wrote:I would suggest that you instead come up with a way of objectively analyzing your performance.

newguy
Do you have any suggestion as how to do this?

I am considering using the same criteria that I use to enter a position. I would determine targets and stops when I enter a trade; when one or the other is hit; I’ll rerun my criteria as if I did not own the stock, if I would still buy the stock; I’ll keep it: if not I’ll sell it.

I’m still leaning towards having a set stop loss because as the article states "you never know what going to happen." Taking any loss if hard to do but as humans we have so many bias’s that affect how we think once we have committed cash to a trade that I’m afraid I might find a good reason to hold on to a losing trade. But I am open to suggestions.

PS: Is it my perfromance or the stocks that I objectively want to analyze?
"And the days that I keep my gratitude higher than my expectations, well, I have really good days" RW Hubbard
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newguy
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Re: It's difficult to trade sucessfully

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deaddog wrote:
newguy wrote:I would suggest that you instead come up with a way of objectively analyzing your performance.

newguy
Do you have any suggestion as how to do this?

PS: Is it my perfromance or the stocks that I objectively want to analyze?
It's your performance. If you're trading stocks long only then the market is your best benchmark. Do you beat it? I mean the market Do you beat it after time and expenses if you think they should be included? I once had to pay $300+USD/month for a realtime feed. That was pretty hard to beat with a small account.

Some things I do.

When I design a system I replace my entry rules with a random entry to see if it makes a difference. I compare the returns with out of sample returns. I do monte carlo and statisical analysis for probability of ruin. etc...

For discretional trading I keep a journal of all trades and then a summary at the trades end or weeks end or something like that. I include things like state of mind so I can spot human failings. Then I decide after the fact whether it was a good trade regardless of outcome. Over 15 years there is a definite improvement in only taking good trades. For scalping I just do it when I quit for the day but every trade has a screen cap so I can look back.

I pick a benchmark for myself but my trading is way different. It used to be just $ or % but I've realized that a smooth equity line is more important to me. When leverage comes into play that's what really matters. Leverage can be less than 1 as well.

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Re: It's difficult to trade sucessfully

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newguy wrote:It's an article by Kahneman on the illusion of skill. He's always a good read.
I confidently predict that the NY Times will publish this in their magazine supplement this Sunday: Don’t Blink! The Hazards of Confidence and, if they do, I'll consider myself a skilled forecaster ;)
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Re: It's difficult to trade sucessfully

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newguy wrote:It's your performance. If you're trading stocks long only then the market is your best benchmark. Do you beat it? I mean the market Do you beat it after time and expenses if you think they should be included? I once had to pay $300+USD/month for a realtime feed. That was pretty hard to beat with a small account.

newguy
As of Sept 22 I am 100% cash.
I trade US stocks for the most part. To date I’m up 9% for the year. Nov to Nov I’m up 15%. Using the S&P or the Russell I’m outperforming the index’s.


Last year I made 25 trades. 11 losers; 14 winners; I look for a 15 to 20% gain and plan for 7 to 10% loss. I limit my portfolio to 8 stocks. My position size is a calculated 12.5% of my starting account balance.

I rate my performance more on how well I have followed my trading plan. My biggest problem this year was not taking quick losses. I guess you could blame overconfidence in my ability to research stocks on this. I felt that the stocks had excellent fundamentals and would recover. Needless to say they didn’t. When the market finally gave me my liquidate signal, I managed to pull the trigger but ended up with 25, 42 and 52% losses on 3 of my positions. Had I taken losses at 10% my gain for the year would have been 20%.

So objectively rating my performance I have to say that I have lots of room for improvement. I have to somehow find the discipline to follow my plan. I still tend to let fear and greed sway my better judgement.
"And the days that I keep my gratitude higher than my expectations, well, I have really good days" RW Hubbard
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Re: It's difficult to trade sucessfully

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Bylo Selhi wrote:
newguy wrote:It's an article by Kahneman on the illusion of skill. He's always a good read.
I confidently predict that the NY Times will publish this in their magazine supplement this Sunday: Don’t Blink! The Hazards of Confidence and, if they do, I'll consider myself a skilled forecaster ;)
But will you make more money if you are right than you will lose if you are wrong.
And if you are mistaken will you wait for next Sunday and the next and the next?
It’s not about being right, it’s about making cold hard cash. :wink:
"And the days that I keep my gratitude higher than my expectations, well, I have really good days" RW Hubbard
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Re: It's difficult to trade sucessfully

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deaddog wrote:But will you make more money if you are right than you will lose if you are wrong.
What you seem to forget is the frequency of each: if you make double on your winners than you lose on your losers, but the same time you have triple the number of losses compared to winners (whipsaw, anyone?), you still lose money.
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Re: It's difficult to trade sucessfully

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adrian2 wrote:What you seem to forget is the frequency of each: if you make double on your winners than you lose on your losers, but the same time you have triple the number of losses compared to winners (whipsaw, anyone?), you still lose money.
I think we have debated this before. :D

If you have triple the losers maybe you have to work on your entry strategy.

If the market is random you should have a 50/50 chance.

You have to get over your fear of being wrong or of missing that big move.
"And the days that I keep my gratitude higher than my expectations, well, I have really good days" RW Hubbard
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Re: It's difficult to trade sucessfully

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deaddog wrote:If you have triple the losers maybe you have to work on your entry strategy.
I don't have to, I don't use stop losses, period.
deaddog wrote:If the market is random you should have a 50/50 chance.
There is also something called noise, the old phenomenon of the market going up, then going down, or vice-versa. You can have a better than 50/50 chance of being right if you ignore the stop loss, at least with the stocks I care for. You have once ventured onto my territory by trading BMO: you barely broke even, Pickles made money, I made money. OTOH, I would not use my strategy on Apple or RIM, to pick two extremes, but I'm happily making money out of MSFT and INTC.
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Re: It's difficult to trade sucessfully

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Sorry Ardian; I meant if I had triple the number of losses I would have to rethink my strategy.

I’ll admit I didn’t do to well with the BMO strategy. If I recall I sold out at 57 something and took a small loss overall. I wasn’t comfortable with the strategy and felt I had to protect my capital.

That was about a year ago. BMO closed today @ 59.31 up a couple buck from where I got out. Maybe a 3% gain plus of course the dividends, another 5%. Total return 8%. With the cash I had, I managed to make 15% from last Nov up till I went back to cash.

I like my strategy. It works for me.

I know I’ll never convince you that cutting losses is a good strategy. It doesn’t fit your style and probably wouldn’t work for you. But not cutting losses cost me money last year. Gotta go with what works for me.
"And the days that I keep my gratitude higher than my expectations, well, I have really good days" RW Hubbard
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Re: It's difficult to trade sucessfully

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deaddog wrote:I like my strategy. It works for me.

I know I’ll never convince you that cutting losses is a good strategy. It doesn’t fit your style and probably wouldn’t work for you. But not cutting losses cost me money last year. Gotta go with what works for me.
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Re: It's difficult to trade sucessfully

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To trade successfully requires a great deal of skill and intelligence which is why I am ill suited for it. Instead I opt for the far easier and less mentally taxing buy and hold approach. What do I buy? I attempt to buy into companies with large shareholders because I strongly believe that the rich get richer so if I want a shot at being rich, I need to ride the coattails of the rich. This method only works if one gets tired when using their brains too much.
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Re: It's difficult to trade sucessfully

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Rickson9 wrote: I attempt to buy into companies with large shareholders because I strongly believe that the rich get richer so if I want a shot at being rich, I need to ride the coattails of the rich.
The presence of large shareholders serves to protect you, or at least mitigate against, abuses by management (overly risky or poorly thought out projects, private benefits to management). But it leaves you exposed to being exploited by those same large shareholders. The most blatant examples occur in family-controlled firms, but other examples abound.

George
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