A lot of people on EliteTrader will beat the market⦠here is why
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I think it is an important question and anyone who trades should give it serious consideration. If the "edge" is a fallacy and prices are truly random, it is a bad bet to think you will succeed. Just like playing the slot machines there would be no possible strategy that could make the expected return positive, and though there may be winners in the short term, in the long run (very very long run) ALL traders would fail due to the cost of commissions. It's human nature to make order out of disorder, and people will try to find methods of beating it. But in the same way slot machine strategies are doomed to fail, so will trading strategies, in the LONG run, IF the markets are random. This includes any "money management" schemes one might propose. In addition, a few traders would seem to experience long term success, even many years of steady gains. But in the same way flipping 30 heads in a row WILL occur given enough flips, so some traders would experience seemingly uncanny results. This would only be due to luck.
So the big question is, are the markets random? I don't know. I tend to think, and maybe this is a fools bias, that they behave more like a poker game, and thus with skill one can read the "tells" and exploit them. Like poker, it is so close to randomness that it takes special attentiveness to find the tells, and the vast majority will not find them.
In an effort to convince myself that the markets display some predictable behavior, I look at breakout plays of small cap stocks during the late 90's. I believe that at this time, breakout trades would yield non-random results. I conclude that if there is one example of predictable behavior, there are most likely others, and you can't say the markets are random.
One other thing to consider is the spread. In theory (maybe not in practice) you have just as much chance of making the spread as anyone (if you bid to buy and offer to sell, of course), and if the spread is larger than your commission, you should have a positive expected value of return.
As far as the posters on the other thread, forgive the haters. This is a tough business and it's easy to take your aggressions out on some dude in a message board. It is not only a smart question, but it is the smartest question. The answer will determine whether you play the game or not. I have had, and still have, the same question as you. I started in the mid 90's, before internet trading. My return is currently 53x my original investment, but I can expect that if the markets are random, I will be giving this back if trade long enough.
So the big question is, are the markets random? I don't know. I tend to think, and maybe this is a fools bias, that they behave more like a poker game, and thus with skill one can read the "tells" and exploit them. Like poker, it is so close to randomness that it takes special attentiveness to find the tells, and the vast majority will not find them.
In an effort to convince myself that the markets display some predictable behavior, I look at breakout plays of small cap stocks during the late 90's. I believe that at this time, breakout trades would yield non-random results. I conclude that if there is one example of predictable behavior, there are most likely others, and you can't say the markets are random.
One other thing to consider is the spread. In theory (maybe not in practice) you have just as much chance of making the spread as anyone (if you bid to buy and offer to sell, of course), and if the spread is larger than your commission, you should have a positive expected value of return.
As far as the posters on the other thread, forgive the haters. This is a tough business and it's easy to take your aggressions out on some dude in a message board. It is not only a smart question, but it is the smartest question. The answer will determine whether you play the game or not. I have had, and still have, the same question as you. I started in the mid 90's, before internet trading. My return is currently 53x my original investment, but I can expect that if the markets are random, I will be giving this back if trade long enough.
1. If you think that Maestro is great (and he is great), you have not seen what others can do. I am sure that there are people better than Maestro and I (RFT). Those who follow my calls here on ET and on RFT's blog know those calls. I am however sure that there are people better than me!
2. Your post in the other thread is sound.
3. Your post in this thread is very weak, and contains many mistakes. A mistake you make is that in non-competitive markets the probs may be the same but the R/R is huge in real businesses, and the loss is mostly time. In trading you lose both time and money.
4. Trading is the only business in the world where your customer is another trader. It is a negative sum-game. Your only other chance to make money if you cannot make it is to find a guy who can make it for you, and make sure that he does not manage too much money. His performance will decrease with size, not because he will not be good anymore, but because he has to increase the size of the bar he will trade (it is mandatory). Increasing time scale of a bar decreases performance when measure in actual time.
5. Overall, I think you should go back to your first thinking, and combine it with your recent thinking (the latter contains many flaws).
6. To be successful in trading you have to understand that you need to take the opposite side of the losing traders, and to do it repetitively. There is nothing like it in the world. It is a lions world, where the hunter is a lion and the huntee is a lion as well. You will either eat, or be eaten. Nothing around it.
That is correct, and I would even say that you have to sell when market is green, and buy when it is red--- note that red and green change depending on how and when you measure!
You big ass liar.
Those numbers don't check out.
Now if your avg monthly gain was 5%, then it makes more sense. But I don't think you are credible here to make 5% believable.
Unless you started with $20, no commissions, and that account size at $1m is an average, numbers don't check out.
Get back to us with reality.
And if reality is anywhere close to that, and you can give me audited numbers (or at least let me see your printed transaction statements over the last decade), I'll send some money your way as well. You can keep 50% of the after expense profits.
This is not quite correct. If you invest in a couple of ventures trying to find a new market or niche you will probably lose money on most of them and if you are fortunate you may have a winner to pay for the losses and succeed. So there is a cost. Now if someone else gave you the money in return for equity, that's cool, but my guess is that only a small percentage of all ideas gets funded. As I said, it's not easy, so it doesn't really matter what you do as long as you have fun with it.
Perhaps the 'insurance' is chronically underpriced.
I think the key here is not that people are underestimating the impact of black swans, but the frequency.
If the two above factors are in fact true, then making money could be 'automatic'. The difficulty would lie in waiting out the periods between 'events'. Now that is something that people aren't wired for.