Am I on the right track?

[Topper]

Quote from lost dilettante:

What worries me about this approach is you are basically data mining the market using your brain rather than a computer. In the process of watching the market and trying to work out what is causing price movements you will develop and test tens of thousands of hypotheses (some consciously, but most unconsciously). You will "pick" out of all these hypotheses a few that seem to work. The risk is that the vast majority of rules you pick will be false and will only appear to work because of chance. If this is the case you might as well take all your money and go to the casino - at least you will get a free drink

Wwwwwwwhat?!

Wwwwwwwhat?!

Wwwwwwwhat?!


.........O KAYYYYYYYYY

 

[lost dilettante]

Quote from ivanbaj:

Can you propose how a price/time chart would look for a stock where the big majority (80-90%) of the traders are insiders?

If the majority of traders in a stock were insiders then any information that could cause a price shock would be reflected as soon as the insiders knew (ie the stock would not move when the price shock news was later publicly released the stock. A stock with this much insider trading would be from a trading perspective equivalent to a stock with no insider trading as any price shock could not be predictable from prior prices.

Do you assume that all insiders act on the same knowledge?

Do you assume that all insiders get the knowledge at the same time?

No, but none of these matter in regards to insider trading causing price predictive information to become embedded in the price data series.

Do you assume that all insiders will act on the knowledge at the same time? Can you accept that some insiders will act sooner than others?

This doesn't matter. If some insiders act after others then the difference will just be a lag in the price signal rather than a spike.

Is it possible that some of the insiders might be involved in creating the knowledge?

I would expect so. This is rather irrelevant to trading though.

Is it possible that some insiders might not buy into the knowledge 100% and have some doubts?

The insiders I am talking about are not those that have the knowledge, but those that trade on that knowledge. If an insider choose to not trade then apart from not being a crook, they will have no affect of the market.

Do you assume that all insiders have the same goals?

Do you assume that all insiders have the same levels of greed and fear levels?

I do assume that all insiders that chose to trade on this knowledge have the goal of making a profit. If insiders choose to trade at a level below the possibility that the information provides then the end result will be that the price predictive signal will be present, but smaller.

Will the bigger insiders make their purchases at once moving the price to a new level, or will they try to get as much of the purchase on a lower level by making smaller purchases over some time?

This doesn't matter, the effect of slow buying verses fast buying would be to just slow the price movement direction. The end level will be the same all things being equal.

Can you accept that some of the insiders will start faking their intentions? Selling when they intend to buy?

Yes insiders could do this, but this is also a price signal

It seems to me that stocks traded mostly by insiders will show some level of noise that we as traders will need to interpret and bet on.

This is exactly my point. Most price movement is noise, the question is identifying those stocks where past price movement is predictive of future price movement. My prediction, based on the random trading hypothesis, is that the price predictive signal present in the past price data will be the largest in those stocks that have the greatest amount of insider trading. Since it is possible to retrospectively identify those stocks with high levels of insider trading, and assuming that stocks that have previously had high levels of insider trading will have high levels of insider trading in the future (a fairly reasonable assumption), then this prediction should allow you to know where to concentrate your trading - ie use a follow the crooks strategy.

 

[lost dilettante]

Quote from sheepsucker:

you are thinking way too much and wtf is this shit with some validity level.

What you want is profitability. To achieve that you need positive expectancy. Most likely you will eventually want to achieve it trough moderate win-% and high RR.

Another story is the tactics ie. different setups to achieve the positive expectancy.

I do think a lot, but that is my nature I am very likely to be wrong (almost certain), but I am most interested in knowing why I am wrong. Every hypothesis I can disprove brings me one step closer to the correct hypothesis.

I can't believe that people here are not worried that the trading rules they are using are likely to be false (the don't think, just trade mentality). If you are creating trading rules by mining from past data then there is a very high probability (close to a certainty) that the rule(s) you are using have no predictive power. There is a reason the vast majority of traders lose money - the rules they are using are false. Even making money is no proof that the rules you use are correct, as it is possible that you are one of the traders that happened to fall by chance on the far right side of the earnings distribution curve. I might write up a longer post on this topic when I get the chance.

 

[NoDoji]

Quote from Topper:

Here's a way to develop a trading edge-

Watch a stock 6.5 hours a day, 5 days a week, for weeks. Soon you will start to get a good feel for the 'personality' of it. Things like how the market makers or specialists trade it and the average type of trading activity, as well as how it reacts to anything and everything will become familiar to you... kinda like a family member or friend! Being familiar with a stock's movements 'is' a trading edge that increases your probabilities.

I second this motion 100%. The drummer knows what the bass player's up to

 

[piezoe]

Quote from lost dilettante:

I do think a lot, but that is my nature I am very likely to be wrong (almost certain), but I am most interested in knowing why I am wrong. Every hypothesis I can disprove brings me one step closer to the correct hypothesis.

I can't believe that people here are not worried that the trading rules they are using are likely to be false (the don't think, just trade mentality). If you are creating trading rules by mining from past data then there is a very high probability (close to a certainty) that the rule(s) you are using have no predictive power. There is a reason the vast majority of traders lose money - the rules they are using are false. Even making money is no proof that the rules you use are correct, as it is possible that you are one of the traders that happened to fall by chance on the far right side of the earnings distribution curve. I might write up a longer post on this topic when I get the chance.

Perhaps you'd be best advised to concentrate on the study of fruit flies.

 

[lost dilettante]

Quote from piezoe:

Perhaps you'd be best advised to concentrate on the study of fruit flies.

I am amazed at the level of anti-intellectualism displayed here - have a look at the really successful traders - are they intelligent, or they idiots with a good "feel" for the market. If it is the former then maybe thinking is not such a bad thing.

 

[lost dilettante]

Quote from NoDoji:

I second this motion 100%. The drummer knows what the bass player's up to

The base player is providing the signal. If the drummer starts following the lead guitar then things won't sound too good.

 

[NoDoji]

Quote from lost dilettante:

I have been dipping my toes into the trading water as a bit of a hobby and like most new people doing badly. I have so far been 100% correct on the ultimate direction of my trades, but totally off in the timing - I guess this is a fancy way of same as saying I have been 100% wrong

You are on the right track, dude! Take the opposite side of your intended trades and you can't go wrong! Please call your intended trades in real time for us, so we can all join in this 100% win rate

Seriously, you should print screen your chart at the time of entry, then compare to a chart later on. Determine why your timing was off. It's likely a simple thing like this:

I short stocks that pull back a after a run up, leaving behind a lower high. That's normally a fine short signal. BUT I used to often miss the fact that a higher low was there as well, meaning a strong chance the previous resistance level would be tested. So I'd get stopped out above the lower high, price would test the next R level, fail to break through, then crash nicely. My direction was right and my timing was off and I threw money away.

A sample chart is attached.

 

[piezoe]

Quote from lost dilettante:

I am amazed at the level of anti-intellectualism displayed here - have a look at the really successful traders - are they intelligent, or they idiots with a good "feel" for the market. If it is the former then maybe thinking is not such a bad thing.

Perhaps you'd rather not know the answer to your question.

 

[Maverickz]

I am shocked no one else has mentioned this. If you are 100% wrong every time....next time you want to buy....sell instead and vise verse.