are you in the 1%?

[lindq]

Quote from njrookie1:

vinc,

If market is purely random, nobody can out-perform market consistently.

Untrue. Put a thousand monkeys in front of computers with an account, and some will outperform over any period you want to select.

In any group of investors/traders in any time frame, there will always be a group of survivors. It's a statistical probability

Select a random group of 1,000 people and identify any skill set. I can assure you that 1% will have outperformed the average by a wide margin.

 

[Ash1972]

Put a thousand monkeys in front of computers with an account and it is a statistical certainty that some will become regulars on ET

 

[njrookie1]

I encourage folks to read the entire paper, instead of drawing a quick conclusion.

The paper demonstrates if you pick the top 500 based on prior year's performance only, they also earn 0.3% per day the FOLLOWING year and outperform the hell out of the rest of the traders. If a fraction of previous top traders out-perform, then it is not news. If the previous top performers out-perform again, in this case significantly, then there is consistency and prove that certain traders have trading skills.

Pick a group of monkey good at shooting darts in one round, and record their performance in the following round. If monkeys have on skills in shooting darts and their prior out-performance is due to luck, they cannot out-perform again.

Have said all this, I do believe that some monkeys are good at shooting darts. But I am sure there are monkeys who cannot shoot who might disagree and would rather cry and contribute their consistent losing streak in competition to bad luck.

 

[jack hershey]

Quote from njrookie1:

The academic type is finally recognizing the existence of successful traders.

http://faculty.haas.berkeley.edu/odean/papers/Day Traders/Day Trading Skill 110523.pdf

Quote:

We document that only the 1,000 most profitable day traders (less than 1 percent of the total population of day traders) from the prior year go on to earn reliably positive abnormal returns net of trading costs in the subsequent year. But, the stock picking ability of these investors is remarkable. Top day traders (based on prior year ranking) earn gross (net) abnormal returns of 49.5 (28.1) bps per day on their day trading portfolio, while the tens of thousands of day traders with a history of losses in the prior year go on to earn gross abnormal returns of -17.5 (-34.2) bps per day.

Thanks for the post.

The rule set for participating in the Eastern market (Taiwan) is unlike the US market rule sets.

 

[sle]

Quote from njrookie1:
the paper says 80% of the trade of the successful traders is NOT providing liquidity. it is taking.

That one is interesting. It would be intuitive that most alpha comes from selling some sort of risk premium, in case of delta-one traders it being liquidity risk premium. I would also say that that statement disagrees with the fact they most use limit orders, not market orders.

Quote from lindq:
Untrue. Put a thousand monkeys in front of computers with an account, and some will outperform over any period you want to select.

A simple bootstrap will prove if the hypothesis is random or not, especially on a large enough sample. Plus, autocorrelation between survivors would be zero in random case, which authors show to be untrue.

One thing that puzzles me about this paper. It's clear that day trading can extract alpha out of the market in a very low-risk manner. HFT shops are a living proof and there is no reason for some humans to achieve similar results too, especially in emerging markets. Why is this news to the academic community, thats the question?

 

[justrading]

Quote from sle:

That one is interesting. It would be intuitive that most alpha comes from selling some sort of risk premium, in case of delta-one traders it being liquidity risk premium. I would also say that that statement disagrees with the fact they most use limit orders, not market

Stop limit orders perhaps?

 

[oraclewizard77]

I would like to get to the 1%. My 1st trade would have been profitable last Friday, if I would have placed a stop where the market proved me wrong. Instead since I went long too far from where according to my "Rules of Trading", I should get long for a trade setup, I instead got spooked as the trade started to go against me, and got out for a small loss.

I think in hindsight, sometimes you need to either wait patiently for the setup, or if you are still confident in the direction, you need to be willingly to trade a negative risk vs reward if you already on in the trade.

 

[oraclewizard77]

I would also like to point something out since some people who I will not name are too stupid to understand the difference. Even though I am a moderator, I post here my thoughts on trading. All being a Mod means is that I clean up some posts on some of these forums if they violate this website's rules or someone complains about a post. Also, if someone attacks me personally just like if someone attacks one of you, I will defend myself until or if another Mod cleans up the posts.

 

[oraclewizard77]

I would also suggest that if you want to get to the 1%, you can start off developing strategies in simulation before you trade live for free. For example, the stupid person whose name I will not mention does not know you can use NT for free for as long as you want, you only have to pay them like I do when you trade with real money. When I went back to simulation for awhile to make some changes to my strategy, I decided to stop paying them, and then once I was confident in my indicator, I started paying them again to send live orders to my broker account.

 

[southall]

Quote from gmst:

this is a classic illustration of "Winner takes all". In some sense, those 1% traders are at the top of the food chain and their existence depends on other 99%. If those 99% stop trading, then those 1% will not remain 1%. Sad - but nature's rule i guess. Only best survives.

The top 1% will always make big profits.

If there are 100,000 traders then 1000 will make big money.

If the bottom 99,000 leave the markets then those 1000 will be left to fight among themselves.

Then only the top 10 in that 1000 will be remain highly profitable.

Luckily for us traders, there is another sucker born every minute and the markets have no shortage of dumb money.