How is retail day trading anything but a gamble?

[gaussian]

Really?

Studies show that you can beat the markets with simple trend following techniques using nothing but simple indicators like moving averages or Macd.

And these indicators work because the markets are not random.

Give me a 30 year study thanks.

Before you tell me value investing is worthless I'll give you What Works on Wall Street. It's a tome that contains many 30+ year studies on value investing. For fun give Fooled By Randomness a read.

I'll believe what you claim when I can see a handful of studies that a "simple macd" can beat the market for the average seat time of an investor (30 years). Until then you're knee deep in survivorship bias bud. The OP is right in the sense you hear the same stuff from roulette players. A guy goes on a hot streak for a few years and claims to have a super system. It'd be hilarious if it wasn't so sad.

 

[Dandr39]

There's almost zero evidence of the majority of popular technical indicators being anything but tea leaf reading.

Absolutely. All technical indicators are lagging. It's been proven mathematically in many studies that markets are unpredictable:

A Startling Discovery: Price Changes Are Random
As is so often the case with important ideas, the concept of efficient capital markets stemmed from a chance discovery. In 1953 Maurice Kendall, a British statistician, presented a controversial paper to the Royal Statistical Society on the behavior of stock and commodity prices. 2 Kendall had expected to find regular price cycles, but to his surprise they did not seem to exist. Each series appeared to be “a ‘wandering’ one, almost as if once a week the Demon of Chance drew a random number . . . and added it to the current price to determine the next week’s price.” In other words, the prices of stocks and commodities seemed to follow a random walk.

- Chapter 13, Efficient Markets and Behavioural Finance, from The Principles of Corporate Finance, 10th edition

 

[Dandr39]

Really?

Studies show that you can beat the markets with simple trend following techniques using nothing but simple indicators like moving averages or Macd.

And these indicators work because the markets are not random.

Technical analysis is pushed by brokers and introducing brokers onto naive investors as an easy to understand formula for getting rich. Of course it doesn't work. But by then the retail trader has blown up several thousand dollars in his account yet the broker has made far more than that by taking the other side of his trades, financing the turn, spread and commission.

The introducing broker gets a fat percentage.

 

[d08]

What's the motivation for a big player to destroy a small ant's position, where is his gain? Also, you seem to assume it's a game of certainty when it's not. It's about odds, often you will lose simply because of factors you couldn't foresee. Then there are edges that are very capital constrained. Goldman will not go into trading something that can only return a few hundred K, PA.

 

[NotKnown]

It's been proven mathematically in many studies that markets are unpredictable

That is a very sweeping statement as it does not reference which markets. I have read some of Maurice Kendall's work and the Random Walk Theory. As an academic paper written all those years ago it is ok but I am not sure it really applies to modern times with all the HFT and algos at work. We need only compare the numerous indices to see that they are more or less tracking each other. This is not by chance and is most probably a "controlled" movement.

I trade indices and have done so for a number of years. While the general movement is unknown for the retail trader (like me), it is possible to measure what is going on and make trades accordingly. I easily out do an index (by a factor) week after week. Remember at the end of the day, on something like an index there are many people/algos/computers making trading decisions on a range of stocks. If demand = supply the price would not move. Luckily that is never the case (well most of the time).

In terms of indicators, they are not predictors and sadly most people do not understand the maths on how they are built nor do they really understand what the indicator is trying to measure. That said, I have written my own which work just fine for me. You are better of trying to measure where you are than trying to predict where you will be.

 

[smallfil]

The trader's biggest enemy is himself. He will sabotage his trading by not having any risk management in his trading. A lot of times, he goes against the trend as so many ET trolls love to do then, whine about it? He does not maintain a trading journal so, cannot see his mistakes. Also, does not analyze his past trades to see his numerous errors. Stupidity is doing the same exact thing and expecting different results. Look in the mirror. The enemy is thee.

 

[jbt]

Every thread on Elite Trader ever
1. How is day trading not gambling?
2. Technical analysis is mumbo-jumbo
3. Trends only exist in retrospect
4. Brokers always f- you.

 

[volpri]

Indicators to some degree gauge current pressures and may or may not have much predictive value. Price patterns (such as wedges..triangles...flags) develop BECAUSE OF the pressures. They can have some predictive value. For instance, in a strong bull trend a PB is caused by two things. Profit taking from the bulls that had taken a position early in the trend and by bears trying to reverse the BO/bull trend, whichever (bulls and bears), or both together, and it is likely both. A cursory glance at previous PB’s (size and duration within the SAME trend) before a resumption of the bull trend, is indicative of the odds of the present PB being a major or a minor PB. And the angle of the bull trend. If each previous PB is getting larger in terms of distance in points and getting larger in terms of sideways to down distance IN BARS i.e. more bars then price is likely working it’s way into a range. And a range requires a different set of skills and techniques to trade it reliably.

No price pattern is random. It happens and forms because of the pressures in the market at during it’s formation up to, and when, we can recognize and “see”the pattern. There is no noise in the market. If it moves one tick there is a reason for it. We may not know nor ever know the reason but be assured there is a reason. Then there are the unknowables. We cannot know beforehand when deep pockets will step in. That can be suddenly or gradually. Either way it will show up in the chart. So this is the uncertainty factor of the markets. As traders we have to understand we operate in a sea of uncertainty. Rip tide...sharks...etc but we can see which direction the waves are coming from, where they will likely hit, and how big they are so their distance traveled inland can be somewhat ascertained. Trading will never be exact but math can help determine probabilities of a trade being successful or not.

So, as traders our primary task is to determine the pressures operating in the markets. To do this we can look at the contexts of PA the larger, and the more immediate. We can look at price patterns being formed. We can look at individual bars. We can look at the dynamics of how each bar was formed (i.e. for instance two bear bars same height. One was formed fast and and furious with price jumping around back and forth. The other was slow and just before the close sailed south.) We can look at indicators. In terms of indicators I generally look at sone MA’s and 50% PB areas, not much else.

It is important to realize the markets have inertia, as well as pressures. So once a move starts it generally will continue at least for a bit more. For instance, a bull BO will continue until profit taking happens and bears enter trying to reverse it. Then if new bulls, that missed out on the first entry, are stronger than the bears trying to make it fail, the pause will just be a bull flag and the trend will continue. If the bears prevail then we will likely see a reversal.

 

[Handle123]

Indicators or chart patterns or even fundamentals represents a reason to bypass or generate a response in form of taking a buy/sell and it reduces over trading. Walking across street is a gamble, betting one's funds no different, you develop skills usually based on relationships, indicator values maxed or chart pattern developed or energies drop like a rock cause lack of storage and usage, we form or develop reasonings that we test out to prove to ourselves we have that "edge". Buying energies heavy as it dropped/hedged goes against those who need to see momentum, only in my later years do I feel less of gambling and "Buy Low/Sell High".

You make opportunities or your luck by being on right side of life's principles, but most people will not take the years of hard work to get these skills.

Sores, Buffett, Roger's, Neddierhoffer are no different, they gamble as well. As one's skllis improves, risk management comes into realization that without it taking place first, almost impossible to make billions and millions.

People simply don't realize it is easier to do longer term than day trading to put up big numbers. Concentration level, memorization, constant alterations due to volatility can be considered harder than brain surgeons, if you don't have abilities to be that type of physician and dedication of years to be able to compete with very best and automation, just like best sport figures, you have so many years to make large numbers before age catches up and brain slows down.

Nothing like not having to pay taxes for decades on retirement accounts, and even better finding ways of screw IRS and they get nothing when you croak.

I understand more now of trading decades, winding down of having desire and lack of fresh ideas, burnout been much longer this time, automation-why keep working hard.

Edge= risk insanely low allows larger volume to be used, astro reward to risk allows smaller winning percentages, you can do extreme well making breakeven systems once you understand how to average down. Difference between 6 figure trader and larger figures is study of drawdowns/risk management.

You become an expert of how to catching falling knives. It is like no more challenges for me, so boring to see same patterns, have seen everything more than 3-4 times. I see why people pack it in and live nicely on what they accumulated, but keep automation going.

 

[Dandr39]

That is a very sweeping statement as it does not reference which markets.

I have to admit I've only just started learning to trade/invest myself. I'm quoting books and courses I've been working through. It is a sweeping statement, but there seems to be a lot of evidence that supports the Efficient Market hypothesis (the idea that all information about a securities price is already 'priced in'). Any new information is rapidly priced in long before any retail investor can exploit it, ie, almost immediately.

HFT's and algos are perhaps proof of this, ie, how you have to heavily invest in equipment and expertise just to exploit a tiny arbitrage opportunity unrealised before. This is an opportunity created by an advancement in technology rather than a refutation of EMH. If not why not just hire analysts and save a lot of money?

Not sure about indexes but passive investing and the actions of the herd could drive prices up unrelated to the fundamentals and you get an overpriced market and consequently a bubble? (This is a strategy I may follow)

I think Kendall was showing that price changes are independent of one another and therefore unpredictable.

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Below is a chart that shows potential returns from day trading.