How much money would you need to Martingale your way to profits?
- Thread starter 1a2b3cppp
- Start date
Hi there!
I think investing not too much money would be enough for earning profits, right? But, I wonder, why does other investors need to double or triple their capital? Even though they are rich enough. What would they do with all those money???
I think investing not too much money would be enough for earning profits, right? But, I wonder, why does other investors need to double or triple their capital? Even though they are rich enough. What would they do with all those money???
Hookers and cocaine
In that order or in conjunction? Would you use a Martingale strategy?
Are you on Spring Break too...
NiN
Thanks for a thought-provoking thread. My two cents:
The OP has stated that he is not trying to predict the direction of the market and has no ability to do so.
It seems to me, however, that the strategy being discussed does rely on the market moving a certain direction.
Specifically, the strategy only generates a significant profit if the market (a) experiences a sizeable selloff, and then (b) rebounds. If the market does anything else over the timeframe in question, the expected returns under this system would be quite low.
My questions for the OP: Why use a system that works only if it's right on market direction two different times (first selloff, then rebound) rather than a system that works if it's right on market direction only once? For instance, why not invest 100% of capital now, rather than investing a miniscule percentage of capital now and waiting for a selloff that may or may not come?
The OP has stated that he is not trying to predict the direction of the market and has no ability to do so.
It seems to me, however, that the strategy being discussed does rely on the market moving a certain direction.
Specifically, the strategy only generates a significant profit if the market (a) experiences a sizeable selloff, and then (b) rebounds. If the market does anything else over the timeframe in question, the expected returns under this system would be quite low.
My questions for the OP: Why use a system that works only if it's right on market direction two different times (first selloff, then rebound) rather than a system that works if it's right on market direction only once? For instance, why not invest 100% of capital now, rather than investing a miniscule percentage of capital now and waiting for a selloff that may or may not come?
This gets to the heart of the issue I think. If your goal is to avoid losses, then the system you've proposed will work (although whether it will generate enough return to offset the impact of inflation is another question).
That's a separate question from whether this system could be counted on to generate income. I don't see how that is possible as returns of any size are generated only if the market does something very specific and also very unlikely (massive selloff and massive rally occuring within your time horizon, in that order). That result is possible but can't be counted on.
It's also unclear to me how (or whether) this system would "lock in" any of the gains that might accrue prior to a larger selloff. Where does the income come from, in other words?
You raise good points.
I really am not sure about target profits. Before my strategy was basically fuzzy logic, along the lines of "price is going down... buy more. Now price has come back up and I have a big position. Sell."
But I don't like non-specific stuff like that.
I guess I was thinking that my time frame for this is very long, so my goal is to end up with as many shares as possible at the lowest average cost possible. Say a number of years in the future I have 5,000 shares of SPY at an average cost of 100, and SPY is currently trading at 140. Will I really care if I sell them at 140 or 130 or 150? Not really. I mean yeah, the OCD part of me wants to sell them at the absolute peak, but realistically, it would still be "more" money than I would have if I tried to guess direction like the ET millionaires.
Or maybe I just figured that years in the future I would have a lot of shares and then I could figure out my exit strategy.
I'm not really too worried about being locked into a small position while price steadily climbs. I don't really think SPY is going to go to 300 or whatever without any retraces anywhere along the way. But if it does, my IRA will be happy.
Like I said, this thread was more of a thought exercise for myself than anything else. A few of the posts have opened my eyes to some new ideas and now I have to play around with those for a bit.
Specifically, I wonder if adding to winners AND averaging down can be combined into one super strategy so that if price goes up, I make money, and if price goes down I accumulate a big position and then make more money when it goes back up. And the only possible losing scenario would be if price went down and never went back up.
I think the problem would be redetermining the entry points after price has gone up or down.
Like, price drops 10%, buy more. Ok, but now it's retracing, which is up movement, so do you re-add to your position as it's moving upward through territory where you've already placed entries before?
I think the problem would be redetermining the entry points after price has gone up or down.
Like, price drops 10%, buy more. Ok, but now it's retracing, which is up movement, so do you re-add to your position as it's moving upward through territory where you've already placed entries before?