No one on EliteTrader will beat the market… here is why

[kinggyppo]

Quote from neutrino:

To jem and Mr J :
Same with oil - it did look like a bubble at any price above $100, but how can you know. We said the Chinese were buying. And when it broke the trend at $145 you could expect it to go to about $100 and find support there, but down to $40 ?!? And now its easy to say that hedgies were liquidating, but again you never know, may be there is some fundamental force at work and it will stay below $100 for a very long time.

This is where the rubber hits the road; predicting the markets even short term is hard. If you are good at it you can make money. I guarantee many people made and lost a ton on oil in the past year. I would say markets are mostly efficient (no edge) but there are expoitable periods and situations. Good trading.

 

[ammo]

as long as the market moves,you can make money,you cant possibly take all the data out there while its moving and add it up and trade it, a lot of times you get the information explaining the move after its over.There are so many tools out htere to use to give you a slight hint or increase the probability of your guess,if you can take your 50/50 chance and improve it to 51/49,and manage your losses ,this can be a very profitable business.

 

[Mr J]

Quote from neutrino:

1. You don't need to prove that markets are not rational - everyone knows that... but only in hindsight.

2. It's easy to say that the dotcoms were ridiculously overpriced in 2000, but then they were overpriced in 1999,1998 and they could continue to be overpriced for many more years.

Same with oil - it did look like a bubble at any price above $100, but how can you know. We said the Chinese were buying. And when it broke the trend at $145 you could expect it to go to about $100 and find support there, but down to $40 ?!? And now its easy to say that hedgies were liquidating, but again you never know, may be there is some fundamental force at work and it will stay below $100 for a very long time.

3. Efficient in the context of the Efficient Market Hypothesis means unpredictable

4. That's what the EMH says. But I no longer agree with it and I wrote why in the other thread. Simply put, I cannot expect very high returns above the market,

1. Why is irrationality only discovered in hindsight? The only way I can agree with that statement is that the majority of people aren't aware of the irrationality because they're being irrational.

2. As for your examples, just because we're right over the longterm doesn't mean that the shorterm can't destroy us, and this is what investors and traders have to remember. To simply short a stock because it is overvalued is an inadequate analysis, as there is no consideration to whether the stock will continue to rise or when it will suffer the correction.

3. There are going to be variables that are impossible to predict, but to call the market completely unpredictable is quite ignorant (I'm not suggesting you are, as you have said you no longer believe it's true). Fortunately, the market is made up of humans, and human nature is quite predictable.

4. While we may not agree with it, all theories have their place and it's worthwhile to consider everything.

As for returns above the market, well in addition to skill and acceptable risk, time frame plays a significant factor. A shorterm trader is going to generate a much higher return than a good investor, and as a shorterm trader I would be extremely disappointed if I couldn't significantly outperform the market

 

[slapshot]

Quote from neutrino:

I posted some of my thoughts on another thread on why you can’t make any money from speculation (above the normal long-term return for stocks), but I didn’t get challenged so I decided to post this in a separate thread.

I’ve been trading for a couple of years now, but only a week ago I finally realized that the academics are actually right and markets are efficient enough so that no short-term profits can be extracted from them on a consistent basis. Since then I stopped trading. To continue trading I need to convincingly disprove this hypothesis, or just accept it and put my money in an index fund and get a job or start a real business. So I hope on some feedback from you guys to help me and I hope we can make a discussion and challenge the very basis of our belief systems as traders – that we can beat the market.

You are obviously not cut out to be a trader - good luck doing whatever.

BTW, the academics (and you) are wrong.

 

[neutrino]

Quote from slapshot:

You are obviously not cut out to be a trader - good luck doing whatever.

BTW, the academics (and you) are wrong.

And how do I know if I am cut to be a trader?

 

[NY0BScalper]

Quote from neutrino:

And how do I know if I am cut to be a trader?

If you can't kill the "long term investor" as far as short term trading returns go, after several years of experience trading short term.

If you can't beat long term investors leaning on orders in high prob risk/reward situations in relation to the futures... or don't know what that means... probably the wrong biz for you.

 

[tom_ma8]

If we make the assumption that the market is not perfectly efficient then it follows that market prices are not truly random but have dependency. In this case, the best chance for making money is to trade the market by exploiting the market inefficiency and price dependency.

If we make the assumption that the market is perfectly efficient then it follows that market prices are truly random and have no dependency. In this case, the best chance for making money is to "buy and hold" and not trade the market. However "buy and hold" means exactly that. You will never sell. No selling when you retire. No selling even after death. Because as soon as you sell, the you have become a trader (yes, a very long term time frame trader but still a trader by definition - someone who buy and sell or sell and buy) and you on average will get the same random return as any other shorter time frame traders.

The conclusion from both cases is that just about everyone who is in the market should consider themselves to be "traders". The only differences are their time frame. As traders, it is still best to trade using rules that have proven to work. Rules such as keeping you losses small and letting your winners run. Strategy such as "buy and hold" until you need the money does not make sense.

 

[jficquette]

Quote from neutrino:

And how do I know if I am cut to be a trader?

Go see a psychologist and get tested for fit.

 

[Qwerty]

Quote from jficquette:


Go see a psychologist and get tested for fit.

______________________________________________

aptly put, some members of Elite Trader clearly suffer from mental illnesses, the questions they pose sometimes are incredibly stupid, asking questions that they themselves should know the answer to.

 

[tigerwu]

Neutrino,

I agree with you that markets in general are random. I am new to this forum, but not new to the market. Through almost 15 years of successfully trading, including a few years of running my own HF, I can speculate that markets are 99.9% efficient. The key to trading is to find that 0.1% of time when do you have a definable edge. Having positive pnl is not a proof the markets are inefficient. Most people confuse profit with edge. At any given moment, the most successful traders are the ones who take the biggest risk. They may get lucky in the short term, but top traders in general fail spectacularly over time.

Now how do you find that 0.1% definable edge? I am still searching for the answer myself. When in college, I used to work for a bunch of IPO flippers. They had 10 years of consistent 50% plus annual returns, until the strategy got too popular. After college, I traded with the NASDAQ SOES bandits. They had a great edge for a few years until the game was shut down. Back in late 90's the so called time zone arbitrage, was the best risk/reward I have ever seen. Off course that went away when everyone started doing it and regulators soon caught on.

The way I see it, at any moment in time, there are a few trading strategies that can offer consistent returns. But there's always a limit on how much could be done and how long they will remain viable. The more people know about it, the less likely there's an edge. Over time market efficiency always sets in. Look at all the HF blowups now. Stat Arb, Convert Arb, the list goes on and on.....

Markets are always evolving. Isn't this why trading is so much fun?!