Ok let's simply this since most of you are struggling with the concept. If you have a stock that is $10 and it drops 1% to $9.90, then if it increases by 1% you only have $9.99...so theoretically the price would have to increase more than 1% to return to break even. Using this logic would you say this proves that you MUST mitigate losses early because it is mathematically harder to recover from them?
OMG I can't believe this fallacy still exists in trading!
- Thread starter wxytrader
- Start date
Ok let's simply this since most of you are struggling with the concept. If you have a stock that is $10 and it drops 1% to $9.90, then if it increases by 1% you only have $9.99...so theoretically the price would have to increase more than 1% to return to break even. Using this logic would you say this proves that you MUST mitigate losses early because it is mathematically harder to recover from them?
You need to define how and what you are trading. You are way too loose.
I am assuming we are not talking Investing,and we are not talking a diversified portfolio..
For this discussion,are we in agreement that you are trading a single asset,or a very concentrated portfolio of 5 stocks or less?? 10 stock plus portfolios are a different ballgame...
Your hypothetical example is a single stock,so lets stick to that.
My answer would be exactly as you suggested,one MUST mitigate losses early,or should I say maintain discipline and adhere to the chosen reward to risk ratio,i.e 2-1 ,3-1 with a 10 percent max Stop....
I fully get that simulations may demonstrate stops are "hazardous" to ones P and L (bull market life preserver), but a 50 percent drawdown is an unmitigated disaster,and where you are struggling is there is a very good chance that a 50% drawdown doesnt retrace and turns into a 75% drawdown(game over) and i didnt account for survivorship bias..
It appears you arent a directional trader,and definetly not a short vol guy
I am assuming we are not talking Investing,and we are not talking a diversified portfolio..
For this discussion,are we in agreement that you are trading a single asset,or a very concentrated portfolio of 5 stocks or less?? 10 stock plus portfolios are a different ballgame...
Your hypothetical example is a single stock,so lets stick to that.
My answer would be exactly as you suggested,one MUST mitigate losses early,or should I say maintain discipline and adhere to the chosen reward to risk ratio,i.e 2-1 ,3-1 with a 10 percent max Stop....
I fully get that simulations may demonstrate stops are "hazardous" to ones P and L (bull market life preserver), but a 50 percent drawdown is an unmitigated disaster,and where you are struggling is there is a very good chance that a 50% drawdown doesnt retrace and turns into a 75% drawdown(game over) and i didnt account for survivorship bias..
It appears you arent a directional trader,and definetly not a short vol guy
All of that is irrelevant. And one can only be a directional trader...even no direction is a direction. Short vol is the only way to make money in options.
wow, 19 pages of discussion that % changes don't matter?
After a -50% fall, it takes +100% to get to the same level so it (usually, but not always!) takes multiple times more time to get back to that level. if it didn't, options would be waay mispriced. It's all about the price of volatility. So, it's not the same when stock goes from 10 to 5 vs from 5 to 10. Think about the gain differences when trading options (with the same cost).
After a -50% fall, it takes +100% to get to the same level so it (usually, but not always!) takes multiple times more time to get back to that level. if it didn't, options would be waay mispriced. It's all about the price of volatility. So, it's not the same when stock goes from 10 to 5 vs from 5 to 10. Think about the gain differences when trading options (with the same cost).
I tried the volatility and distribution approach,but hes a complete newb..
The newb states short vol is the only way to make money,yet has zero clue about risk management...
Dude is either a troll,joke or both
The newb states short vol is the only way to make money,yet has zero clue about risk management...
Dude is either a troll,joke or both
don’t play chess with the pigeons.
yeah, i figured i was way late with the vola idea, lol.
But i do get his point. He identifies visual ranges and just disregards the concept of price. In most cases, especially when ranges are tight and timeframes are short he would be "right" while being wrong. If i can put it like that.
But i do get his point. He identifies visual ranges and just disregards the concept of price. In most cases, especially when ranges are tight and timeframes are short he would be "right" while being wrong. If i can put it like that.
Hes an Elliot waver,and looks at channels...
He doesn't comprehend price distributions...
He doesn't comprehend price distributions...