simple strategy....but very profitable
- Thread starter voltrader
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Magna
Administrator
Seems I have to trot this out every couple of months, as many people simply do not have a grasp of probabilities, and think that if your entry-picking is less than 50% you might as well flip a coin. Not. Anyway, from an earlier post of mine:
"Hitting 50% of your trades is far better than random chance, and you are misunderstanding probabilities. I often see this when people compare picking winning stocks with flipping a coin.....The error in your thinking is taking the fact that stocks are either winners or losers (forgetting flat trades for a moment) and equating that with a probability of 50%. Nothing could be further from the truth. [It would be the same as saying] a monkey pounding on a typewriter will either type a novel or he won't, so it's a 50% chance that he will....."
Having 50% winning trades is not a problem of bad entries only. Exits play IMHO more important role.
2 traders, 2 different plans, the same entries. 1. trader app. 50% profitable trades and overall profitable. 2. trader 20% profitable trades overall loss.
THE SAME ENTRIES, DIFFERENT EXITS.
Part of the secret of profitable trading- EXITS.
Magna just like you, I think I am going to be repeating this forever.
2 traders, 2 different plans, the same entries. 1. trader app. 50% profitable trades and overall profitable. 2. trader 20% profitable trades overall loss.
THE SAME ENTRIES, DIFFERENT EXITS.
Part of the secret of profitable trading- EXITS.
Magna just like you, I think I am going to be repeating this forever.
I'm using that YHOO short as an example. That was during 99' when bigger moves were the norm. However, today I trade based on the new environment. Nonetheless, I trade with balls of steel. I never let the MM's shake me out of a trade. If all of my indicators read "short", then by god I'm going short until I get stopped out or I reach my expected profit. Now, there are times when the market will breakdown during a trade and I have to readjust the expected profit. No biggie! It's still cheese in the bank. But when those MM's start their games, I laugh and hold the trade until the end. That's how millionaires are made--with balls of steel.
THUNDERBOLT
THUNDERBOLT
Magna
Administrator
Lemme see if I understand this unique Balls of Steel approach of yours. You short a stock, you have a target, sometimes if the market changes during your trade you adjust your target, you have a stop. And if I follow what you're saying, you only exit on your stop or target. So what's the big deal??? You hold to your stops, and if the stock goes against you that's your only exit, no wiggles, no MM "games". Sounds pretty much like normal trading to me. I'm having trouble seeing where the big Balls of Steel come to play.
As an note of interest for a while I was taking my daytrading profits and giving it to managed futures guys. One of the guys I was invested with was Richard Dennis and yes in his last year he lost fifty percent. It was interesting watching the returns of my account. Small loss for month, big loss, small with etc and then for two months in a row he did like 50% percent then the process of grind down started again. Finally,he never had the big winner and closed his doors. Lucky for me he had some decent returns before that loss and and I had taken out about half the money one month or so off his peak to buy a house.
I also had money placed with another managed futures guys who traded my account and I could watch is his trades. Small loss, small loss, lots of small losses. Then a winner, then a double up in same sector. At one point he had me long just about every bond or note on the planet leading up to the LTCM debacle. I was seeing 8-20 percent days. For about two weeks. Then he gave back about half the profits before I got stopped out. I took my money out shortly as I realized that style was way too aggressive for my money. I also realize that that style would be a lot easier to do with other peoples money and a 25% kicker.
To Don if you want to know about the managed futures guys I can assure you there are dozens of them if not more who state in their prospecti (sic) that they are 100 percent mechanical. They sort of make interesting reading as some of these guys are cycle cranks disguised as John Ehlers types who claim that they used advanced scientific methods for discovering the trend early. Funny, I thought that the five minute chart was for that purpose.
Nevertheless some of these guys might be good investments but most of the industry is just like investing in highly leveraged sector funds.
This is to Don if you really want to do the research send me and private mail. I will tell you where to get the information. I will not respond to anyone else as I am a series 7 holder and I have no desire to get into a mess.
I also had money placed with another managed futures guys who traded my account and I could watch is his trades. Small loss, small loss, lots of small losses. Then a winner, then a double up in same sector. At one point he had me long just about every bond or note on the planet leading up to the LTCM debacle. I was seeing 8-20 percent days. For about two weeks. Then he gave back about half the profits before I got stopped out. I took my money out shortly as I realized that style was way too aggressive for my money. I also realize that that style would be a lot easier to do with other peoples money and a 25% kicker.
To Don if you want to know about the managed futures guys I can assure you there are dozens of them if not more who state in their prospecti (sic) that they are 100 percent mechanical. They sort of make interesting reading as some of these guys are cycle cranks disguised as John Ehlers types who claim that they used advanced scientific methods for discovering the trend early. Funny, I thought that the five minute chart was for that purpose.
Nevertheless some of these guys might be good investments but most of the industry is just like investing in highly leveraged sector funds.
This is to Don if you really want to do the research send me and private mail. I will tell you where to get the information. I will not respond to anyone else as I am a series 7 holder and I have no desire to get into a mess.
your reasoning doesn't apply to the old womans strategy.
She picks a stock....and keeps it until it moves 10% in either direction....thus, every trade will be either a winner or a loser. The only way it will not be a winner or loser is if it never deviates 10%. My argument is if she used this strategy and flipped a coin it would over time come out to 50% (this assumes IB-like commissions and that slippage will even itself out on both sides).
Now my reasoning is that you could increase your odds above 50% by adding in a few trading rules.....perhaps only trade the stocks in the sectors with the highest relative strength.....or just trade those stocks at strong support that don't seem to have strong resistance within 10%
For half the people on the board trying to put together a complex TA strategy or trying to scalp teenies.. starting with the above strategy and building on it would probably be more useful than the direction that they are going.
------------------------------------------------
Seems I have to trot this out every couple of months, as many people simply do not have a grasp of probabilities, and think that if your entry-picking is less than 50% you might as well flip a coin. Not. Anyway, from an earlier post of mine:
"Hitting 50% of your trades is far better than random chance, and you are misunderstanding probabilities. I often see this when people compare picking winning stocks with flipping a coin.....The error in your thinking is taking the fact that stocks are either winners or losers (forgetting flat trades for a moment) and equating that with a probability of 50%. Nothing could be further from the truth. [It would be the same as saying] a monkey pounding on a typewriter will either type a novel or he won't, so it's a 50% chance that he will....."
She picks a stock....and keeps it until it moves 10% in either direction....thus, every trade will be either a winner or a loser. The only way it will not be a winner or loser is if it never deviates 10%. My argument is if she used this strategy and flipped a coin it would over time come out to 50% (this assumes IB-like commissions and that slippage will even itself out on both sides).
Now my reasoning is that you could increase your odds above 50% by adding in a few trading rules.....perhaps only trade the stocks in the sectors with the highest relative strength.....or just trade those stocks at strong support that don't seem to have strong resistance within 10%
For half the people on the board trying to put together a complex TA strategy or trying to scalp teenies.. starting with the above strategy and building on it would probably be more useful than the direction that they are going.
------------------------------------------------
Seems I have to trot this out every couple of months, as many people simply do not have a grasp of probabilities, and think that if your entry-picking is less than 50% you might as well flip a coin. Not. Anyway, from an earlier post of mine:
"Hitting 50% of your trades is far better than random chance, and you are misunderstanding probabilities. I often see this when people compare picking winning stocks with flipping a coin.....The error in your thinking is taking the fact that stocks are either winners or losers (forgetting flat trades for a moment) and equating that with a probability of 50%. Nothing could be further from the truth. [It would be the same as saying] a monkey pounding on a typewriter will either type a novel or he won't, so it's a 50% chance that he will....."
Voltrader,
Could you scan the article and attach it here as a .gif file?... alternatively, is the local publication available online?...
Thanks,
Candle
nobody has mentioned the time element either.
if my strategy has a lower profit expectation than yours but i can implement it ten times a day whereas you only get your trade signals once or twice a month, then i am still going to kick your butt.
what if the average holding time for each trade is five or six months? or longer? then it starts looking weak.
its easier to make money with high turnover, like Wal-Mart who only makes half a cent profit on each item they sell but sells twenty billion doodads and knicknacks every day.
BUT, get too short term and the commish and slip costs start eating you alive, and your volume levels start getting dangerous.
the solution, IMHO, is to take the middle road and find a strategy that trades frequently (a few dozen times a month maybe) but not so frequently that your commissions paid out start competing in size w/profits taken in.
if my strategy has a lower profit expectation than yours but i can implement it ten times a day whereas you only get your trade signals once or twice a month, then i am still going to kick your butt.
what if the average holding time for each trade is five or six months? or longer? then it starts looking weak.
its easier to make money with high turnover, like Wal-Mart who only makes half a cent profit on each item they sell but sells twenty billion doodads and knicknacks every day.
BUT, get too short term and the commish and slip costs start eating you alive, and your volume levels start getting dangerous.
the solution, IMHO, is to take the middle road and find a strategy that trades frequently (a few dozen times a month maybe) but not so frequently that your commissions paid out start competing in size w/profits taken in.