Why most traders are losers

Quote from Johno:

Standard TA - In this definition lurks the error in this approach. Everybody has their own definition of what TA is, in the same sense as every woman has her own version of what feminism entails. Consequently, we find people trying to use chaos to create order out of chaos. On both counts I ask, how has it worked so far.

Further, Price and Volume are simply end products of the trading process and are not required (actually get in the road) to understand market behavior.
An example - Brokers report this morning - " the markets in the US fell heavily overnight albeit on light volume". I couldn't care less, as based on market conditions I started looking for opportunities to enter short positions from 17/6/2009. The fact that the markets were down overnight says nothing reliable about what they will do next! Remember the very next tick can be the start of a move up or down! Price and Volume only show you the outside of the market, you really need to see into the soul! Anyone with a grasp of the markets' nature should have recognized the three recent stages - bull trend changing to consolidation around 21/5/2009 and then bear trend around 17/6/2009 which at this stage continues! If you can teach yourself to recognize these phases without price and/or volume, then the rest should be obvious!

Best Regards

Johno
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Exactly. There is trend. At each end of a trend is a bend. The bend at the end of the trend could be consolidation or more immediate reversal, after the consolidation it could continue or it could reverse... Working in that framework, the HG would be knowing when the trend was very near the end and there are some mathy / volume and price thingies that can do that but they are only necessary to reduce uncertainty... they won't increase profits by a huge amount over what can be seen on a chart at a glance by any fancy pants...
 
Quote from Eight:

Exactly. There is trend. At each end of a trend is a bend. The bend at the end of the trend could be consolidation or more immediate reversal, after the consolidation it could continue or it could reverse... Working in that framework, the HG would be knowing when the trend was very near the end and there are some mathy / volume and price thingies that can do that but they are only necessary to reduce uncertainty... they won't increase profits by a huge amount over what can be seen on a chart at a glance by any fancy pants...
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"Further, Price and Volume are simply end products of the trading process and are not required (actually get in the road) to understand market behavior."

What I'm talking about is cause and effect! Price change is the effect not the cause of market movement! TA assumes that one effect can predict a similar effect. Sometimes it does and other times it doesn't which equals an extremely unreliable method!
 
Quote from Eight:

Exactly. There is trend. At each end of a trend is a bend. The bend at the end of the trend could be consolidation or more immediate reversal, after the consolidation it could continue or it could reverse... Working in that framework, the HG would be knowing when the trend was very near the end and there are some mathy / volume and price thingies that can do that but they are only necessary to reduce uncertainty... they won't increase profits by a huge amount over what can be seen on a chart at a glance by any fancy pants...
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You're having a lend aren't you? You cheeky boy!

Regards

Johno
 
Quote from Eight:

...the HG would be knowing when the trend was very near the end and there are some mathy / volume and price thingies that can do that but they are only necessary to reduce uncertainty... they won't increase profits by a huge amount over what can be seen on a chart at a glance by any fancy pants...
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If "mathy / volume and price thingies" can actually reduce uncertainty, then how would this not translate into substantially higher profits over time? If you could genuinely and meaningfully reduce uncertainty, would that not enable you to better call the turns and therefore, all else being equal, trade larger size? Not that I personally believe in "mathy / volume thingies."
 
This, here below, is a good, thought-provoking post, and thread. But - I've been thinking about your post for a few days - and I sense there is a problem.

It does convey a meaningful message (and I learned something from it, so I thank you), "don't trade all the time, but wait for big opportunities", but it does not say exactly what "high-probability trades" look like. So, your advice is good but incomplete.

In a sense, "look for high-probability trades" could be as meaningful as saying "do the right thing, and you will make money", which is as good as saying "pick profitable trades and you will make money". Don't get me wrong - I did get your main point, and that is "you don't have to trade every day" (but you do have to look for opportunities).

Quote from tomsmith:

I’ve looked at this forum over the years but have never bothered posting before. But after reading the nonsense on a recent thread about why 90% or more of traders are losers decided I would. To the original poster of that thread- if you listen to any of these people you will be one of the 90% losers. Trading is EASY, these people work their butts off to make it as hard as possible. Spending hours looking at spreadsheets and charts to see if a fast thingamadickie has crossed a slow watchyamacallit, or if the stock has hit a point it retraced to 8 years ago and other nonsense. Here is how you can be successful trading:

1. Understand trading is gambling. If you don’t want to risk your money don’t trade.
2. Only gamble your money when there is a HIGH probability of success.
3. High probability opportunities are few and far between, limit yourself to no more than
a couple trades per year.

Here is what I have traded over my 6 year career:

Took $50,000 from my IRA and it put into a trading account. Watched the market start to come off it’s bottom in 2003 AND WAITED for a HIGH PROBABILITY TRADE.

1st trade- Day after Memorial weekend I’m watching the screen at the open and the QQQ’s go from red to green within minutes and start to run up (.20 to .25 to .30 on the bid on SP 29 calls I‘m watching) . No, I don’t know if the Q’s have a flaming doji or an inverted hammer coming out of their arse on the stock charts or not, but I know that if the price is going up that fast there is a HIGH PROBABILITY I can make money buying. I buy 1000 of the near month 29 strike price calls for .30 and immediately pull up an order to sell 10,000 Q’s at market if the trade suddenly turns and I want to make money on the drop. Well the Q’s run all that week and Mon-Thurs of the next week and I cash out with the calls at $275+ and over $250,000 profit.

2nd trade- Unlike most traders, I’m in no rush to give my money back so I look and wait awhile before risking any of that $250,000. Looking through the WSJ one day I notice that 2 new companies have been added to the Nasdaq, one of them is Taser. I figure being added to the listing is going to raise the price of the stock so I take a look at it, like what I see, and risk about 15% of my now $300,000+ war chest and buy 1500 shares of the stock at the open in the low $30’s since it doesn’t have options yet to buy. Taser runs up to $127 before falling down and I get out at $108. I clear over $100,000.

3rd trade-Some people are winners, some are losers. I think people like Steve Jobs and Martha Stewart are winners. I thought that when she was dealing with the Feds before going into the pokey and the stock was down to $8, that she would be a winner again. I put my money where my mouth was and bought 1000 of the $10 strike price LEAPS for the next year at $50 each. I sold them with MSO in the high $20’s and I made $2725/ contract, 1000 contracts. Do the math on that .The stock went up further to the mid 30’s in Feb before turning, but I’m not a pig and was happy with what I made.

So, my point is that you can slave like a fool looking for the holy grail of charts and systems that will allow you to sit glued to your screen day in and day out hoping to grab a few points here and there, playing the game that is stacked against you from the start, or you can learn to read the market and use your head to reach in and take out in enough quantity to make it worth your while. It mainly just requires patience and intelligent thought. Don’t let these “pros” discourage you.
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but I know that if the price is going up that fast there is a HIGH PROBABILITY I can make money buying.
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You knew no such thing.

"going up that fast". How precise! Clearly we've been looking at the wrong things all these years, fellow traders. All we need to do is find a market that's going up "that fast", which of course would mean that there is a "high probability" we can make money, and voila - instant riches! Woohoo! Holy Grail found! Mine - all mine!

Gee...why didn't anyone think of this before???

Yeesh.

Had your trade turned out the other way, we would have (thankfully) been spared your "wisdom".

Ah, if only I had that proverbial dime for every (obnoxious) market participant who thinks he has some keen insight into the markets/trading merely because the coin landed on the correct side for him/her that time or times... well, you know the rest.

1) Not overtrading is sound advice.
2) Most (if not all) common indicators are worthless.

If only you had stuck with those two...
 
"it does not say exactly what "high-probability trades" look like. "

If the spread is a nickel with a volume of 22,000 on the ask and the volume of shares available at that price dries up to zero the ask is going up a nickel. If I see that happen twice within a few minutes and all the indexes are going from red to blue at a fast rate, IMO it is highly probable the next time the volume of shares available at the ask drops by 20,000 it is going up again.

I think following the price and volume makes more sense than indicators and oscillators in that situation.

Fading the gap is a strategy that has historical statistical evidence showing it is a valid strategy. If a company like AAPL has a big gap down at the open on bad news, then starts going up in price even with the bad news out, IMO that is a long trade that has a high probability of going up.

IMO when it is announced that a stock is being added to the Nasdaq, there is a high probability the market will view that as favorable and the stock will receive a pop if we are in a rising market.

That's as clear as I can make it.
 
Quote from tomsmith:


If the spread is a nickel with a volume of 22,000 on the ask and the volume of shares available at that price dries up to zero the ask is going up a nickel. If I see that happen twice within a few minutes and all the indexes are going from red to blue at a fast rate, IMO it is highly probable the next time the volume of shares available at the ask drops by 20,000 it is going up again.
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I don't read every word on each post or every post in each thread so maybe I had missed something.

From your very first post which started this thread, you said that you had made only 3 trades in the past 6 years. So you trade fewer than once in a full moon, if not once in a blue moon.

So I am very puzzled that WHY would you care to read on level 2 AT ALL????? And WHY would you read price action everyday for that matter?

Or you watch the market everyday, every minute to size for opportunities but only pull a trade once every two years on average for the "right" trade?

I am very puzzled.
 
Thank you for your reply, which is very clear and useful.

Quote from tomsmith:

"it does not say exactly what "high-probability trades" look like. "

If the spread is a nickel with a volume of 22,000 on the ask...
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