How long did it take you to realize that you will never be profitable trading

IFeelFree

Active member
109 19
Fading a large move via staggering limit orders into a position.
Example: (using round numbers only for simplicity)
Stock is at $10 - short 1000 shares
50% probability that stock goes down to $9 - exit & take profit $1000
50% probability that stock goes to $11 - use staggered limit to short another 1000 shares (now short 2000 shares at $10.5 average)

25% probability that stock goes back down to $10 - exit & take profit $1000
25% probability that stock goes up to $12 - use staggered limit to short another 1000 shares (now short 3000 shares at $11 average)

12.5% probability that stock goes back down to $11 - exit & breakeven
12.5% probability that stock goes to $13 - exit & take loss $6000

Expectancy over a large number of trades is $0
The small probability of taking a large loss will always wipe out all profits

You can play with these numbers any way you want, staggering 10 limits to enter (as opposed to only 2 in this example). You can enter and exit at any dollar amount $10.53, $11.42 etc.
The expectancy stays $0

"as easy as knocking one out"
The key assumption you're making is that stock moves are completely random -- 50% probability that stock goes up, 50% probability that stock goes down. That's true if a stock price follows a random walk, i.e., the stock price series is non-stationary, and also that one has no fundamental or technical information that alters the probabilities. (For example, think of the case where someone has "insider information" about a company -- the probability of that person correctly guessing the move, up or down, of the company's stock can be very far from 50/50.)

That said, I tend to agree that stock price movements are mostly random walks, and that it's difficult to obtain fundamental or technical information that isn't already known to large numbers of other traders. That's why I prefer trading a cointegrated portfolio of assets. If the cointegration is high enough, the portfolio exhibits a signficant degree of stationarity -- it's not a random walk -- which means that the probabilities of an up or down move are no longer 50/50, and so it can be traded profitably.
 

rexlord

Junior member
36 3
The key assumption you're making is that stock moves are completely random -- 50% probability that stock goes up, 50% probability that stock goes down. That's true if a stock price follows a random walk, i.e., the stock price series is non-stationary, and also that one has no fundamental or technical information that alters the probabilities. (For example, think of the case where someone has "insider information" about a company -- the probability of that person correctly guessing the move, up or down, of the company's stock can be very far from 50/50.)

That said, I tend to agree that stock price movements are mostly random walks, and that it's difficult to obtain fundamental or technical information that isn't already known to large numbers of other traders. That's why I prefer trading a cointegrated portfolio of assets. If the cointegration is high enough, the portfolio exhibits a signficant degree of stationarity -- it's not a random walk -- which means that the probabilities of an up or down move are no longer 50/50, and so it can be traded profitably.
Good point. My example assumed that the markets random walk.
My example was to illustrate to Mr. darktone that scaling into a position and managing size is NOT an edge. Though it seems like I am missing something. I need some time to think about it :eek::cheesy:
 

darktone

Veteren member
3,917 1,000
Good point. My example assumed that the markets random walk.
My example was to illustrate to Mr. darktone that scaling into a position and managing size is NOT an edge. Though it seems like I am missing something. I need some time to think about it :eek::cheesy:
The edge is to be emotionlly available to seek value, to trade in a way that your averge tarder cannot. Your example showed no management, just get bigger till you puke. Ever noticed that prices wiggle on their way up and down? You know you can turn a profit fading a long term right? Every move is an opportunity to do something that is in your favour. Unless like most youre blind to it.
 
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mlawson71

Active member
154 3
I've been trading for years now and I am getting better with each passing year. I have months when I am actually profitable, though not by far. So I don't intend to stop anytime soon.
 

rexlord

Junior member
36 3
Here is something I posted on a trading community Facebook page:

With a 30k retail account, you would have to average 121% yearly return just to be part of the AMERICAN LOWER CLASS and your account would never grow

All of these numbers are rather optimistic (read Unrealistic)
MOST retail traders start with less than 30k capital
Daytraders often exceed 20% in commission fees
You probably spend more than 6 hours a day trading and studying and you probably do it on the weekends also
It is highly highly unlikely to never have a losing year
 

rexlord

Junior member
36 3
That's the spirit Rex. Delete half of what was said, distort the other half with the old belief filter, slap on a couple well thumbed tarding terms and turn what was presented into something fits your narrative.
Buy 50, 40, 30 lose one at 50 ( or any other number greater than 30 ffs) repeat and and sling and manage as many units as your appetite for risk allows. As easy as knocking one out. Unless you're a...
Sorry Rex. Have just remembered how pointless this is.
Carry on as you are it is. G luck mate
Suppose that I have a belief filter that is distorting reality. That is certainly possible.

However, there has to be a way to explain it (and in this case mathematically).

If you are buying stock at 50, then at 40, and then at 30 - your average is $40. And if you are selling at any number greater than 30 but less than 40.01 - you are losing money.
And when it goes down to 20, and then to 10 - you will be taking a massive loss. Big moves do happen quite often.
 

zaysev36

Well-known member
421 15
I suppose I still haven't grown up enough as a trader, so I don't feel like I'm completely useless in this business :D
 

mlawson71

Active member
154 3
I suppose I still haven't grown up enough as a trader, so I don't feel like I'm completely useless in this business :D
Apart from my bouts of disorganization and immaturity I don't think I am either. I'm still pretty optimistic about forex trading.
 

darktone

Veteren member
3,917 1,000
Here is something I posted on a trading community Facebook page:

With a 30k retail account, you would have to average 121% yearly return just to be part of the AMERICAN LOWER CLASS and your account would never grow

All of these numbers are rather optimistic (read Unrealistic)
MOST retail traders start with less than 30k capital
Daytraders often exceed 20% in commission fees
You probably spend more than 6 hours a day trading and studying and you probably do it on the weekends also
It is highly highly unlikely to never have a losing year
and if they had other income?
 
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rexlord

Junior member
36 3
and if they had other income?
Most people come into this game thinking they will make money via active trading/daytrading with a small retail account. They don't expect to be putting in hours and hours of work and never get paid for it.
If they have other income, that's great! but they still aren't making money trading.
 

darktone

Veteren member
3,917 1,000
Most people come into this game thinking they will make money via active trading/daytrading with a small retail account. They don't expect to be putting in hours and hours of work and never get paid for it.
If they have other income, that's great! but they still aren't making money trading.
well they would be if they were profitable no?
 
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darktone

Veteren member
3,917 1,000
Suppose that I have a belief filter that is distorting reality. That is certainly possible.

However, there has to be a way to explain it (and in this case mathematically).

If you are buying stock at 50, then at 40, and then at 30 - your average is $40. And if you are selling at any number greater than 30 but less than 40.01 - you are losing money.
yes, but what is the problem in taking a loss? also, its not law that you need dump your entire position all once as its not law that have to sit there and do nothing in your favor. you can scale in and out, you can manage your position.
And when it goes down to 20, and then to 10 - you will be taking a massive loss. Big moves do happen quite often.
or you could have been buying those prices.

lets do a screenie. chart on the right is more representative of how a price moves would you say.

 

rexlord

Junior member
36 3


Buy 50, then buy 40, then buy 30.
Your average is 40 at this point
Then sell some around 32 and take a bunch of losses.

Then buy more at 20, then buy more at 10.
Your average is 27-30 at this point, at best (remember you started buying at 50)
Then sell around 13 and take a bunch of losses again

Then it goes back to 10 and you are sitting in a huge loss

You'll say this was a bad stock to trade and you wouldn't have traded it.
HOWEVER, how would you have known that back when it was at $50?
That is exactly why I am saying that trade management alone is NOT an edge
 
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IFeelFree

Active member
109 19


Buy 50, then buy 40, then buy 30.
Your average is 40 at this point
Then sell some around 32 and take a bunch of losses.

Then buy more at 20, then buy more at 10.
Your average is 27-30 at this point, at best (remember you started buying at 50)
Then sell around 13 and take a bunch of losses again

Then it goes back to 10 and you are sitting in a huge loss

You'll say this was a bad stock to trade and you wouldn't have traded it.
HOWEVER, how would you have known that back when it was at $50?
That is exactly why I am saying that trade management alone is NOT an edge
That's a good example which shows that rexlord's trading scheme won't work. It's a mug's game. There are ways to make money trading, obviously, but simply buying more as the price falls doesn't work in the long run. Eventually a point comes where you run out of money, or the stock sits near it's lows for years (tying up your funds), or the company goes bankrupt, etc. It's a bit like the gambling strategy of doubling down every time you lose. Eventually you will get a string of losses that will bankrupt you. Guaranteed.

I prefer trading ETFs (indexes and sectors) so that I'm much less exposed to company-specific uncertainties. Also, I trade a cointegrated portfolio, not a single fund. Much better statistical properties.
 
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rexlord

Junior member
36 3
That's a good example which shows that rexlord's trading scheme won't work. It's a mug's game. There are ways to make money trading, obviously, but simply buying more as the price falls doesn't work in the long run. Eventually a point comes where you run out of money, or the stock sits near it's lows for years (tying up your funds), or the company goes bankrupt, etc. It's a bit like the gambling strategy of doubling down every time you lose. Eventually you will get a string of losses that will bankrupt you. Guaranteed.

I prefer trading ETFs (indexes and sectors) so that I'm much less exposed to company-specific uncertainties. Also, I trade a cointegrated portfolio, not a single fund. Much better statistical properties.
It's not my trading scheme.

Does your approach outperform the baseline drift consistently?
 

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