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.)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"
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.