To trade or not to trade, that is the question. Shakespeare.

[swissie]

To trade or not to trade, that is the question. According to Shakespeare.

Just considering mathematics alone, this time around.

a) Most short term trades produce a loss (Broker statistics, retail traders).

b) Given that, even recovering a 10% loss is hard to do.

c) Improve the odds by: Limiting your losses to 1% per trade. One can lose 10 times in a row. A single profit of 10% will keep you in the game. Not so, if one loses 10% 10 times in a row. Then, you are out of the game.

For short term traders, mathematics is a merciless master.

Having said that, trading "highly leveraged" with regard to "capital base" will eventually lead to "game over".

- Often have I come accross  Farangs, determined to settle in Thailand, planning to make a living in Thailand by trading the markets. By strictly adhering to the maximum 1% loss rule, a capital stock of around 200'000 US$ would be required. Any amount below would force a trader to "leverage" his trades in order to make a "possible living" in Thailand.

But: "Leverage" and mathematics are not your friend.
---------------------------------------------
When it comes to make a living in Thailand I can not recommend "trading the markets". Rather: As a viral, witty, charming and flamboyant Farang, it should be possible to conquer the heart of a financially well established Thai female. A much more relaxed lifestyle awaiting, instead of having to watch NVIDIA, tick by tick, 24/7.

[MrPancake]

1) Trading and gambling are two different things.

2) Trading usually involves dollar cost averaging.

3) A 10% drop is nothing on most stocks - it's an opportunity to buy more (see above)

4) Mathematics isn't the master of gamblers. Luck is.

5) Adhering to the 1% loss rule is illogical. The only rule is the more the stock goes down, the more I buy.

6) Leveraging is indeed pretty dumb.

 

My 2 cents.

[swissie]

1 hour ago, MrPancake said:

1) Trading and gambling are two different things.

2) Trading usually involves dollar cost averaging.

3) A 10% drop is nothing on most stocks - it's an opportunity to buy more (see above)

4) Mathematics isn't the master of gamblers. Luck is.

5) Adhering to the 1% loss rule is illogical. The only rule is the more the stock goes down, the more I buy.

6) Leveraging is indeed pretty dumb.

 

My 2 cents.

Thanks for your interest and participation. Your points work fine for long term investors, but not for short term traders.

1) The roulette table at Las Vegas offers a 50% chance of winning. The bid/ask spread and other "carrying charges/commissions" drop to below 50% for the trader operating on "the markets".

2) Dollar cost averaging works fine for long term investors, But not for short term traders. = Throwing good money after bad. A drop of 10% for a leveraged short term trader  is absolutely a "main event".  

3) see 2

4) Roulet gamblers and short term traders are subject to the same mathematical obstacles. As the las Vegas gambler only would stick to red or white. But no, they have to bet on individual numbers, thus abandoning the "natural" 50/50 chance..

5) The 1% rule only applies to short term trading ONLY.

6) Leverage is a blessing. But mostly, in the long run, a course.

As much as I appreciate your contribution, they are focused on "long term investing". But this is about short term trading and it's fundamental opportunities/pitfalls. Not to be confused with "long term investing". To compare long term investing versus comparing short term trading is comparing Oranges with Apples.
------------------------------------------
In a future post, I will outline why major Brokerage Houses rake in massive profits, whyle at the same time their "retail customers" lose money year after year. Once involved in "short term trading". As I worked for one of them in the "trading-room" for a few years. But that is another story.

"Cost averaging" for long term investors with regard to the Japonese Nikkey 224 had to wait 30 years to break even. As a sidenote.

 

[Mike Lister]

Some thoughts on trading:

 

It is better to trade today than wait and trade another day.

 

Trading is such sweet sorry.

 

Trade in May and go away.

 

It is a far far better trade that I make now than I have ever traded before.

 

Clearly, I have no thoughts on trading, I prefer to invest. 🙂

[gargamon]

Just buy a S&P 500 index fund and forget about it. I did just that 40 years ago and averaged over 10% a year ROI. No need to waste time monitoring and adjusting your investments. No broker commissions to pay, etc. Low fees too. The Vanguard index 500 admiral fund charges 0.04% a year.

[Mike Lister]

3 hours ago, gargamon said:

Just buy a S&P 500 index fund and forget about it. I did just that 40 years ago and averaged over 10% a year ROI. No need to waste time monitoring and adjusting your investments. No broker commissions to pay, etc. Low fees too. The Vanguard index 500 admiral fund charges 0.04% a year.

You are absolutely correct of course. But there again, my Royal London Global Select is 72% US and has realized 29% in one year, which prevents me from buying the S&P Index fund (which is the right things to do).

[FarangRimPing]

4 hours ago, gargamon said:

Just buy a S&P 500 index fund and forget about it. I did just that 40 years ago and averaged over 10% a year ROI. No need to waste time monitoring and adjusting your investments. No broker commissions to pay, etc. Low fees too. The Vanguard index 500 admiral fund charges 0.04% a year.

Very similar to what I do, but I use Fidelity ZERO Total Market Index Fund (FZROX) as my fund. I don't know how they make any profit, but the expense is 0. It's broader than the S&P 500, though.

 

https://finance.yahoo.com/quote/FZROX

[MrPancake]

14 hours ago, swissie said:

Thanks for your interest and participation. Your points work fine for long term investors, but not for short term traders.

1) The roulette table at Las Vegas offers a 50% chance of winning. The bid/ask spread and other "carrying charges/commissions" drop to below 50% for the trader operating on "the markets".

2) Dollar cost averaging works fine for long term investors, But not for short term traders. = Throwing good money after bad. A drop of 10% for a leveraged short term trader  is absolutely a "main event".  

3) see 2

4) Roulet gamblers and short term traders are subject to the same mathematical obstacles. As the las Vegas gambler only would stick to red or white. But no, they have to bet on individual numbers, thus abandoning the "natural" 50/50 chance..

5) The 1% rule only applies to short term trading ONLY.

6) Leverage is a blessing. But mostly, in the long run, a course.

As much as I appreciate your contribution, they are focused on "long term investing". But this is about short term trading and it's fundamental opportunities/pitfalls. Not to be confused with "long term investing". To compare long term investing versus comparing short term trading is comparing Oranges with Apples.
------------------------------------------
In a future post, I will outline why major Brokerage Houses rake in massive profits, whyle at the same time their "retail customers" lose money year after year. Once involved in "short term trading". As I worked for one of them in the "trading-room" for a few years. But that is another story.

"Cost averaging" for long term investors with regard to the Japonese Nikkey 224 had to wait 30 years to break even. As a sidenote.

 

 

I disagree with the way you conceptualize the entire thing.

- Short-term traders don't exist.

- So called "day traders" are gamblers not traders.
(trying to figure out how trading algos are gonna play the market on a given day is BS - to not get reckned you best bet is to average. You buy once on opening. If the stock goes up you sell and you're done for the day. If the stock goes down you keep buying more and more. At some point during the session the stock will go back up and you will be able to exit).

- A trader operates on weeks or months.

- An investor holds for years if not decades.

 

Anyways. Whatever floats your boat I guess :)

[oliverphoenix2]

     A lot of people think that trading involves guessing/ knowing/predicting/having inside information about the price movement of an asset like a stock/bond/future/currency, and based on that traders will not have a better than 50% chance in the short term  without inside info or psychic powers.

 

     For me (trading full time 15 years) it's about finding a strategy that gauges when something is cheap or expensive, buy low sell high. And whether something is cheap/expensive is defined by comparing it to something else! Gold is considered expensive when you compare it to wheat, iron ore, oil, silver etc. but is cheap when you compare it to enriched uranium, tritium, cut/polished diamonds etc.

 

     So to trade IBM stock for example you need to compare it to something that is fundamentally tied to the price of IBM (e.g. IBM option contracts), and because options are traded on different exchanges to stocks (often by different people, for different time periods),  the two prices fluctuate relative to each other. It's these relative fluctuations that allow you to buy the cheap asset and at the same time sell the expensive one. It's called spread trading. You don't lose or make money from IBM going up or down in price because the option(s) value does the opposite and cancels it out. You make money from these fluctuations mean reverting back to in sync.   """ You wait and watch for the prices to fluctuate out of sync. enough for you to profit from the reversion back.""" These fluctuations can happen on a daily basis or over longer periods depending on what you're trading. Often the shorter periodicity fluctuations will result in smaller gains but on a more frequent basis.

 

     No system is going to succeed 100% but that is not needed. If you are right 60% (or hopefully more) and you keep your trading costs down you can beat the 'market average' (SP 500 -  @10% per year) with far less volatility i.e. no +30% drops caused by the likes of covid or the financial crises. 

 

     Investing is generally considered a time based passive strategy - you would expect to make twice as much in 30 years as you would in 15 years and you would be quite happy to buy IBM at fair market value. Trading is a price based strategy - you buy and sell assets based on their price not where you think they will be weeks/years down the road and you would buy IBM when it is cheap (relative to something else) and not where you think it will be some time in the future.

 

  

 

    

Edited April 8 by oliverphoenix2
clarity

[Yellowtail]

Anyone that thinks they can get 50% odds playing Roulette should stick to buying and holding mutual funds. 

[newbee2022]

On 4/7/2024 at 11:21 PM, swissie said:

To trade or not to trade, that is the question. According to Shakespeare.

Just considering mathematics alone, this time around.

a) Most short term trades produce a loss (Broker statistics, retail traders).

b) Given that, even recovering a 10% loss is hard to do.

c) Improve the odds by: Limiting your losses to 1% per trade. One can lose 10 times in a row. A single profit of 10% will keep you in the game. Not so, if one loses 10% 10 times in a row. Then, you are out of the game.

For short term traders, mathematics is a merciless master.

Having said that, trading "highly leveraged" with regard to "capital base" will eventually lead to "game over".

- Often have I come accross  Farangs, determined to settle in Thailand, planning to make a living in Thailand by trading the markets. By strictly adhering to the maximum 1% loss rule, a capital stock of around 200'000 US$ would be required. Any amount below would force a trader to "leverage" his trades in order to make a "possible living" in Thailand.

But: "Leverage" and mathematics are not your friend.
---------------------------------------------
When it comes to make a living in Thailand I can not recommend "trading the markets". Rather: As a viral, witty, charming and flamboyant Farang, it should be possible to conquer the heart of a financially well established Thai female. A much more relaxed lifestyle awaiting, instead of having to watch NVIDIA, tick by tick, 24/7.

🥱

[gargamon]

On 4/7/2024 at 6:10 PM, Mike Lister said:

You are absolutely correct of course. But there again, my Royal London Global Select is 72% US and has realized 29% in one year, which prevents me from buying the S&P Index fund (which is the right things to do).

Don't forget the taxes you would have to pay if you liquidated your fund to move it over. This is something many traders don't consider. My S&P 500 fund has been growing at over 10% a year since the 80's with no income tax paid yet. Taxes on the dividends, yes. Traders get taxed every time they move positions.

[noobexpat]

3 hours ago, gargamon said:

Traders get taxed every time they move positions.

 

A broad statement and is likely to be country specific. 

For me, it would not apply.

 

[gargamon]

5 hours ago, noobexpat said:

 

A broad statement and is likely to be country specific. 

For me, it would not apply.

 

How nice. You get to (hopefully) make money and not pay taxes on it. What country are you doing your transactions in?

 

Of course, if it's in a retirement account you should be able to do as many transactions as you like without paying taxes, as long as you don't take any cash out. That's what I do. The S&P500 fund is not in a retirement account. Any trades I do are within retirement accounts so  this applies to me also.

Edited April 9 by gargamon

[Mike Lister]

9 hours ago, gargamon said:

Don't forget the taxes you would have to pay if you liquidated your fund to move it over. This is something many traders don't consider. My S&P 500 fund has been growing at over 10% a year since the 80's with no income tax paid yet. Taxes on the dividends, yes. Traders get taxed every time they move positions.

I hold the fund (and others) in a UK SIPP, which means annual platform fees and an 11 Pound charge to sell, all in.

 

I may have said previously.....I model a lot of scenarios and let them run to see how they will play out over time. A core component  is an S&P tracker which makes lots of sense because the US market is so vast. Anyway, my global trackers model is my consistently best performer, in my next life I'll definitely do that. 

[noobexpat]

5 hours ago, gargamon said:

How nice. You get to (hopefully) make money and not pay taxes on it. What country are you doing your transactions in?

 

Of course, if it's in a retirement account you should be able to do as many transactions as you like without paying taxes, as long as you don't take any cash out. That's what I do. The S&P500 fund is not in a retirement account. Any trades I do are within retirement accounts so  this applies to me also.

 

I don't trade anyway, but non UK residents are not subject to capital gains tax on equity sales (in a taxable account). As long as they don't return to the UK within 5 years.

 

Arguably its a good reason to hold equity funds rather than bond funds (in a taxable account).

 

 

 

[Yellowtail]

Another think to consider is if you are actually losing money by trying to avoid taxes. I would much rather pay taxes on 30% growth than make 5% tax free. 

[swissie]

On 4/8/2024 at 12:03 PM, MrPancake said:

 

I disagree with the way you conceptualize the entire thing.

- Short-term traders don't exist.

- So called "day traders" are gamblers not traders.
(trying to figure out how trading algos are gonna play the market on a given day is BS - to not get reckned you best bet is to average. You buy once on opening. If the stock goes up you sell and you're done for the day. If the stock goes down you keep buying more and more. At some point during the session the stock will go back up and you will be able to exit).

- A trader operates on weeks or months.

- An investor holds for years if not decades.

 

Anyways. Whatever floats your boat I guess 🙂

Quote: "If the stock goes down you keep buying more and more. At some point during the session the stock will go back up and you will be able to exit".

The thing about "averaging down" is, that in order to stay close to the average price of the position, one would have to average down as follows:

Original position buy 1 Stock @ 100$
                               add 2   "
                               add 4   "
                                add 8   "
                                add 16 "      Total= 31 Stocks
                                        
It shows that even after averaging down only 4 times, the total exposure will have increased from 100$ to 3100$. If by then the stock shoulden't have reversed the downtrend, then it's strictly OUUUUPS!

Also from a capital management point of view, averaging down can be hazardous. Here too, mathematics offer no free lunch.

Quote: "A trader operates on weeks or months". No, a short term trader operates within a time frame of 30 seconds to 2 to 3 days.

To remain on focus: This thread is about short term trading.

[Yellowtail]

19 minutes ago, swissie said:

Quote: "If the stock goes down you keep buying more and more. At some point during the session the stock will go back up and you will be able to exit".

The thing about "averaging down" is, that in order to stay close to the average price of the position, one would have to average down as follows:

Original position buy 1 Stock @ 100$
                               add 2   "
                               add 4   "
                                add 8   "
                                add 16 "      Total= 31 Stocks
                                        
It shows that even after averaging down only 4 times, the total exposure will have increased from 100$ to 3100$. If by then the stock shoulden't have reversed the downtrend, then it's strictly OUUUUPS!

Also from a capital management point of view, averaging down can be hazardous. Here too, mathematics offer no free lunch.

Quote: "A trader operates on weeks or months". No, a short term trader operates within a time frame of 30 seconds to 2 to 3 days.

To remain on focus: This thread is about short term trading.

How'd you do at Roulette?

[swissie]

52 minutes ago, Yellowtail said:

How'd you do at Roulette?

The same mathematics would apply. But I limit my gambling to the greatest Casino that was ever invented: WALL STREET

There I can appear as a "serious investor" (respected by everyone). But I can act as a ruthless gambler (with 10% of my liquid assets only) as well. My ruthless gambling in Commodities is legendary.

Unfortunately, while my investements produced some nice returns (no complaints), my gambling netted only a measely 40'000 US$ over time.

But must confess, the gambling was always more fun and exiting than investing. Something like having a wife for 40 years (=solid investing) and having an exotic dancer simultainiously (=trading) on the side. To dance on 2 different dance floors at the same time is possible, as long as the 2 different dance floors are strictly kept seperate.

[Yellowtail]

2 minutes ago, swissie said:

The same mathematics would apply. But I limit my gambling to the greatest Casino that was ever invented: WALL STREET

There I can appear as a "serious investor" (respected by everyone). But I can act as a ruthless gambler (with 10% of my liquid assets only) as well. My ruthless gambling in Commodities is legendary.

Unfortunately, while my investements produced some nice returns (no complaints), my gambling netted only a measely 40'000 US$ over time.

But must confess, the gambling was always more fun and exiting than investing. Something like having a wife for 40 years (=solid investing) and having an exotic dancer simultainiously (=trading) on the side. To dance on 2 different dance floors at the same time is possible, as long as the 2 different dance floors are strictly kept seperate.

Not good then? I expected not. Carry on...

[swissie]

3 minutes ago, Yellowtail said:

Not good then? I expected not. Carry on...

Good enough. My (boring) investements produced satisfactory results over time.

[Yellowtail]

15 minutes ago, swissie said:

Good enough. My (boring) investements produced satisfactory results over time.

Got it. So back to the Marina Bay Sands for a little roulette and a couple show-girls then?