This is of course a typo, I apologize. "High percentage of winners" should read "low percentage of winners." This refers to another "loser" post I made earlier [mathematical; errors for which I also apologize, now corrected]:
Message 20994346
(text below)
even with a high percentage of winners, one big winner and huge profits, plus very few calls, low commissions.
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To: Dave Osterfeld who wrote (90404) 1/28/2005 2:17:22 PM
From: olivier asser of 90726
I'd like to see their trade records, and proof that they were not trading in conspiracy with site analysts front running the calls.
I am sure the defendants will call an expert in an attempt to validate the strategies they advocated. They were conceived with the intent of rocketing commissions revenues. But they'll argue these strategies were best-suited to traders. Now let's see here. The 12/8/99 log. Stocks are called multiple times after the first call. Why do that? Why buy and sell all day long? Why not take the stock the first time, if there is a good reason to buy, and then hold on with a reasonable trailing stop? The more trades, the greater the risk that the market will tire of the stock and it will make a major move against. Moreover, with the dramatically raised costs of commissions scalping in-and-out all day long, the required percentage of winners in order to make any profits rises dramatically. Here's a good example of two different kinds of strategies, which would you recommend?
Trader A: "Expert" Scalper
- Average 20 trades per day with 2 sticks target
- 300 shares (at those prices, reasonable in those days because more and much more difficult to get decent fills)
- 13 trades winners at +2 each = +26 x 300 shares = $7,800
- 7 trades losers at -2 each = -14 x 300 shares = ($4,200)
- 20 trades at $50 each roundtrip commissions = ($1,000)
- Net Gain = $1,600
- Average Net Gain Per Trade = $80
- Commission take away 38% of trader's profit; in other words, your broker is earning 38% of your profits
- This, all assuming that 65% of trades are profitable, top 1% of market participants record, and that no trade rapidly gets away from the trader
Trader B: "Failure" Low Percentage Holder
- Average 3 trades per day
- 300 shares
- 2 trades losers at - 2 (out immediately if goes against and no return to that stock) each = -4 x 300 = ($1,200)
- 1 trade winner at +15 = $4,500
- 3 trades at $50 each roundtrip commissions = ($150)
- Net Gain = $3,150
- Net Gain Per Trade = $1,050 (c. 13 times the scalper's profits per trade)
- Commmissions represent a mere 4.5% of profits.
- This, assuming a "loser" winning percentage of 33%.
The reason scalping was recommended by the IA's was for commissions. And, those scalps were not for 4,5,6; they were for 1-2 maximum - take profits, buy/short, take profits, buy/short, take profits, on and on and on, hundreds of times per day. in fact here in public one ally of Berber's stated that "trading is all about 1/8 and 1/4" and claimed he executed 68 trades< the second day he was trading through Berber. In other words, at that rate, at $50 per roundtip, we're talking $3,[4]00 in commissions daily, multiplied by 250 trading days a year, that's $[850],000 in annual commissions. So, follow the Berber, Moor, Rea, TP advice, if you make about one million dollars a year, you'll be proud to break even, and have the honor of having been an unwitting employee of theirs, earning them through all your time and effort a cool $1 million, just you, maybe they'll send you a coffee mug at Christmas (they did, by the way).
Trust me, plenty of traders made a good living doing just this. |
