WP,
Here, I think, is the basic problem and why we will continue to write "past" each other. Your statement:
"I’m only secondarily concerned with making money. I first want to know and define the process for determining the root, base level below which a stock IS very unlikely to fall"
I don't know if being primarily concerned with making money is an absolute requirement in speculation, but it should not be a secondary concern. The primary concern should always be to be trading properly, with a proper approach and in a proper frame of mind; it is said that if that happens, then profits will naturally follow. This, I believe. As in my extended golf analogy, my primary concern is to be constantly improving the 6 or 7 areas of golf, but my secondary primary concern, if I may, is to improve my score (trade for profits).
Your statement, if I may paraphrase it into golf terms, is: "I’m only secondarily concerned with scoring well. I first want to know and define the process for determining the statistical probability that I will lose more than 4 golf balls while playing a round of golf."
As for your primary concern, "to know and define the process for determining" a base price below which the price will not fall, I can't help but note that this goal of yours seems to me to be an academic goal and an impossible thing to do. What's more, I think it's almost impossible that, if accomplished, it could make a speculator any money at all.
Let's say that we discover this formula and it states that MSFT has a 99% chance of trading above $15 for 2005. The formula says nothing else, just a 99% chance that MSFT will not lose more than 40% of its value this year.
What can you do with that information? You can't buy the stock or buy calls, and it really gives you no information on whether to go short or buy puts. If you wanted to write (short) puts on MSFT, with safety, you'd find that there is no bid on the 2006 $17 calls, or anything with a lower strike.
So, in my mind, not only is the information impossible to find without a crystal ball, but it would be almost useless to have it.
Golf is a game, speculation is a game. Both are much simpler than their practitioners understand (note, "simpler," not "easier").
Kb |
