Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Advanced Micro Devices - Moderated (AMD) -- Ignore unavailable to you. Want to Upgrade?

To: Ali Chen who wrote (4626)	8/11/2000 5:53:18 PM
From: Monty Lenard	Respond to of 275872

I just wanted to give you the shot you wanted and I knew you would take. :-)) Monty

To: Ali Chen who wrote (4626)	8/12/2000 12:00:25 AM
From: Bilow	Respond to of 275872

Hi Ali Chen; Re TA (and AMD). Trading is such a complex subject that it takes a long post like this one to describe enough of the subject that an intelligent reader (such as yourself) can see what is going on. Traders search for "good" trades. At any given time, a stock trader could go long or short any of several thousand stocks, and he can choose that time all over the course of a day. That set of decisions (ignoring the question of how many shares to buy or sell) is the space of all possible trades. A trader has to come up with a way of dividing that "trade space" into "good" trades and "bad" trades. Since you have to make the decision to buy or sell on the right hand edge of the graph, it is inevitable that some of the good trades will lose money, and some of the bad trades will make it. This is not something to tease traders about. The nature of the future is such as to prevent any trader from having more than about 67% profitable trades. A lot of highly profitable traders have far less than 50% profitable trades, but are nevertheless highly profitable because their losses are kept very small, while their profits, though rarer, are much larger. In addition to having only around 50% profitable trades (or even less), it is also the case that even highly profitable traders will not make a very high average return on their trades. That is, pretty much any trader is going to have a standard deviation (of trade returns) that is far in excess of his average return per trade. In other words, TA will only make money over a fairly long run of tests. Even people who have made money trading over a very long time (i.e. decades) and very large numbers of trades (i.e. 10s of thousands) will make 10 bad trades in a row. This is just a consequence of the probabilistic nature of the science. Note that because of this disaster of having many losing trades in a row, traders typically do not put more than 2% of their capital at risk on any one trade. (If you were holding AMD intraday, had 1000 shares, and had an account size of $100,000.00 then you would have to manage the trade so that you would lose no more than $2000, or $2 per share. That tells you absolute worst price that you could let the stock go against you to.) All this stuff is called "money management", and is something that all traders have to face, either intuitively, by sad experience, or by reading one of the mathematical books on the subject. Because of the necessity of "money management" every trade must have a stop loss. The stop loss is a point where the trade is exited with a loss. (Even though it was selected from the "good" population of possible trades, and that population has a positive average return, any one particular trade could likely be a money loser.) So a trade must consist of more than just an indication to buy or sell. It also must include a stop loss, and some of the best trading techniques involve using stop losses close to the entry price. Such a close stop loss means that if the trade turns out to be one of the money losing ones, the loss will be small. Part of the secret to trading is to make entries at prices that provide small stop losses. I wouldn't be surprised if that is what Monty has in mind right now. I am guessing that he is saying something to the effect that the stock is at a turning point. Stocks tend to exit these prices with some strength, either down or up. If it starts to go up, buy it. If it starts to go down, sell it. In either case, use the other price as the stop loss. -- Carl