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Strategies & Market Trends : ahhaha's ahs -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (444)	11/3/2000 2:10:17 PM
From: Wayners	Respond to of 24758

I can't predict which way the market will go. I have to go with current direction and react quickly to when the trend changes. Predictions are only needed to get exact tops and bottoms. You don't need to catch tops and bottoms to make money. All you need is enough liquidity to be able to buy or sell right when the trend changes. Unless you have an account the size of a mutual fund its easy to get in or out right when the trend changes. Its the mutual funds and other institutions that can't trade and make money. They can't. The market can and will continue to be exploited by smaller positional traders. People that say if the pros can't trade and make money then you can't either aren't taking the liquidity needed into consideration. The amount of liquidity and size of the positions that individuals or institutions need to acquire are what cause the streaks and trends to occur plus some good old fear and greed. Also don't need the market to go up to make money. All I need to know is the trend. You short a downtrend and go long on an uptrend and try to react as quickly as possible to trend changes. Thats what its all about. Once you've satisfied that you can get in and out on trend changes because there is enough liquidity per unit time to do so, you next need to be satisfied that the particular stock you are trading has a defined history of streaks. The streaks are not equivalent to a coin toss streak where you know the streaks are solely a function of the number of sides of a coin. With a stock the streak lengths are a function of the float of the stock which can be very very different the two sided coin. For example lets say the float of stock ABC is only 1 million shares (a very low float) and I need to buy only 100,000 shares today and I can only get 10,000 shares to buy per hour because thats the extent of the liquidity of whats for sale. Its going to cause a streak of 10 hours wheras a stock with a 1 million float where I can get 100,000 shares per hour is only going to get me a streak of about 10 minutes.

To: Ilaine who wrote (444)	11/3/2000 3:25:55 PM
From: Bilow	Read Replies (1) \| Respond to of 24758

Hi CobaltBlue; Re that winnowing process... and may indeed be skill. That is a great way to find people who have tossed 10 heads in a row... Heck, why not start with 100 million people, you ought to be able to find one who gets heads a couple dozen times in a row. Odds of that are something like 10^-8, I suppose. Not very likely, but it is going to happen to somebody. But the trader who has a couple dozen good trades are not the ones that impress me. Some of the hotshots do around 100 coin tosses per day, 200 days per year. That's 20,000 coin tosses, and of course they're not all heads. The better high speed (i.e. 100 trade per day) daytraders average around 6 cents per share, before commissions. Typical standard deviations on their returns are something no more than about 15 cents per share. So what's the probability that they could keep up that kind of record for a year based on luck? It's been a while, but if 15 cents per share is the S.D., then the S.D. on 20,000 trades is about $.15/sqrt(20,000) = $0.001, and with a return of 6 cents per share, they are something like 60 S.D. away from the null hypothesis. That's a boat load more lucky than that guy who flipped the 24 heads in a row. The chances of a good daytrader being that way by chance is something like 1/e^60 = 10^-26. Of course it's a bit unfair to compare the guys return to random chance, he also has to beat commissions. For a good producer, commissions are about 3 cents per share (round trip), sot that means that he is trading 2 or 3 cents over commissions. Even using 2 cents, the odds of getting that lucky is something like 1/e^20 = 10^-9, which is still pretty unlikely. When you take into account that several of them have been doing it for years, the probabilities get much more small. -- Carl

To: Ilaine who wrote (444)	11/3/2000 3:44:40 PM
From: GraceZ	Respond to of 24758

The example you point out was detailed in "The Random Walk Down Wall Street" . amazon.com

To: Ilaine who wrote (444)	11/6/2000 9:54:18 AM
From: Wayners	Read Replies (1) \| Respond to of 24758

I once read an analogy which I think makes ahhaha's point much plainer - take a thousand people and let them toss a coin. The coin toss analogy is invalid. For the coin toss analogy to work so you can apply the same mathematical probabilities to trading, you first have to demonstrate that the coin toss 100% accurately models trading. I can show on the micro level that coin tosses cannot model trading. The coin toss analogy is that if you flip a head you move up one and if you toss a tail you move down one--so on the micro level "price" can never ever say at exactly the same level or "price". Its always either moving up one or moving down one. In trading, price can easily stay at the same level and does not have to move. Seems to me there is a big problem with the coss toss model. How does the coin toss account for no heads and no tails event?