"Kaz, I have tried - I REALLY have tried - to understand what you are saying. However, I must admit I have failed to do so."
Not a problem. I appreciate the effort you have made and the challenges you have offered me.
">whenever a stock's price increases, a short loses money. The short loses more money than the long wins due to commissions and slippage. Doesn't matter if the market jumps 1000 points. The loser loses more than the winner wins.<
Are you saying that no matter the circumstances, the shorts balance out the purchases of a shock?"
You've gotten it! Remember, the market is a struggle between bulls and bears. When one is long the other is short. It's easiest to see this in the commodities market where the number of actual contracts is known. So, for someone to buy someone else has to short. That's as close to zero-sum as the market gets (and, again, even then it's not because of commissions). The stock market is under no such limitation, so it's much more difficult to pop up the numbers. However, the principle is the same. There are always shorts in an up market (market makers have to short on the way up and buy on the way down, that's their job). Whether at any one moment the shorts balance out the longs, I can't say. What I can say, though, is that over the long term the shorts balance out the longs. And all the while, money is being taken out by commissions and slippage (somebody's got to pay the market makers for taking such a risk).
">However, every time the price goes up, somebody loses (the short). Every time it goes down somebody loses (the long).<
Your logic is beyond me! HOW can someone that purchases a stock and sell it at a profit be a loser?"
No, they're the winners. It's the person who buys at the top who pays the profits for those who made money on the way up. Conversely, those who sell at the bottom are financing the profits made on the way down. This, of course, is oversimplified.
">The net effect is, once again, losers losing more money than winners are winning.<
Only on days when the market closes at it's open or down - over time, it has increased which blows your position."
On which day does "the market" not close at it's open or down. Unless you're trading indices, any number of individual stocks will close up or down. It's these that you are betting on. Even if you have made money, even if many made money on one stock, there are plenty of others where many lost.
">It's that over time that's the problem. That's when probabilities and statistics prove themselves.<
It would seem to me that this over time condition and history of the market totally destroys your position - both show nothing but an increasing market - - over time. When the people selling - your losers - are doing so at a higher price, on market average, than they purchased for, HOW CAN THEY BE LOSING?"
We're talking about two different things. I believe you are referring to investors, people who put money in and hold it there long term. Historically, these people have made money. Traders, on the other hand, do not invest. They put their money in and pull it out hoping to profit on short term volatility. I will never argue that for investors the market will make money. But I thought we were talking about daytrading, or any kind of trading that does not involve investing. Short term trading is ridiculously risky. Long term is less so, and profits tend to be quite a bit lower. Losses also tend to be quite a bit less.
In a previous post, I chided you for disassociating from the market. Investors are insulated, to some extent, from the madness of the pit. By that I mean their profit is tied more to the economy than to traders betting on short term trends (they ARE the market, so it's impossible to be separate from it). Investors really aren't the market (bear with me here). Once their money is in, that's the end of their impact until they decide to take it out. In between, a war is being fought. Investors have the luxury of waiting until their side is winning. This could take years. It may never happen. But the likelihood is that, at some point in the future they will be able to sell for more than they paid. Time is on their side. Traders do not have this luxury. Money can't be tied up for long. If a position is losing, they sell and move on to something else.
">And when the statistics show that 90% of all traders lose money, you'd better damn well know why. And I don't, yet.<
Would be interesting to see who and how they arrived at this percentage, however, is that so surprising? Is that not in line with what we see in the real world of business startups, etc.?"
I think the surprising thing is the confusion many people have between investing and trading. No, it's not surprising considering your example above. Yes it is shocking if you are under the delusion that just because your IRA goes up every year does not mean you can trade.
" And is it not for the same reasons that these people fail in business - failure to do their homework and gain the knowledge they need to be successful and/or not being willing to put in the time to make it successful?"
There I must disagree with you. The market is one of those nasty beasts where you can do your homework, research day and night and still lose money. You can't know what will happen tomorrow, or in the next five minutes, for that matter. What amount of homework can overcome that? Well, there is some. But all it can do is improve your chances, not guarantee any amount of success. This is hard for many to accept. Like I said, most traders are successful people who are used to working hard and getting compensated for their efforts. Trading is not necessarily like that. There are too many reasons for failure in the market. Lack of effort, I believe, is not one of them.
">I believe it is appropriate to point out to anyone who is considering trading as a way to support themself that those who are bragging should not be listened to.<
As well as those crying the blues because they lost, maybe?"
That's fair. Some people may have terrible judgement, a bad attitude or whatever. I haven't met too many like that. Instead, I find people who were excited at the possibilities of trading, worked hard and became disillusioned at how hard it is. Maybe there's something that can prepare someone for day to day trading. If you know what it is, let me know and we'll write a book.
I realize we're all adults here, so my desire to warn people of the dangers may be out of place. I just see so much of myself in many of those who want to trade, maybe made some money doing so and now want to do it full time. I don't regret doing it. It has brought me to a point where I realize I am lacking in some understanding of myself and the market. I believe I can overcome both issues. But one can't be too careful when risking their money this way. 90% is just a number. For it to have any meaning I think it would be helpful to meet the people who make up that number. Although I somehow am up overall, I am still a part of that 90% who are losers. Day to day trading is not something I have mastered and staying out is my only way to win right now.
Extending the duration one is willing to keep one's money in the market drastically improves the chances for success. My research shows it's actually possible (theoretically, anyway) to make more money by keeping the money in for days or weeks rather than pulling it out after every bounce. I find that fascinating. I tried to give the reasons (the objective reasons, not those that are respective to each individual trader) why you simply cannot expect to make money daytrading.
I admire those who have been successful daytrading. They can tell me exactly what they do and it won't make me any more successful. Since it is such an art it really is up to the individual for success or failure. So, no blaming those who aren't successful. Maybe it's just not in them. This thread was started, I thought, to give a glimpse into the lives of those who decided to trade for a living. I certainly welcome the input of those who are consistently successful. They know, though, that even though they can do it, other's may or may not be able to. I realize I'm rambling. I simply cannot overstress the necessity of using caution when daytrading. It's not a game (unless you can afford to do it just for kicks) and it's purpose is not to entertain. Emotions have no place in trading. They'll make you lose.
Good luck everyone.
Paul Kaz |
