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Brazilda

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Does anyone here trade on the forex or stock market? I'm curious to hear about the success of traders here. What are your thoughts and insights? 

 

I know there are better places to ask questions like this. However I thought I'd ask anyways since I think the average person here may be smarter than the average person on websites specifically related to trading. 

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I used to dabble with forex in highschool. There are programs out there that you can practice trade, I only used those never any real money. I started off from 250$ (you can just type in the sum you want) and over the course of a month or so I have gained and lost 5000$. It was very fun. Then I've read Black Swan by Taleb who's a professional trader himself which explained it's just gambling, Actually it's even worse, if you're good at poker you can make a lot of money because that requires some skill. Not so much with trading.

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I used to dabble with forex in highschool. There are programs out there that you can practice trade, I only used those never any real money. I started off from 250$ (you can just type in the sum you want) and over the course of a month or so I have gained and lost 5000$. It was very fun. Then I've read Black Swan by Taleb who's a professional trader himself which explained it's just gambling, Actually it's even worse, if you're good at poker you can make a lot of money because that requires some skill. Not so much with trading.

 

I like poker as a comparison to trading. They are alike in a lot of ways. I think its kinda foolish to say trading is all luck though... Investing is the industry that has created the most billionaires in the world. They couldn't have all gotten there by luck. I doubt even one of them got where they are because of luck. 

 

I always find it funny when people think it's impossible to do things that someone else is already doing. 

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I like poker as a comparison to trading. They are alike in a lot of ways. I think its kinda foolish to say trading is all luck though... Investing is the industry that has created the most billionaires in the world. They couldn't have all gotten there by luck. I doubt even one of them got where they are because of luck. 

 

I always find it funny when people think it's impossible to do things that someone else is already doing. 

Stock trading or forex are not investing. Both are based on a zero-sum game so they don't create anything, just move money around.

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I can recommend Evidence Based Technical Analysis by David Aronson, which teaches you how to apply the scientific method on trading. But be warned, it will crush your outlook, since it's very hard to develop a useful strategy. The same guy also offers a program to test your strategy. 

 

Overall, I think trading isn't really a good option for the average person. Competition is too tough.

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trading takes a particular mindset, not everyone has it. It is almost the most important factor.

 

Not chasing losses, taking the hit, but also not exiting early out of fear. Staying calm. Not allowing emotions to sway your decision. If you have a strategy, then sticking to that strategy, ie if you have picked an exit point, then you exit at that exit point. ( i can tell you from experience that its not easy to do)

 

Self knowledge can help a lot. An understanding of your own psychology and that of others.

 

I also recommend reading "Black Swan" by Taleb. He is almost suggesting that being a good trader isnt even a skill, but is just a result of a large number of people applying a large number of strategies at any given moment. At least one of them will appear to be profitable, but then for reasons unknown, their system doesnt work any more

 

I dont know if you have ever seen Derren Browns horse racing system

 

 

This is along similar lines. He appears to have a system, but he doesnt. 

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  • 1 year later...
On 1/16/2017 at 3:33 PM, Brazilda said:

Does anyone here trade on the forex or stock market?

stocks/options

 

On 1/16/2017 at 3:33 PM, Brazilda said:

I'm curious to hear about the success of traders here.

Hmmm...what is success?  Is it just P/L?  Is it outperforming a long SPY position or outperforming a short SPY position.  Is it outperforming your brother-in-law's IRA?  Could it also be learning how to manage your own finances in a way that will make you a better decision maker for the rest of your life?  Could success be getting your money away from the big bank machine and not paying someone for mediocre returns while creating a risk profile that you yourself would never agree to in any other aspect of your life?  

 

On 1/16/2017 at 3:33 PM, Brazilda said:

What are your thoughts and insights? 

Insight 1    
Nobody knows anything.  Unless they are telling you they don't know, they don't know.  Once you accept the fact that market pricing is efficient and that market direction is random (minus the positive drift of risk free rates) you will be free
from the influence of all the chattering monkeys.  "Efficient Market Hypothesis" in a nutshell suggests that all known information is priced into the market, and with today's technology this happens very quickly, usually within minutes or less.  

Insight 2  It's not gambling and it's not rigged.  Proof= you get to choose which side of the table you want to be on.  Unlike a casino where you can only take one side of a bet or the payout always favors the house.  In an efficiently traded
market with random price movement your odds on any particular naked stock position are always wrapped around 50/50 and you get to choose your order size, entry and exit.

Insight 3  If you can book your own airline tickets online you can manage your own money.  The fees available to the retail trader are as good and sometimes better than institutional traders and the front end technology is better than what most institutional traders use.   Money managers for retirement funds etc are more concerned with litigation risk than whether you make money or not.  They get paid either way and as long as they perform at some level near what everyone else did they will keep their jobs.  There is no data or evidence to suggest that a financial adviser or money manager can add Alpha.  Their success or failure is a random bell curve distribution and has nothing to do with knowing anything. 

Insight 4 Take all the charts, candlesticks, fibonacci lines, stock gurus, proprietary systems, black boxes,  whatever and throw them all in the dumpster.  There is no evidence that shows any of that has anything more than a random bell curve distribution of success and failure.  Proof= if any of these things worked with anything greater than 50% reliability, someone with a whole lot more money than you and teams of MIT graduates working for them would have already soaked up the edge and it would be gone in 2 seconds.

"So what's a new subscriber to do?"   I'm glad you asked.  Most of the big brokerages have pretty good front end technology that allows you to put through trades in a funded account.  And most of these have some sort of "Paper Trading" feature that allows you to learn the technology in real time or with 15 minute delay so you can learn the technology.  They usually have tutorials or videos to walk you through every step.  Most of them allow you to create an account and do the paper trading without ever depositing any money.  

Now that your slingin stocks like a pit trading T-Rex...how do you overcome the 50/50 randomness of direction?  You could just do like your adviser or money manager does and buy the age/risk tolerance appropriate percentage of indexes.  X% of SPY,QQQ or IWM for stocks, X% of TLT for bonds, X% of GLD, SLV, USO for commodities, X% of EEM for emerging markets, etc etc. and let it sit until you retire or die.  You'll at least outperform your neighbor Tim's IRA because you have no fees.   But still you are basically riding the wave of randomness and maybe outperforming the inflation rate as long as the market stays positive and rides the positive drift of risk free rates.

The one statistically proven thing you can do to increase your odds of success is to (ready for it?) cap your upside and reduce your cost basis.  Every Bob, John and Cindy has a long position with unlimited upside potential.  The problem with that is this...if your portfolio has the ability to gain 50% that means it also has the potential to lose 50%.  So here is an example of what you can do to increase your probability of profit, say you are holding 100 shares of SPY (S and P etf) you bought at 292$ per share and sell the 295 call option that expires in around 45 days against it for 2$ and change which costs no additional capital.  Now you own it for less than 290$ per share and now your probability of profit is wrapped around 60%.  But you give up anything above that call you sold plus 2$.  But you don't mind because you know that options pricing is based on probability models that are insanely accurate and as with any type of insurance (which is what they are in a way) the pricing tends to favor the seller (which is you).  And although the options pricing model suggests that there is only 30% chance that SPY will be above 295$ in 45 days in practice it really closer to 25% which is the edge given to the seller as incentive for taking the risk and giving up the upside.  To take it a step further maybe you do this 8-10 times in a year each time lowering your cost basis and your risk and always increasing your probability of profit. 

The above strategy is a "covered call" or "Buy-Write" strategy.  It's not a secret or some magical thing.  It is the first thing I would show anyone who is wanting to learn how to invest for themselves.    There is much more one can do as you might guess but everything you need to know is on the internet and it's all free.  I'm happy to discuss anything related...feel free to ask.

 

 

 

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On 1/16/2017 at 8:40 PM, Wuzzums said:

Stock trading or forex are not investing. Both are based on a zero-sum game so they don't create anything, just move money around.

I couldn't disagree more.  Forex is a different animal...but as for stock trading or investing it is everything but a zero-sum game.  Proof=it is possible for two opposing positions to both get what they want.  I could sell a put in SPY...the person on the other side of that trade might be simply buying it to reduce margin requirements on some other put position or to hedge off risk in another position.  It is possible for both parties to be satisfied with the outcome.  Yes money moves around...but it's not "just" moving around.

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Quote

Proof=it is possible for two opposing positions to both get what they want.

All trade is by definiton a zero sum game. You get exactly what you pay for, nothing more, nothing less. The motivation of the parties taking part is of no interest for the fiscal side.

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28 minutes ago, ofd said:

All trade is by definiton a zero sum game. You get exactly what you pay for, nothing more, nothing less. The motivation of the parties taking part is of no interest for the fiscal side.

Yes I would agree that you would get exactly what you paid or sold for.  What else would you get?     But if by "zero sum game" one wanted to imply that there must be a loser in order for there to be a winner then I would disagree.

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On 1/16/2017 at 1:33 PM, Brazilda said:

Does anyone here trade on the forex or stock market? I'm curious to hear about the success of traders here. What are your thoughts and insights? 

 

I know there are better places to ask questions like this. However I thought I'd ask anyways since I think the average person here may be smarter than the average person on websites specifically related to trading. 

Stef has lots of videos about finance. "There Will Be No Recovery" or similar playlists on youtube.

He's not a fan of the stock market overall, but that's from an investing perspective, not a trading one. From an investing perspective, Stef never tells anyone what to do, but if you watch his videos and who he chooses to interview on financial matters, it's clear that Stef is a bit of a gold bug. I'm not saying he's wrong. He also likes crypto currencies.

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