Lee Daniel Crocker wrote:
> > The poker analogy [to day trading] is not an accurate
> > one for several reasons.
> Name them. I don't have anything against gambling in either
> form, but let's call a spade a spade: it's still gambling, and
> the same mathematics apply. If you can calculate an expectation
> and a variance, you can calculate a risk of ruin. I suspect
> yours is higher than you think, but's that's only an impression.
> I play a very high variance game so my instincts are developed
> for that. One thing that you do have going for you: you can
> decrease your bets when you lose, lowering both absolute EV and
> absolute ROR.
> > I would like to apply some analysis to my trade history in the near
> > future to find out if the most profitable trades have anything in
> > common and likewise for the losers.
> Don't be silly. If that were possible, everyone would have done it
> years ago, and nobody would have any losers anymore. I'm not
> disparaging your analysis; I'm sure your evaluations are as good as
> anyone's, but they'll never be 100% accurate or even close. Over time,
> you'll make bucketloads of money--but the short term can be a killer.
> Lee Daniel Crocker <email@example.com>
First of all let me say that you have reminded me of why I almost never discuss stock trading with people. But seeing as I jumped in the thread of my own free will, I guess I will take it one more round.
The major differences between stock trading as I do it and poker are:
If I "bet" wrong and a stock moves counter to the way I wanted it to I can pull the bet, leaving in only my antee. For example, on a purchase of 1000 shares at $30 for 30,000 invested I would drop out if the stock moved a 16th. or 8th. against me, making my loss $62.50 or $125.00. For it to be all or nothing like a poker hand the stock would have to drop to zero before I got out.
I can see most of the other players hand. If you have ever seen a level 2 screen it shows in real time the orders waiting on both sides of the buy or sell, who the buyer/seller is, what they will pay or sell for, and number of shares in the bid/offer.
When a stock moves with my trade, a small move would be 1/2 point, a large move can be 4 or 5 points, the average is around 2 points right now. This means on average I could be wrong 16 to 32 times to every correct play and not go in the hole to badly. Right now my average is calling a move correctly 8 out of 10 times. And before anyone says it, yes the market is pretty easy right now and might not always be.
As for the don't be silly paragraph I hardly know where to begin.
I am not talking about looking at all the trades everyone has made I am talking about looking at my trades and my methods to see where my trading can be improved. There will always be losing trades, my goal is to see if I am making the same mistake repeatedly. ie buying on to short of uptick, stopping out to soon, time of day, volume to price momentum, etc etc. I do not know the perfect application of every trading method and I doubt that anyone does which all the more reason to look at the different methods and see what works best in a given market. I would "bet" money that even today the biggest trading houses are still grinding away at old data looking for new information in it.
You comment reminds me of people who who think there can't be anything left to invent with all we have now, or who think they know so much that there cannot be anything left to learn. ie. Don't you think that if there were a way to extend our lives that we would have already found it and no one would die? Do you think there is no new software that might find a pattern in large data fields that might be of use? (Does the phrase data mining ring a bell?) Do you give no weight to the fact that the computing power available to average people today did not exist at any price not so long ago?
I hope I've answered some of your post, I don't mean go on a rant, but everyone makes the gambling analogy and it is not the same. It has risk and rewards like all of life, but an intelligent investor can push the odds so far in his favor that the comparison to gambling is a poor one as I hope I have touched on here.