It doesn't matter that you're wrong, only how long you stay wrong!!

[cynic]

One of my pet hates is the term "averaging down" which I consider as a nice way to say "I stuffed up by not selling and I am now compounding the mistake".

That should bring a few out of the woodwork.

Cheers
Country Lad

Yes I quite agree.

I much prefer to "average up" whenever possible.

 

[tech/a]

Cynical

You have an 80 % win rate
67 trades in 4 yrs
And a ,67 expectancy

I think that if it starts to hurt ( the loss) then you KNOW your wrong .

Uderstanding how ro maximize profit in a move is a must for every trader.
Honing the ability to understand where a stock is in the life of it's current move is a must.
I and BOGGO use Elliot for this.

It would be extremely helpful to those " averinging down" to understand wether the move they are buying is nearing completion or worth waiting longer.
APN for example showed no reason to believe it would turn from a down to an up move--- technically.

 

[Wysiwyg]

One of my favourite sayings is "don't buy a stock unless your prepared to buy more if the trade goes against you" this has been a very successful strategy for me over the last 4 years and i will continue to peruse it with vigour.

Yes I have a similar philosophy. That being ... I can stay irrational longer than the market can remain solvent. :

 

[basilio]

This is an interesting and valuable thread that has me in many minds...

I'm not sure for example how one splits the line between a "speculative" and a more solid stock. I think it can be easily blurred and this factor alone can have an effect on ones intention and market reactions.

As I see it much of the money in the market is now being made on short term plays. Buying and selling on IPO's . stories on oil strikes, metal shows , prospective medical breakthroughs. We see a sharp rise big volumes - then steady falls that in most cases takes stocks to even lower levels. I suppose the trick is to somehow get in on these plays make a dollar and get out.

But overlying this should be the original intent of the market - as a place to raise capital for genuine investment and for people to invest in well run companies with a view to longer term profits. The long view.

So what happens when one sees promising companies that are pushed up and down by day to day speculation or simply ignored because they are are too small to attract the attention of traditional investment funds ?

To illustrate the point think about three particular examples.

Linc Energy started with a bang 5 years ago and reached $5 plus in late 2008 on the basis of its coal to oil aspirations. After the GFC it crashed and one of the critical turning points was it's failure to sell large coal fields that had been developed.

By June 2010 it's SP was down to around a $1 ( and only worth $500m) - yet there was yet another leak that the coal sale which would be worth at least $1b was now "certain". The sale did come through and despite the addition of effectively $2b in value to the company the SP price only moved up to around $1.80. Was LNC now a "proper" company with excellent reserves and technology, well cashed up and on the move ?

A year later it sits at $3.00 with yet another imminent $500 m plus coal sale as well as a string of new resource acquisitions that appear certain to return quick early cashflow. Is it now a "proper" company ?

AUT is another interesting example. It's focus was oil shales. In 2010 it was a small "spec" explorer at around 20c. A couple of ASF members were/are relentless exponents of it's potential as a profitable oil producer as it's drilling program became established.

It's now sitting at $3 plus and is producing more and more oil . The market has now given it's support to the share as a serious producer. (mind you some analysts now think it is overvalued in relation to similar prospects)

Example 3. HOG. This is another oil explorer/producer. It actually made a very good find in Nov 2010 and started production in Feb 2011. It is cash flow positive and is undertaking further drills in the same field to probably triple it's cash flow. And yet this share languishes at almost the same price as when it actually struck oil in Nov 2010.! All the buyers since then are in the red ! Should they sell because it is a "losing trade " or make a longer term investment decison that says "this company is making a lot of money now and should only only get better in a few months. The market has got it wrong for the moment." Is this "falling in love with a stock " or making a considered longer term judgment ?

 

[IB12]

It doesn't matter that you're wrong, only how long you stay wrong!!

Rubbish.

The correct phrase should be;

"It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong."

 

[Wysiwyg]

But overlying this should be the original intent of the market - as a place to raise capital for genuine investment and for people to invest in well run companies with a view to longer term profits. The long view.

About 80% of the companies are speculative investments with a high number of companies run by irresponsible (other peoples money) directors, aren't they?

 

[basilio]

About 80% of the companies are speculative investments with a high number of companies run by irresponsible (other peoples money) directors, aren't they?

I fear your right... which makes it much harder to find a relatively genuine company and far more temptation to say 'sod it all' and just play short term games trading in and out of creative spec plays.

Whats also worth considering is that a genuine company proposal would probably be thoughtful, well constructed and cautious in its long term outloook. But It would be fairly likely to be succesful.

But what is the chance pf such a "boring" company getting noticed against a suite of other flashy companies that promise the earth have very creative figures in their spiel and thus attract keen interest and initiually high share prices.

On thinking about it I believe there is a very real perversity in the market as it currently works. .

 

[tech/a]

Rubbish.

The correct phrase should be;

"It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong."

Let me take a stab at this---Your in "Product Developement" .

 

[Assasin]

Hi folks,

Can I say that in my 12 months at ASF that this thread over the past couple of days has been a real eye opener and a fantastic refresher course.
I thank all contributers and hope you keep the enthusiam to continue this topic.
Heck, even Tech/A was being serious for a while.:bananasmi
Appreciate it.
Cheers:bier:

 

[So_Cynical]

Rubbish.

The correct phrase should be;

"It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong."

You got my vote.

 

[tech/a]

You got my vote.

Would someone please educate me in making a better profit from holding a stock when you know your wrong----- longer.

There is a difference to wrong and giving back some profit in a move.
Well perhaps someone would are to educate me on this a well.

The amended statement is in my not so humble opinion----- RUBBISH.
It attempts to quantify bad trading decisions as good trading decisions if profit is on the otherside.

In the example of PEN some traders who boast a 100 % + profit after a decimation of their open profit---- could have and in my view should have taken the opportunity to double their holding with wise trading.

If you look back on the thread you'll notice I called a sell if 12 c traded a few days BEFORE decimation--- it was a clear trading signal.

Today I suggested buying a double bottom with a close stop.

Now correct me where wrong----??
relative to the " amended statement "
How much you have lost and how much you have profited from the two approaches is pretty clear-----

Staying wrong too long sucks!
Depletes profit and kills opportunity

So the statement is RUBBISH
I await an enlightening reply.

 

[mr. jeff]

I like what Livermore says about entries and exits - you plan a trade and your exit, then if you enter and it does not act the way you had expected for the trade then you exit with no harm done. You were wrong.
But if you stay against your plan, and the price eventually does go your way, you have still failed as you are not making money from your strategy. You might take money, but not correctly.

(I know people will say this is still a win, but not the same as trading your plan and winning).

 

[tothemax6]

Nick Radge was the first I know to coin the phrase.
But I've seen it time and again over 17 yrs.
People get it so so right only to eventually get it so so wrong.

PEN
Is the stock of discussion currently.
Some got it very right from 3.6 c to 16c from memory only to see it fall a whopping 66% when there was clear signals that this stock had run it's course.
Now as CL has pointed out you need a 130% price rise just to be square again.

What is this nonsense.

It takes some serious quackery to have a trading policy prefixed with 'it doesn't matter if you're wrong'. The only thing that matters is that, in aggregate, you are right.
And as for PEN, well, I have to admit tech/a I have yet to see such a level of persistent lunacy from any 'poster' on the internet. Will you or will you not accept the basic observation of reality, that PEN dived because it was a uranium exploration stock, and the Fukushima incident occurred?
What the hell is this 'it had run its course' nonsense?
Logic: PEN dived because of the Fukushima incident, you CANNOT predict nuclear power-station damaging tsunamis, therefore YOU DID NOT PREDICT THE PEN DIVE.
You either agree with this statement, or you admit to insanity.

 

[mazzatelli]

The only thing that matters is that, in aggregate, you are right.

Tell that to people who lost money shorting otm gamma in options. 90% win rate - they must be killing it :

@tech
Only cases where I see this happening is when trading certain dealer/OTC products e.g. no touch options with 7 day duration. The way to deal with these is hedge into the barrier, rather than offset and get out quick. Slippage is huge.

 

[tech/a]

Max
PEN had fallen from 16 to 12 c a drop of 25 % prior to the tsunami
It had obviously run it's course.
Further it bounced from 6 c to 12 c after the Tsunami and is now back in the 6 s again
More evidence that it had run it's course.

While not " predicting a dive in PEN anyone following the analysis would have been on the right side a day before the Tsunami--- and out-- avoiding a 50% decimation to their holding.
I don't care what causes falls or rises only being IN FRONT of them. In other words the right side.
Not always possible but often probable.


Back to the beach

 

[tothemax6]

Max
PEN had fallen from 16 to 12 c a drop of 25 % prior to the tsunami
It had obviously run it's course.
Further it bounced from 6 c to 12 c after the Tsunami and is now back in the 6 s again
More evidence that it had run it's course.

'Run its course' is as objective as 'it smells right'. You have no idea what would have happened had the Fukushima incident not occurred. You are guessing. It would most likely have continued upward in valuation given the continued good announcements. It is back down in the 6s because of continued investor uncertainty, both of the prospects of equity in general (ASX200 continues downward), and the prospects of nuclear power given the reaction of Germany.

I might add to 'it only matters if in aggregate you are right', that 'it only matters if you know why you were right, and were not guessing like a game of roulette'.

 

[skc]

Can someone define wrong? There is no doubt that the TA guys will say price is the only measure. But with PEN and assuming people bought in based on fundamentals, I would define wrong as:

1. Not selling at >14c, when even the most optimistic analysts (with high uranium price and unrealistically low $A) have price targets around that level.

2. Not selling after Fukashima, especially when they were given a perfect dead cat bounce to 10-11c for a graceful exit.

3. Not admitting that the uranium prospect has changed for the worse, and that the overall market will apply a higher discount rate to any uranium stock.

4. Keep buying more with utter disregard to position sizing and risk management.

So yes I agree that "It doesn't matter that you're wrong, only how long you stay wrong". But let's keep an open mind that people enter stocks for different reasons and so the definition of wrong is also different.

P.S. It doesn't matter that you're on holiday, only how long you stay away from ASF.

 

[Ves]

On the flip side "It doesn't matter that you're wrong, only how long you stay wrong!!" only holds true if the SP slide continues or doesn't rally within your investment time frame...if the stock bottoms and starts running up then selling at the worst possible time would be a mistake for an investor with a longer term view.

For example

I have an open position in APN and recently took a small average down and was encouraged by a recent change in substantial holder announcement by Orbis Group...Orbis now holds over 13% of APN and have been holding for about the same length of time as i have (coincidence) and have continued to buy and lift there stake in APN in spite of the stock experiencing a substantial down trend.

Orbis are very experienced contrarian, value investors with a longer term view and over 2 billion under management...these guys have been very successful following their strategy and continue to buy APN despite the 12 months+ down trend....so perhaps "It doesn't matter that you're wrong, only how long you stay wrong!!" only really applies if you are wrong within your investment time frame.

Personally i don't look at charts covering time frames less than 6 months...and for the record wouldn't touch PEN with a barge pole at any price.
~

Just a beginner question - but is this what is referred to as 'discretionary' trading? Or is it closer to "investing" than "trading"?

 

[Country Lad]

Max
PEN had fallen from 16 to 12 c a drop of 25 % prior to the tsunami
It had obviously run it's course.

While not " predicting a dive in PEN anyone following the analysis would have been on the right side a day before the Tsunami--- and out-- avoiding a 50% decimation to their holding.

More likely they should have been out a little earlier than the day before. I was in PDN and all the signs were there for a while that the uranium cycle may have topped with uranium prices dropping, stockpiles increasing, and share prices in uranium stocks dropping.

The charts of PDN and other uranium stocks were giving sell signals and an objective and detached assessment would have been to exit uranium stocks nearly all of which had started a downtrend.

I sold PDN a week before the explosion not because I was particularly clever but because all information and the chart said it should be sold. I would have expected that PEN holders would similarly monitor their investment and sold – obviously not.

Cheers
Country Lad

 

[barney]

Interesting thread ............

Rather than comment on the many "informative" posts individually ......

From my observation, one comment which may be a parallel, and perhaps even more relevant to the original thread title ..........

Which is the more detrimental to ones trading account ...... Fear or Greed ..... and why?

I have my own interpretation of that question and I would say, if a trader does not understand and respect both aspects, .... and recognise the advantages and disadvantages of both, he cannot be assured that he will be long term successful.

eg. There is little advantage in being wrong for a short time if you are not right often enough to turn a profit ............

Being right only once in a dozen times is fine so long as the position size of the "wrong" trades is a lot less than the position size of the "right" trade.

Entry and Exit price are equally important .... being good at one and bad at the other will give the same result in the long run.

All in my humble opinion, but take with a grain of salt as I am still working at being "long term" successful