Thought Bubbles from the Deep

[fiftyeight]

Great stuff in the last few posts for a newb such as my self. I wish I could remember the book, but one of the first trading books I read was explaining everything that has been said above. The author was a Mathematician who lost a bunch of money on WorldCom I think. (If anyone knows the book I would love to re-read now a few years later)

I love the idea of being a short term trader but I am fully aware of the challenges. Only play money is used to fluff around with futures

 

[Triathlete]

Seriously great stuff!

[Anyone reading this from the Diversification threads?]

You can make seriously big money trading on short term movements. However, the nature of the people who do this are seriously uncommon and they tend to sit closer to the hub of trading flow...rather that at the other end of some CFD/discount on-line terminal.

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Overall, this is a newbie alert. The path from young, hopeful, high frequency, short-horizon, trader to dormant account is fairly well worn. I think you'll find that those who emerge from dormancy after a period of savings to replenish accounts tend to become dormant again too. A quick chat to the CFD account managers can clarify that.

This game is seriously hard. However, it is seriously easy to get on the field.

Enter at own risk.

I would add this..... that just because you may be a very good and skilful medium to long term trader using Technical analysis it does not mean you would be able to have the same success if you decided to trade short term,
they are completely different trading environments which requires a much greater skill and knowledge level.

Short term trading is more complex than medium to long term trading because we are trying to enter as close as possible to the start of a trend and exit closer to the peak.

Therefore, you need to combine trend analysis techniques with your buy and sell rules to increase your probability of success.

Given the high risk nature of this type of trading, it is only suitable for those who have a very good level of knowledge and skill.

 

[fiftyeight]

Found it

A Mathematician Plays The Stock Market

 

[odds-on]

If you have limited experience/knowledge, think things are simpler than what they are, are a young to mid-aged male, trade a lot, enter the markets as a trader to get into the kind of circumstance where you might hit some kind of a lottery win....on average and in great likelihood, you are totally cactus. Anecdotal evidence suggests that quoting Buffett a lot on ASF is no defence. Naturally, this segment learns best from direct experience and pays no regard for the data. It is partly for this kind of reason that there are so many service providers democratising access to markets. It is liberating...money from these guys into the pockets of others.

The authors in the ASF ecology could do worse than to collate the advice and prognostications made on these threads into a book to highlight what this archetype looks like and what happens for the most part. This book, if written, should sell well and deserve broad readership. It obviously won't get that.

....

 

[galumay]

...and some of us that have peed on electric fences more than once!

 

[tech/a]

I love the idea of being a short term trader but I am fully aware of the challenges. Only play money is used to fluff around with futures

Excellent
I'll gladly take your " Play Money " and everyone else with the same
Attitude. ---- 90%

 

[fiftyeight]

Excellent
I'll gladly take your " Play Money " and everyone else with the same
Attitude. ---- 90%

Haha all yours, but once I have an edge I be expect it back with interest

 

[tech/a]

Haha all yours, but once I have an edge I be expect it back with interest

Wont get it from me but there are plenty of others just lining up.

 

[get better]

This is from IG Markets. It related to CFD account activity in 2014. A very recent piece of data (as was the FX stuff posted previously) to highlight outcomes. CFD is not exactly a market place for buy and hold investors.

So, if CFD accounts are predominantly retail by number and these are predominantly short term traders...talk to an account manager or turn up to their info nights and check for yourself...check the demographic...then listen to their trade rationale and trade type for the most part. A swing trader is positively passive.

Interesting, thanks for the tip, I'll keep an eye out for an info night and drop in - would be very interested to see what the demographic is (I'm guessing, young and brash/impatient?).

Given your arguments that a change in market structure over recent times obviates historical study, I suspect you'll only be convinced when you talk to/become a broker/adviser at a CFD place whereupon any alternative thesis to high frequency, short term, trading as a reliable means to monetary loss for retail clients will be firmly shuttered.

Perhaps. To be honest though, I agree that a large percentage of short term traders will most likely lead to monetary loss (based on anectodal evidence on the ASF). However, my only gripe is that with academic papers/journals, they do need to have a sound basis and peer reviewed for accuracy and technical adequacy before taken seriously.

I don't think I can keep up with you in reading all these articles though, I myself am still on the journey of learning so need to make sure I'm learning the right things with the time I have . Love these discussions though!

Overall, this is a newbie alert. The path from young, hopeful, high frequency, short-horizon, trader to dormant account is fairly well worn. I think you'll find that those who emerge from dormancy after a period of savings to replenish accounts tend to become dormant again too. A quick chat to the CFD account managers can clarify that.

This game is seriously hard. However, it is seriously easy to get on the field.

Enter at own risk.

I 100% agree with this message.

Rather than focussing on the methodology, I would be particularly interested in seeing any research that measures personality traits/characteristics of both successful/unsuccessful investors and traders. I suspect that successful investors and traders would have similar positive personality traits/characteristics (i.e. persistence, patience, objectiveness, confidence, logic etc) with traders requiring a greater focus on discipline and technical ability. On the flip side, the unsuccessful investors/traders have similar negative characteristics (i.e. impatient, quick to give up, wants quick profits, does not want to put in the effort etc).

 

[skyQuake]

The uptick in CFD user accounts could be very much bolstered by Interactive Broker's margin issue. An IG acct manager said he was aware of it and the flow of ex-IB clients was 'very noticeable'

 

[Triathlete]

Most people who are unsuccessful in the sharemarket are so simply because they cannot or will not follow a simple plan to succeed.

Often this can be attributed to lack of knowledge,patience or experience.

These would be some questions I would ask before trading.

Do you have a trading plan before you trade?

Are you trading the right markets for your level of knowledge and experience?
( most traders overestimate themselves and often get into trouble.)

Do you have the time available to trade those markets successfully?

and always remember

"Do not risk your capital if you are not sure you can succeed."

 

[tech/a]

Most people who are unsuccessful in the sharemarket are so simply because they cannot or will not follow a simple plan to succeed.
Often this can be attributed to lack of knowledge,patience or experience.

These would be some questions I would ask before trading.
Do you have a trading plan before you trade?

Are you trading the right markets for your level of knowledge and experience?
( most traders overestimate themselves and often get into trouble.)

Do you have the time available to trade those markets successfully?

and always remember

"Do not risk your capital if you are not sure you can succeed."

Hmmmmm

 

[craft]

My report card on many of the topics raised by Deep State and backed with academic studies and broad data on the averages, is atrocious. (makes his posts very thought provoking for me)

Broadly diversified within asset class: FAIL
Broadly diversified between asset classes: FAIL
Diversified Internationally: FAIL
Counteract Home Bias: FAIL
Maintains portfolio concentrations by re-balancing: FAIL
Uses full service broker: FAIL
Seeks advice from professionals: BIG FAIL
Etc etc etc........ FAIL, FAIL, FAIL.

I know I fail – I have failed all the way along my journey. In fact early on I didn’t even know the theory I was failing against.

Anecdotal evidence suggests that quoting Buffett a lot on ASF is no defence.

All I have as a defence for my terrible terrible report card is a single example outcome (which I know has no statistical significance) and a buffet concept of circle of competence.

I would be particularly interested in seeing any research that measures personality traits/characteristics of both successful/unsuccessful investors and traders.

I too would like to see this research - Maybe just maybe I could add at least one Acceptable to my report card.

 

[tech/a]

My report card on many of the topics raised by Deep State and backed with academic studies and broad data on the averages, is atrocious. (makes his posts very thought provoking for me)

Broadly diversified within asset class: FAIL
Broadly diversified between asset classes: FAIL
Diversified Internationally: FAIL
Counteract Home Bias: FAIL
Maintains portfolio concentrations by re-balancing: FAIL
Uses full service broker: FAIL
Seeks advice from professionals: BIG FAIL
Etc etc etc........ FAIL, FAIL, FAIL.

I know I fail – I have failed all the way along my journey. In fact early on I didn’t even know the theory I was failing against.


All I have as a defence for my terrible terrible report card is a single example outcome (which I know has no statistical significance) and a buffet concept of circle of competence.





I too would like to see this research - Maybe just maybe I could add at least one Acceptable to my report card.

So have you failed or are you failing as an Investor/Trader?

Not against the Deep State benchmark but your own?

Do YOU believe that you or anyone will need a PASS on all FAILS to be successful?

 

[galumay]

My report card on many of the topics raised by Deep State and backed with academic studies and broad data on the averages, is atrocious. (makes his posts very thought provoking for me)....

Me too! I know your report card was largely 'tongue in cheek', but there is an important point to be made and that is that these concepts are not absolute or binary.

So for me its not a question of pass of fail, but rather to ensure I understand the concepts, research the practical application, and then make an informed decision about the extent to which I include them in my investing philiosophy and strategy.

Thats the real value of DS's postings for me, makes me go and learn more!

As tech/a says, and I think you were implying, all that really matters is how you measure against your own absolute performance targets.

 

[craft]

So have you failed or are you failing as an Investor/Trader?

Not against the Deep State benchmark but your own?

All I have as a defence for my terrible terrible report card is a single example outcome (which I know has no statistical significance)

Trying to be modest her Tech - but what this line means is that I have made a freaking fortune despite the poor report card. (but its only one statistically insignificant example)

Do YOU believe that you or anyone will need a PASS on all FAILS to be successful?

The questions that Deepstates posts cause me to ask myself is why the variance between my case and the base case. And more importantly is a fall to the other side of average just lurking around the corner. Worthy contemplations for anybody with so many fails on the report card but end of the day I have every intention of continuing to fail the report card.

 

[tech/a]

Yes I'm sure there are outliers.

Don't get me wrong I feast on Deep States stuff.
Refreshing punch in the face!

 

[craft]

Don't get me wrong I feast on Deep States stuff.
Refreshing punch in the face!

Very apt way to put it.

Yes I'm sure there are outliers.

How do you decide if an outlier result is due to luck or some other attribute? Market randomness on its own creates outliers. If your results are just a lucky outlier - you have to cut and run whilst your luck holds. If some other attribute accounts for the outlying result then it makes sense to continue doing what you do.

 

[tech/a]

How do you decide if an outlier result is due to luck or some other attribute? Market randomness on its own creates outliers. If your results are just a lucky outlier - you have to cut and run whilst your luck holds. If some other attribute accounts for the outlying result then it makes sense to continue doing what you do.

I'm being facetious.
In the realm of professional Advisors/Brokers any retail profit is an outlier.
Particularly as an on going study!

It appears many papers support this.

 

[DeepState]

My report card on many of the topics raised: FAIL

It turns out that if:

+ you really have a circle of competence which is sufficiently large; and
+ for your purposes (don't leverage so can't go bankrupt, income drawn from investment is limited, not otherwise too concerned about mark to market, long time horizon..) diversification and risk management issues associated with it have a very small role to play

...what you are doing becomes ever more optimal. It is so for Buffett and his style is appropriate for BRK which is in that exact position. It is a really big problem when 'you' act like Buffett without having that circle of competence and/or are not in that position.

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Probability is not destiny.

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The largest single determinant for investment success, in addition to latent talent of some kind, seems to be approaching the task in a business-like fashion. Buffett calls it temperament. You'll see that Munger's stuff is full of deliberate thinking rather than seat of the pants got-a-hunch style. You, for example, produced a checklist (somehow confined to things where you've seen fit to award yourself a "FAIL" only).

Apart from being straight-up ripped off, it looks like the biggest killer is over-confidence (an associated one is acting as if overconfident, but really out of desperation to secure a lottery win and escape a bad situation). That seems to reside disproportionately with young males...as if that's a surprise. Another is the opposite of good investment temperament...something like tendency to 'panic'.

--

Buffet's way is not the only way. However, it might just be the right way for you. Whatever the case, I'm truly glad that it is working for you (and am when others, who are on a deliberate, heavily rational and considered path to investment/trading success, actually meet with that success). Many paths to Rome. Hope to see you there if I am so fortunate.