That's what I tell them when they say my stops are too tight. I say, "Well then why don't you sell when I buy and take your profit when I get stopped out if it is such a sure thing?" otherwise if you're going to reverse, you minds well double up and reverse. No use letting one bad trade get you down. If you keep doing that long enough and you have a very large bankroll, you'll eventually get your hundred dollars back.
oh sub, I just got it. Sorry, I'm kind of slow. Maybe that's why I never made it as an options trader. By the way, if you ever go to the CBOE, check out the fixtures in the executive mens room. It was people like me who made that all possible.
ok so.... in the previous example. a stock is trading at 50. your bet is that it goes to 60 before it goes to 48 (although it is 5x more likely to go to 48). so say you buy 500 shares at 50. if it goes to 48, you will sell at least 1000 so that now you are short 500+ shares? do you now cover at 40? what if it reverses again and goes from 48 to 53 before it went to 40?
ok, if the above is true, say you don't keep your stop loss and target the same.. a stock is at 50, if you randomly buy instead of sell, and set your stop at 48, target at 60. you are now 5x more likely to get stopped out...this trade is now worse than 50/50. if you kept repeating this, you would get some winners, but eventually you'll be somewhere around break even, depending on the order in which the wins/losses ocurred. i could be wrong, but in all these examples you would probably lose money with commissions and the bid ask spread. unless...
this is why i love this web site.. even if i don't know what i'm talking about, this is all still fun to think about!
Gordon, I'm beginning to worry about you. First of all, I'm betting that it will go to 60 instead of 40. The 48 is only the price I need to see to be sure I am wrong. You are not seeing what you are looking for because your head aint right. You can stare at charts for the rest of your life and not see it until you get your head cleared out. If you have doubts, they will clutter up your mind. Somewhere someplace, you are just going to have to make a leap of faith. There's a lot of uncertainty in this business and you are going to be waiting for ever if you wait until you are certain. Just come up with a set of core beliefs that you hold true, and everything else will fall into place. For example, "What goes up will keep going up and what goes down will keep going down." Let everyone else spend their time proving you wrong, while you just contentedly trade your belief.
ok, i've thought about so much in the last few minutes, i'm even confusing myself lol...but i have a few more things i want to say. if you go back and take what daniel_m said: "If you keep your profit target and stop loss the same, then, yeah, a random buy/sell would have a 50/50 shot of reaching either within the time frame you've specified." now look above and read my own post that i quoted above. first we need to know if what daniel_m said is true. if monday morning i randomly buy a stock at 50, is it really 50/50 that it will go to 40 or 60? if that is true and then you take something like what lcamargo said: "7.00 14% (if you make 7 times what you lose, you need to be right 14% of the time )." isn't the problem here that he will not be able to be right 14% of the time making 7x what he loses? i'm leaving out one HUGE point, but i think some people like darkhorse will see what i'm saying. lcamargo will not be able to get that 14% success rate of getting 7x he loses unless he...
It is part of the food pyramid: http://www.healthyeatingclub.com/info/articles/food-guides/12345-pyr.htm Carl
Yeah, If that's the order you put on your full load, you will have one hell of an upside down pyramid. And if it comes crashing down on you, you will begin to wonder if the day you were born was such a good day after all. There's two kinds of pyramids. On is where you pile all the unrealized profits back into the trade. That's how most of us made our money. But there is a more conservative approach which is simply a matter of always risking the same fixed amount of your equity on every trade. And for some reason, the older I get the more approachful I am.