A lot of people on EliteTrader will beat the market… here is why

Discussion in 'Trading' started by neutrino, Dec 18, 2008.

  1. OK, guys, I know it looks like I am arguing with myself, but I found the weak spot in my argument that "you cannot beat the market" that no one brought up. I know that many of you will say - what was this all about, we knew we could beat the market and didn't need anyone to prove it to us. But I needed to have a deeper understanding of the nature of the market. So here are my new thoughts:

    I wrote that, no matter how smart, you should always try to avoid competition as much as possible. So far so good. Then I showed why the stock market is the most competitive market in the world, which is also quite clear. But my conclusion that you should avoid the stock market because it was the most competitive market was wrong. Because I overlooked the alternative. I fell prey to conditional probability. It is true that it is better to operate in a non-competitive market. It's nice to be Microsoft or Google and have just a handful of competitors unlike the stock market where you have millions. But the probability of actually arriving there is very, very small. Indeed Google enjoys an imperfect competition in its market. But if we rewind the tape back to 1998 where you had thousands of incredibly smart and talented computer science undergrads from Stanford or MIT, the chance of creating a successful web application and survivie the dotcom crash was probably 10,000 to 1. In other words, the race to uncover and exploit markets with imperfect competition attracts some very bright minds, and the chances of emerging as the major player in that market are just as good or just as bad as the chances of entering a perfectly competitive market and extracting consistent abnormal profits. Or going back to my original post, I wrote that your "skill, intelligence, emotional control etc. simply don't matter in perfectly competitive markets". That's true only as much as they don't matter in any kind of market when we consider the probability of discovering or penetrating that market.

    That means that essentially you have the same chance of success in whatever field you go. It would make no difference how many competitors you have, the competition is always there. The choice should only be determined by what you love to do, and if trading is the game you love, then by all means go ahead and gain as much experience as possible and accept what the market will give you in return. I know that to most of you this would seem pretty obvious, but I really needed to get this "prefect competition" argument out of my way. And I really didn't know how when I started the other thread despite my experience in the market up to that point. I appreciate that you actually bothered to read my thoughts and didn't just accuse me of heresy. My logic was flawed but I am glad I found a way out. I hope I am not wrong this time again :)
  2. Dude buy some books. They are easier to read than your posts and more informative:

    Both Nassim Taleb's books
    Fortunes Formula
    Trading & Exchanges Larry Harris
  3. What is it that you didn't understand in my post?

    I've read Taleb and watched many of his interviews. The guy seriously underestimates competition. You can't just buy insurance and wait for the bad thing to happen. You have to be a trader - buy the insurance when it's cheap and sell it when its overpriced. You gotta have some filter which tells you when to get in and when to get out of your options positions. If he can do that - more power to him. But just to know that in general people are wired to underestimate the impact of black swans does not automatically make you money :cool: That's why I consider him more a philosopher than a trader.
  4. Start another thread and entitle it "Some people will win, and some people will lose". That would be right on target.
  5. Oh, some people will definitely lose :)
  6. Here are some statistics for you:

    Years of active trading > 12
    Total executed trades > 20,000
    Average account size over 12 years > $1,000,000
    Average monthly return > 10%
    Losing months over 12 Years 2
    Max Monthly Loss < 10%
    Percent Profitable Months > 95%

    I don’t think it’s a fluke! Do you, neutrino?
  7. 50_Bip


    Is this Stock_trad3r's track record or Timmay's?

  8. I can never beat that. Will you take my money to trade? You can keep 50% of profits as performance fee.
  9. N

    You comment on competition in the IT, but tell me a market where two highly competitive guys go long and short on the same tic.

    Normal business competition is always streaming in one direction.

  10. #10     Dec 18, 2008