I know a day trader that does this and it works for him. I'm a swing trader. Here's food for thought: Consider the random walk and the roulette wheel. Let's pretend that we have a special roulette wheel that doesn't have the non-colored portions of the wheel and imagine that it can be only black or white. We win, or we lose. OK? Alright, imagine if you're always going to bet $5 and you're always going to bet on black....and...most importantly...you'll stop when you get $20 in your pocket. Because of the random walk theory, we'll have some winners, and we'll have some losers, but generally, we'll stay near the $0 level. We'll be even, for the most part. If you play enough, it's improbable that you'd be two wins ahead, but given enough time, it would have to happen. It would be still more improbable that once in a while you'd be 3 wins ahead, but it could happen. And even more improbable that you'd be 4 wins ahead (our goal)...but if you play enough, it can happen, right? I guess if you had an infinite amount of time to play, you could someday even be $500 ahead, right? Since we stop playing when we're $20 ahead, we quit on an improbable event. (I'm chuckling about the fact that winning is improbable). So if you wanted to do this with stocks, a couple of thoughts come up: 1. You need to be playing with enough money to make your winnings a small percentage (and therefore acheivable) but still desireable and 2. You need enough time. But if you had enough time, it could be done, because the beautiful part about it is that YOU GET TO DECIDE WHEN TO QUIT. Deciding when to quit is an edge. So why couldn't you do this system? Take $10,000. And buy a select stock every half hour. If it seems like a "up day", arbitrarily go long. Set your stop for a $150 loss. Sell out if you have a $50 win. Thats it. Now...I get that you might pay a few bucks to pay commissions on the trade, but if it's random, your odds of being $50 ahead (1/2 percent) on a random walk are higher than taking a $150 loss (1.5%) because of how far from the zero line you'd be. The most probable outcome is to end on a win IF ACTION WAS RANDOM. Seems like that strategy could work. Then, on the next half hour, you do it again. Again, if its a random walk, it's way more likely that you'll get out with a gain than a loss if its random. Or am I wrong? Shouldn't the distribution be a "normal" distribution? I dare one of you guys to try it...I'm not a day trader. SM
Smart Money, I agree with everything in the post except this paragraph... ES So why couldn't you do this system? Take $10,000. And buy a select stock every half hour. If it seems like a "up day", arbitrarily go long. Set your stop for a $150 loss. Sell out if you have a $50 win. Thats it. Now...I get that you might pay a few bucks to pay commissions on the trade, but if it's random, your odds of being $50 ahead (1/2 percent) on a random walk are higher than taking a $150 loss (1.5%) because of how far from the zero line you'd be. The most probable outcome is to end on a win IF ACTION WAS RANDOM. Seems like that strategy could work.