rtharp "The average trader does the exact opposite. They hold on to their loser while cutting winners rather quickly. This is a part of human psychology that is so hard to unlearn. This makes a trader own more of an average of stocks underperforming the market while owning less of an average of stocks outperforming the market. This is why most individual fail." Very profound words in my opinion. Thanks for all your comments on this forum. I have learned a lot from you and others.
The problem with trying to unlearn that concept it isn't great to be wrong is it's taught from almost day 1. Throughout a human's existence they are taught to be right. If you didn't get 100% on a test your parents usually asked why not. Anything below 70% is considered poor. But a professional baseball hitter who can hit 50% of the time is considered near the top of the pros. Asking out a girl, you might get rejected a few times but only once when you hear a yes does it matter. You have to continue to fail to achieve. Learning to walk you had to fall over and over again. A trader has to do the same thing learn from mistakes. Successful traders are usually only right 50% of the time but winners are much bigger than losers. rtharp
Hitting 50% of your trades is no better than RANDOM CHANCE. A blindfolded monkey throwing darts at the wall street journal does as well. That does not sound like a good track record to me. Maybe by cutting your losses short and riding whatever gains the winners give you is profitable to some extent, but 50/50 is no better than that provided by pure chance. For me, this provides more evidence that you have found no practical consistent predictive relationships in the maket, or that none truly exist. Flipping a coin is a 50/50 proposition. But if you can find a way to accurately predict 6 out of 10 coin flips, now THAT is would be remarkable in that you have discovered a GENUINE predictive relationship(s). If you can't beat that which random chance provides, of what merit is your "system" or result? You're fooling yourself.
Sterling am a bit confused why you measure authors by whether they are traders or not. I have a good friend that makes flight sims but he's never actually flown a Boeing 747. Does that make his work worthless? the true test of any trading book author is what they write. If their concepts are sound and reasonable. To me Tharp's are. And I'm sure there are more like him. Lastly, thank you for the list of books you value. I will look them up for sure.
TradeRX, These message boards are designed to promote learning and to be able to share ideas with other traders. I'm not sure I understand your constant criticism. Considering you registered here only a few months ago it sounds like you are a newbie, and probably not very profitable. It may do you good to learn from some guys here that are actually making a living at this. To give you an example of how a 50% winning ratio (or even less) can be profitable I will share part of my scalping strategy. As I've stated here many times before I used to just trade JNPR using the futs and RSI. Example: When RSI became oversold I would wait until I thought it was time to enter just using judgement and experience. Usually it took me 2 or 3 tries (long) before I actually found the bottom. I would enter, and decide it was too early and stop out with flat to .2 loss. Then repeat. Then maybe on the third try I would hit it right. The important thing was that my first trades were only 1/2 size positions. I would just buy 1000 shares at first...then get stopped out. Repeat. Then on the third once I knew I was right I would buy another 1000-2000 shares and take anywhere from $.4-2.00. My point: I was probably around a 30% winning ratio, but my winners were always bigger than my losers. Dustin
Dustin. I acknowledge the possibility of profitability scoring a few big trades to offset a lot of little losers. But is this something you want to rely on? What's to keep you from getting a few little winners (not big ones) with your lot of little losers? What makes you think your few winning picks will turn into big winners ( as opposed to little winners)? You thought your losers would go up too, didn't you? And this brings me to the essence of my argument... If you are not picking more winners than that given by random chance, (and 30% winners is a LOT less, then what good is your system or all your stock picking skills? Sure, you can utilize a simple strategy of hanging on to your few LUCKY winners till they produce "big" profits, but what's the big deal? That sounds a lot like what they call ..."investing" My opinion. If you can't beat chance, and your 30% is far below this, you ain't doin' that good man. I challenge ALL here to refute these assertions. tradeRX
tradeRX =) lets suppose you have a system that screens double bottoms on the daily charts of stocks around the 40 to 50 dollar price range.. according to your system, your stop can be no more than 1 dollar from your entry price.. also, your profit target can be no less than 4 dollars.. according to your system, you can expect about 2 out of every three trades not to reach the 4 dollar mark, and eventually stop you out.. in this scenario, 2 out of every three trades eventually stop out and only 1 will hit your profit target.. thats a 33% success rate right? lets assume a position size of 1000 shares.. on 12 trades you have 8 losses = 8 stops @ 1 dollar x 1000 shares = (-$8,000.00) 4 winners = 4 wins @ 4 dollars x 1000 shares = (+$16,000.00) assume 20 dollar tickets each way.. 20x24 = (-$480.00) your total return after 12 trades with only 33% success rate is $7,520.00.. as you can see, the percentage of times a particular setup proves profitable must be taken in context of the risk/reward ratio of that setup.. "I could solve my most complex problems in physics if i had not given up the way of thinking common to children at play." - J. Robert Oppenheimer -qwik
Rtharp As i remember it was you, who suggested Baron start a book review section. Of course, both of your fathers books got placed on the list. U took it upon yourself to criticize many of your fathers competition. Now, you find your familys' treasure chest of book writing and giving seminars to newbie traders is threatened. In your review of Larry Williams book u wrote "I don't like Larry Williams much. We both live in Sola Beach but thats all we have in common" Great way to make friends!!! U have alot of nerve requesting Baron to censor any posts.!! Maybe Larry and Friends have decided to fight back. Their certainly entitled....... Sterling
tradeRX, >Hitting 50% of your trades is no better than RANDOM CHANCE. >A blindfolded monkey throwing darts at the wall street >journal does as well. Hitting 50% of your trades is far better than random chance, and you are misunderstanding probabilities. I often see this when people compare picking winning stocks with flipping a coin (trading author Misha Sarkovich makes the same error), where the latter does have a 50% chance of turning up either way assuming the coin is evenly weighted. The error in your thinking is taking the fact that stocks are either winners or losers (forgetting flat trades for a moment) and equating that with a probability of 50%. Nothing could be further from the truth. A monkey's dart-throw is no more a 50% probability of a win than saying a monkey pounding on a typewriter will either type a novel or he won't, so it's a 50% chance that he will...