Reverse trading

Discussion in 'Trading' started by vleaps, Oct 3, 2006.

  1. vleaps


    Has anyone seen a study or something relating to someone just reversing the trades of a novice trader? A real study in which the novice didn't know about the study, had no limits, etc.

    Thanks dudes.
  2. Most novices lose money due to commissions and other fees. If you had zero commissions and fees, it would be just as difficult to lose money as it would be to make it. Most "systems" created by novices are nothing more than random coin flips. Eventually you will tend to come out even, but with huge swings in either direction. Because novices do not have endless supplies of cash, these swings usually relieve them of their account balances. Add back the commissions and other fees, and the equity swings down become much larger than the equity swings up, even if you flip the buys and sells.

  3. What if you get the one novice that flips 10 heads in a row on a coin.....
  4. Assuming he bet on heads each time, he will be quite happy. And then, like most gamblers in Vegas, he will keep trading. When the losses come in, the account will be lost.

  5. While I'm sure commissions account for a good deal of novices losses, novices suffer from difficulties holding winners for long periods of time while they'll hold onto a loser endlessly in hopes of it coming back. The fact that they don't use risk management properly also means the account swings will wipe them out; so they'll go up and down, but they will stop when they're down.

    As long as the account fading the novice is significantly bigger than the novice's account, and the novice really knows nothing, it should work. It would be done best where there are a number of novices being faded, with careful monitoring being done to ensure that no one gets good.

    Isn't this how bucketshops operated a century ago?
  6. Joab


    I made a ton of $$$ playing the opposite side of losing Baccarat players for a few years.

    Early in my trading career I had my girlfriend put on the opposite side of my positions just to see what would happen.

    Truth be known we both lost $$$ :confused:
  7. You are missing the exit signal in such a system. That's part of the problem. Novices don't plan an exit except when their account is hugely down and they are afraid.

  8. If only that were true. :) Discretion kills (newbs).
  9. With such a random system, discretion kills anyone. Imagine an equity curve that looked like a sine wave. Due to fear a novice may get out at an equity low, or at least underwater. Now imagine you wanted to fade him. You could wait until his equity is positive and then reverse his trades. But at what point do you start fading? This suffers the same problem as fading any other instrument. Your novice is nothing more than another instrument.

  10. I am what I consider a trading novice. However as anyone else I have studied and studied the systems and the trends before I put my money where my mouth was.

    In October 2004 I put in $2000. As of today that $2000 is now $8900 and change. Never played the market but have the following strategy.

    I limit my losses on any investment to 10% of the investment. My gains are based on the fact that I have a 10% trailing stop on all investments, meaning my runners run. When stock hits the 5% up mark I then move my TS to 5% of the stock value.

    Now have I been lucky, yes. Have I invested based on hard research that I spend hours upon hours doing in the evenings yes.

    But it appears that people don't think that newbies can make a dime in the market. I learn and read and learn some more. Always tweaking and modifying how to find the right stocks to invest in. Now in defense I always have an exit strategy so maybe that is the difference between my investing and many others.
    #10     Oct 3, 2006