The OP answers his own question but uses wrong terminology. If you test something out, make money, but then lose your edge . . . that's luck/unlucky? No, it's the unpredictable nature of the market, not random events. The market is very unpredictable, not random, don't you think?. Just when you have an edge, the market unpredictably swallows the edge. So where does that leave you? Trying to identify predictable behaviours of the market in a swarm of unpredictability. I'll at least agree with the OP that the Law of Large Numbers guarantees that there will be people who make money even if the market is random. Question is . . . do the same people make money year in and year out . . . or is it a completely revolving door? Probably both. The year in / year out money makers are such a small percentage that most people never grasp this and suffer from intellectual dishonesty . . . eventually giving in to the random theory. Keep trading. js
This is what people don't understand. The sad truth is that people that understand what you are talking about are usually lousy traders ie quants. You need someone with Harvard smarts and Brooklyn common sense. That makes a dangerous trader. Perhaps you can explain the difference between normal and lognormal. The issue is to what degree can markets be predicted, most are not honest about how difficult that problem is although in the realm of finite math for sure.
Yep you pretty much got it correct. It's just simple math. On average you cannot beat the averages without assuming more risk. Costs are a huge drag on performance for any level of assumed risk. Increasing Trading activity sets a higher hurdle rate due to it's cost and is generally counter productive. That's why index funds/ etf's will always be the superior choice given the same level of risk for most investors. Hope That helps
Alex totally agree with you, but remember you don't trade the market you only trade your beliefs of what the markets are going to do next, that is why for every trade we place there is someone taking the other side of it. this is a good place to get good insights about the markets before the opening bell, in the afternoon and dayli mkt analysis. http://www.freetradingvideos.com/vlog/default.asp?category=2
I think alot of people who post here fail to realize what this guy is trying to say. A person can become a doctor in a set period of time, like 10 years of education. This period does not change. A trader can become profitable in either 1 year, 10 year, or not become profitable ever. What this this mean? It's not like one person is a hell of alot smarter than other ones. This means that becoming a trader depends alot on luck, more then people (like NoDoji for example) want to admit!:eek:
What you mean here really just boils down to the fact that trading and investing is not a skill set in a traditional sense like a true profession (MD,accountant, etc). Once you learn the mechanics, avoid the scams, you generate returns based upon your market risk assumption if you have properly diversified away idiosyncratic risk. How hard you work means nothing, how smart you are means nothing, that's pretty harsh as the only exception to the formerly accepted capitalistic protestant work ethic belief system.
how much time/how many trades is considered statistically significant? Obviously, if someone had a 'system' that only traded once a year then it would be hard to ever actually have confidence in the system as it would have so few trades to analyse? The reason I ask this is because i've been paper trading for about 3 years (dont laugh!!) and am now trading real money, and am having a nice spell at the monent, but then threads such as this one really play on my mind. I can tell you that I make about 20 trades per day on the FX market and have generally around 10 pip stops and my profit targets about 14. I trade off of price patterns. Naturally i am feeling quite confident as its one of my best patches, but threads like this make me think that maybe im just lucky at the moment and next week the 2 month losing streak begins.
As long as you don't expect income to be automatic, but remain humble everyday, even if you win all your 20 trades, and always have a back-up plan, I see no reason to worry. So this means don't go on a spending spree after a good run, though with 3 years paper trading i don't expect you too. I am more interested in your drawdowns and drawdown period. If those don't exceed the paper traded drawdowns then should you really worry? You should worry if it does happen though.
Just remember folks being profitable in your trading is not the correct benchmark: The proper question is: Are you beating a comparatively risky passive portfolio with all of that effort and time? This question is the bane of all mutual and hedge fund managers.