|
PureBytes Links
Trading Reference Links
|
Erich:
Excellent post. Sometimes we have to be reminded of the obvious and not so
obvious.
I disagree on one point. The stock market is not a zero sum game, like
betting at the pari mutual track, it is a negative sum game. The brokerage
fees are the house charges, less money goes out (to the winners) than came
in (from the losers).
Lionel Issen
lissen@xxxxxxxxxxxxxx
----- Original Message -----
From: "Erich Kohlhofer" <KohlhoEG@xxxxxxxxxxxx>
To: <metastock@xxxxxxxxxxxxx>
Sent: Monday, October 22, 2001 2:12 AM
Subject: Newbes, mechanical systems, expectancy, etc.
> Hello fellow traders
>
> I don't post very often to the list, but some times I like to throw a
> few ideas around. I have been trading actively for about ten years, and
> for the last three I have also included mechanical trading. Let me
> assure you, it does work. As they say, 95% of traders loose all their
> money within 6 to 9 months, or have to add extra money to their trading
> account. I have been able to live and purchase my house out of my
> trading account, so that should account for something.
>
> I have done extensive work to crack all the MS experts. None of them
> can be used without discretion. i.e. they will lose money in the long
> run if you just trade them.
>
> For example, someone asked about expectancy. Let us take a rather poor
> system like the MACD crossover. Over say a sample of 2000 charts, the
> system may give you say 8 correct signals out of every 10. Looks like a
> good system doesn't it, I mean 80% right, you cant loose.
> WWWRRRROOONNNGGGG.
>
> This is the point that most newbe traders miss. The system may be 80%
> correct, but have a look at what your commissions do to the system. Many
> of these profitable trades are not actually profitable. Now in reality
> the system only becomes about 25% correct. BTW a system can only make 1
> good trade out of every 10 an still be profitable if your losses a very
> small on the poor trades and your profit enormous on your one profitable
> trade. This is what is called expectancy. Although, I have never seen a
> system like this. All my systems that work are about 55% to 75% right.
>
> Carrying on with MACD, if you use it without discretion on the entire
> US market, it works out to be about 23% negative. i.e. you will loose
> 23% of your money in 1 year if you use 2% commission charges.
>
> This same argument goes for most of the MS experts and systems, some
> are far worse, i.e. 225% negative. As I always say, it takes 5 years of
> study to become a doctor plus 2 years internship. Or 4 years to become
> an engineer plus 3 years practical. The same goes for trading. Don't
> even think that you will be any good after 6 months, this is not going
> to happen, never mind what the advertising bumpf says. Remember 95% of
> traders (not newbes only) loose their money.
>
> As you can see, I have said far to much already. The trading game is a
> zero sum game compared to an index. If you are doing better, you are
> taking money from someone else. And this is the point exactly, the
> market needs a constant supply of newbes to take money from. This may be
> in the form of books, courses, software, etc. MetaStock is a great
> package, you must just learn to use it correctly to your advantage.
> Study a few good trading books (van Tharp, Elder, Gary Smith, Kaufman,
> Bollinger), learn something about statistics (this is more important
> than you may think), but best of all; if you can pick a good traders
> brain, even if you have to pay for it, it will vastly improve your
> trading.
>
> Erich
|