|
PureBytes Links
Trading Reference Links
|
>I wrote:
>
>> Buying stocks in a bull market is just another probability
>> as far as *trading* is concerned. Investing is different.
>A.J wrote:
>Not really. Everything is the same actually, except for the timeframes. We
>still have the probalility of an upward trending stock continuing to do so for
>the short term as well as the long term. Long term, some stocks go up, some
>go sideways, some go down, just like in the short term.
My choice of words was poor: If one is *trading*, the fact that stocks
have a long-term upward bias and the fact that a bull market currently exists
are just more factors in the probability of what happens *next* to an index
or stock. A lot of other things affect the odds of a short-term trade more
directly. I should have said "Investing in the long-term upward tendency
is different".
A trader intends to exit if he's wrong about what's next. An investor expects
to profit sometime in the future, but when is not critical. To exploit the
long-term upward bias, you buy and hold mutual funds or a portfolio. With
enough diversification you're investing in the upward tendency, not in the
fortunes of individual companies.
If you trade Intel or any stock and only buy long, there may be a slight
statistical advantage because it's a bull market and stocks rise long-term,
but it hardly guarentees you'll make money consistently. Other factors in
the timing of your trades will overwhelm that small advantage.
It may be that a random entry and 2-day hold on Intel will be profitable
54% of the time over the next year, and net profitable, IF done with
perfect mechanical precision. If however any discretion is used, the
results will vary greatly from trader to trader, as individual skill
of lack of skill exert far more effect than the small initial edge.
Real wealth is created as Intel and the S%P rise long-term, but that is
not by itself reason enough to limit trading to the underlying equities,
and merely doing so doesn't seem like much of an edge.
Wayne Moody
wlm95@xxxxxxxxxx
|