Needless to say, a lot of people, based off one story that I haven't yet finished,
now think I'm just another halfwit gamble-my-savings-away day trader.
The closest thing to a thesis of this post is that he is not a halfwit gambler as critics on Hacker News (including practicing market makers and quantitative traders) believe him to be.
On some days, I feel the same way about myself [that he is in fact a
halfwit gambler].
Not looking good.
You have no idea how much I've read up on financial history, probability, and
behavioral finance. You have no idea the number of profitable
traders (whose track records I get to see or witness in real time) I've spoken
to whom use a variety or combination of different methodologies.
Because you don't know what he knows, you can't be certain that he doesn't know anything. True. But, he doesn't record any specific knowledge here, so we still don't know whether he knows anything.
Looking worse now.
He then sets up several straw man arguments against him. But, amazingly, does not refute them.
You seem like a nice and rational guy, but it looks to me as if your post ended just after the introduction. Apart from the info that there are many profitable trades which success that cannot be explained by luck, I'd love to see counterarguments to other things.
For example, if you are a successful trader, it seems a kind of activity that scales very nicely. If you can be sure you are profitable in say a month (or a year), you are multiplying money, so using leverage or loans you should be able to basically have any amount of money you want (and what about trades in that case?). At least that is my understanding as a non-trader. I'd love to read some explanations for this, especially that I like your writing style.
> If you can be sure you are profitable in say a month (or a year), you are multiplying money, so using leverage or loans you should be able to basically have any amount of money you want (and what about trades in that case?).
Its not that simple, sadly.
You can't buy $InfinteMoney$ worth of stock X in a single transaction, you end up moving the stock price as you buy/sell. This allows others to respond to your activity. At small scales, a system that appears to work will break down at large scales.
> You can't buy $InfinteMoney$ worth of stock X in a single transaction, you end up moving the stock price as you buy/sell. This allows others to respond to your activity. At small scales, a system that appears to work will break down at large scales.
OK, true it doesn't work up to infinity, but given how much money there is on the Wall Street, I would imagine that when your activities are big enough to move the market, you are way past the point of wondering what you can and what you cannot afford (say $1B+ not to be too vague). Especially given how many instruments there are out there.
Warren Buffet said the same thing. That he just couldn't take advantage of the same situations now that he moves a lot of money that he used to get to the top.
Refuting crappy internet comments about your blog isn't really a recipe for success, unless your criteria for success is more pageviews. There were tens of people in that thread who were spouting off armchair economics like they were financial experts. That type of ignorant rambling should really be reserved for /r/economics or, better, /r/bitcoin.
It doesn't really deserve to be responded to, much less refuted.
Yes, but he is talking about trading penny stocks/pink sheets. He is on par with the people the "armchair economists" unless he is super wealthy and can prove it.
You sure you want to act like he is a financial guru?
"If you've been following penny stock trading circles on twitter for awhile, you'll know certain tales of legend were born on that day. One particular trader profited $1.2 million in a day. When that many traders produce their largest gains on one particular trade, you know it doesn't require some crazy genius, It's the stock that does all the work and makes life easy.
My day was just peanuts in comparison but it was still my personal best, as I made $33,000 (with no profit split! which felt amazing). The trader across from me, who I will affectionately nickname El Chango, had seen enough. El Chango was branch B's head trader. It killed him to see easy money slip away due to inaccessibility. He pulled CCG's principle owner aside and pleaded for him to enable access to the OTC."
His method?
"Simple. Look for the extreme volatile moves on massive volume. If the direction was down, find the first held bid. Buy. If the direction was up, find the first major seller. Short."
If it was really how that worked in the real world, it'd have been eaten up by HFT.
Yeah, I was once considering building an OTCBB trader that would trade all the pennystock promo bullshit and see which (if any) lists actually worked and just trade the spam. The amount of degenerate gamblers in that industry is insane.
Almost built a claim jumping / claim expiry bot for mineral titles. Claim expires tomorrow? Grab it at 9 AM? Claims made today? Stake the blocks around them.
I think anyone with half a brain would clean up on OTCBB with a little automation.
You'd think so but the problem is volume. When it's time to buy you can't get enough shares at the price you want and when it's time to sell, there's no buyers.
I used to trade pennies for fun, because maybe I was one of those degenerate gamblers. Options trading can be just as much fun.
I think the big complaint was that your post was titled "How I lost a shit-ton of money in one day" but the content was "How I started making some money on OTC trades and got on a leaderboard at work" -- felt click-baited.
Full of himself, b.s. trader can't even make a blog title correctly. No wonder he lost thousands of dollars by accident, then couldn't even finish the last 3/4 of his story. Not to mention leaving out the most interesting part.
Am I the only one who sees this entire story as decidedly "un-hackerly?"
On one hand, OP chides commenters for describing trades as "coin flips" (this is apparently some sort of composite as he quotes no individual commenter in saying this). Then expresses the following transparent cognitive dissonance:
> Trades are not binary outcomes like coinflips. If you think someone with a consistent 70% win rate...
Well, if trades are not binary, what is a "win rate?"
OP makes no mention of the 'hack' here - namely, the underlying systemic outcome of this conduct. Are the companies whose stock is at issue ethically sound? Are they promoting open source and free thought? If they aren't, and if their value is the metric, how can any gains be regarded as a "win?"
Perhaps in a self-enriching sense, but self-enrichment isn't per se a 'hack.'
Do TA proponents ever talk about the suggestions that the reason TA works is because of a feedback cycle?
That is, if you get enough people with enough influence (cash) all believing they can read tea leaves, and make similar movements based on that, it kinda works.
This is discussed all the time - there's a running joke about how the 200 day moving average only works because everyone believes it does.
That said, there are so many different TA techniques / indicators / gurus that, for all but the most well known TA indicators (there are easily hundreds!), there simply aren't enough people trading on the signals at the same time for the same securities with enough volume for there to be a proper feedback loop.
If there was a repeatable, predictable feedback cycle, it follows that we'd all be charting it and trading off it (or backtesting with quant analysis to confirm the existence of the cycle, or having long conversations about nothing and convincing ourselves it was fundamental analysis, or whatever your preferred method of analysis is.)
Not only are you now a TA pro, but you can also trade real estate, and run the Federal Reserve.
This is why the counter-cyclical guys only make money when the bubble bursts. (Berkshire always underperforms in the boom, but makes it up in spades in the bust)
I think it does influence the market, but it cannot make them all profitable. Unless you think that group of TA believers act as a big pump and dump scheme (but I guess most markets are too big for that?)
He tries to obscure it a little with things like "pink sheets" and acronyms but I don't think that is intentional. I'm guessing people just don't read the original article he is defending.
I'm glad this was posted; I thought it was well-written and humble (both the original and follow-up), and interesting to me personally anyway.
My impression from the limited research I've done into technical trading is that - just like a lot of things in life - it's a lot of work. People who go into it hoping to make it big on one lucky score seem to get slaughtered.
A lot of technical analysis indicators seem to be not about the companies themselves (which is fundamental analysis) but about determining the trend of what other people think about those companies/stocks (the "Kenesian beauty contest" http://en.wikipedia.org/wiki/Keynesian_beauty_contest)
So I think it's a little more than sheer chance/luck, but it also definitely seems to require a lot of work and staying glued to the market/indicators/news.
It's appealing intellectually because of the "game" aspect, but I think the reality is that like anything else it requires a ton of work to succeed at it, especially in the beginning when you're still cutting your teeth and learning hard lessons. I appreciate that the author wrote candidly about his experiences learning the game/trade.
There is a pretty solid hypothesis that when traders talk about "reading a chart", they are not in fact using easily explainable patterns, but rather more hardcore estimations of market psychology, derived via the brain's rather robust pattern-finding machinery. The chart patterns are more of a mnemonic than a decision rule in and of themselves.
My favorite story is a study that involved trying to predict the outcome of a 1:2 random distribution. Pull a random card from an infinite deck, 1/3rd of the time it's black, 2/3rds of the time it's red. The optimum strategy is to guess red all of the time; you will be right 2/3rds of the time. Humans have a tendency to try to match the random number generator, guessing red 2/3rds of the time and black 1/3rd of the time, which is sub-optimal, and you're only correct 5/9ths of the time.
We're powerful pattern matchers, yes: we can observe a 1:2 random distribution and mimic it pretty accurately. But we're also a little stupid: we think it's a good idea to do so.
Maybe traders have learned on an intuitive level to "fix" this pattern matching - clearly the processing circuitry / power / ability is there, so a trained difference in outlook could allow us to harness it properly.
I may get laughed out of the park for the following anecdote, but playing MMO markets for the last few decades has convinced me this is true. Take any given item to be a stock; and looking at the market trends as "Reading the charts" and you quickly realize that your mental heuristics that may be provably very successful are MUCH more difficult to put into algorithm. I came to this realization recently when I tried to put code to the logic that had earned me 10s of thousands in Guild Wars 2 and found it a far stretch from enumerating the same list of "trades to make" that I would come up with manually, even when I felt I enumerated all of my heuristics.
Long story short, the brain is a ridiculous tool; I can't wait until we understand it better.
reading a chart quickly turns into reading tea leaves and other forms of divination that people are so prone to. There is just no science there. it's better to know our brains are poorly wired for understanding the risk of trading.
Here's something I've witnessed:
Those that understand trading do it. Those that don't, swear that nobody else is making money doing it either. They are convinced of that and will argue their point endlessly.
I find it strange.
(Caveat: of course I don't mean absolutely everyone, but it's a phenomena you can witness whenever it gets discussed here.)
Looking worse now.
He then sets up several straw man arguments against him. But, amazingly, does not refute them.
Okay, I give up.