Nice trading quote

[psycho040253]

But surely skillful trading has a certain aesthetic appeal, like a fine piece of music or a beautiful football goal. As the poet Keats put it, 'Beauty is truth, truth beauty'.

Here's a famous Seykota quote which some people will find profound, and others pretentious:

'Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.'

Jeff

Jeff

Suggest that you read The Black Swan and Fooled By Randomness by Nicholas Nassim Taleb before extolling the virtues of Seykota.

Psycho

[Iron]

Paul

There is no contradiction.

Trend following is actually predicated on Black Swan events! It takes the view that very little about the markets is knowable and even less is predictable. Pretty much all it predicts is that sometimes markets over-react - that markets don't display normal distribution, but have fat right tails when trend lengths are mapped on a histogram. And as I believe Taleb says something along the lines that market events that 'should' happen every 700 years according to the stats in fact happen every 3-4 years, I'm sure that's something he'd agree with...

Jeff

[psycho040253]

Paul

There is no contradiction.

Trend following is actually predicated on Black Swan events! It takes the view that very little about the markets is knowable and even less is predictable. Pretty much all it predicts is that sometimes markets over-react - that markets don't display normal distribution, but have fat right tails when trend lengths are mapped on a histogram. And as I believe Taleb says something along the lines that market events that 'should' happen every 700 years according to the stats in fact happen every 3-4 years, I'm sure that's something he'd agree with...

Jeff

There's plenty of contradiction. Essentially, what Taleb says is that the success of traders is very largely due to luck. If they get it, they win. If they don't, they lose and, very often, when they do, they lose far more than they ever win. What he also say is that, eventually, all traders run out of luck. A real classic is the credit crunch when the banks lost far more than they made in their entire history by speculating on CDOs and CDSs.

Perhaps, in this light, it is a case of Psychotic not Seykota.

Psycho

[payuppal]

If thedy are trading in zero sum markets, as many of them are, how can they lose much more than they win?

The distribution of wins may be according to luck, though I doubt if Euler would agree, but the total overall sum is zero.

[Iron]

Paul

Sometimes traders get credit for being lucky when they are in fact skillful. However, when a trader makes a huge ROI over thousands of trades spanning lots of markets and lots of years (as trend following funds have), the chances of the success being due to luck are pretty remote.

OK, I know that Long Term Capital Management had a pretty impressive track record, and went belly up. But their problem was that they believed the market behaved in accordance with neat mathematical models (whereas trend following allows for the market's occasional extremely irrationally - in fact, it counts on it).

Jeff

[superfrank]

If thedy are trading in zero sum markets, as many of them are, how can they lose much more than they win?

The distribution of wins may be according to luck, though I doubt if Euler would agree, but the total overall sum is zero.

transaction costs and tax. the sums involved are massive.

commissions, exchange fees, spreads, fx financing, stamp duty, capital gains tax etc. (and premium charges for a certain exchange that is not an exchange).

[Iron]

Partly due to commissions, but much more significantly IMHO, because they cut winners and let losers run, when they should be doing the opposite. As trading psychologist Mark Douglas puts it, they eat like birds and **** like elephants!

In a normally distributed market (in respect of trend lenghts), you could get away with that, but as markets over-react, and you get more long trends than randomness says you should, it's a losing proposition long term.

Jeff

If thedy are trading in zero sum markets, as many of them are, how can they lose much more than they win?

[Iron]

If you're trading with significant volume though, aren't the transaction costs fairly negligible, ie isn't it the same that you pay the same to put $100 into the market as you to do trade with a $10,000 stake?

As for tax, don't you only pay tax if you come out ahead overall, meaning it's not relevant to why someone would lose overall?

Jeff

transaction costs and tax. the sums involved are massive.

[superfrank]

If you're trading with significant volume though, aren't the transaction costs fairly negligible, ie isn't it the same that you pay the same to put $100 into the market as you to do trade with a $10,000 stake?

transactions costs can be negligible, depending on the style of trading. but imagine the fees generated by HFT scalping bots (huge).
every share transaction in the UK is subject to 0.5% stamp duty plus dealing costs.

[payuppal]

In a normally distributed market (in respect of trend lenghts), you could get away with that, but as markets over-react, and you get more long trends than randomness says you should, it's a losing proposition long term.

Transaction costs, yes, but the above cannot be right if the markets are are random in the way he claims.

[Iron]

On one level, the markets are random. On another, you get certain patterns time and again. If you didn't, none of us would be able to trade profitably, if you think about it...

Jeff

[payuppal]

If you think more about it....

he is saying that the profitable traders are simply randomly selected...

[Iron]

But that is clearly a ridiculous notion.

It's theoretically possible that what separates (say) Peter from a newbie who loses constantly is just luck. But I bet if you were to do some statistical analysis of Peter's trades over the last 10 years, you'd find that the odds of that were about a trillion to one!

Ditto the top performers in the financial markets.

Jeff

If you think more about it....

he is saying that the profitable traders are simply randomly selected...

[payuppal]

I didn't say it was true, I said it was what he was saying...

[Iron]

'Fear is the dream killer, the silent voice that pushes us to lose our passion in a vain attempt to seek safety.'

Seth Godin