Trading Is Hazardous to Your Wealth [pdf] (2000) • Hacker News Board

Re: Trading Is Hazardous to Your Wealth [pdf] (2000)

#91

Post by Bubbadoo » Thu, May 14, 2020, 9:38 PM UTC

notahacker wrote: post #48

lend000 wrote: post #26

If markets were truly random, you might expect 50% of day traders to lose money, not 90%. Of course, markets are not random and most untrained humans have emotional biases that actively optimize for losing money in markets. This is likely a controversial opinion: 90% of the time, someone who wants to break out of the "rat race" or achieve wealth for some future vision should go the startup route, or if the wealth par…

> I suspect trading offers a higher expected value of return than starting a bootstrapped company. Startups, especially those not started by someone wealthy, have a higher failure rate than day traders This seems highly unlikely Sure, there are people that have the skillset and capital to earn a living from day trading that don't have the skillset or interest in running a business who'll be better off trading. But su…

As a day trader, you are always one trade away from losing it all.Even if you're diversified, one major loss can be devastating.

Re: Trading Is Hazardous to Your Wealth [pdf] (2000)

#92

Post by Bubbadoo » Thu, May 14, 2020, 9:39 PM UTC

hogFeast wrote: post #68

lend000 wrote: post #26

If markets were truly random, you might expect 50% of day traders to lose money, not 90%. Of course, markets are not random and most untrained humans have emotional biases that actively optimize for losing money in markets. This is likely a controversial opinion: 90% of the time, someone who wants to break out of the "rat race" or achieve wealth for some future vision should go the startup route, or if the wealth par…

Yep, that is a fairly common misunderstanding that the general public makes (and ends up with: if I just take the opposite decision then I will make money). The main reason why 90% lose money is costs. That is it. Most people probably are optimised for losing money but the main issue is really costs/overtrading. But related to this, most people believe that edge on profitable trades is very large...but in most market…

Costs? as in commissions? I haven't paid a commission in two years. Many brokers are now commission-free.

Re: Trading Is Hazardous to Your Wealth [pdf] (2000)

#93

Post by Bubbadoo » Thu, May 14, 2020, 9:42 PM UTC

WalterBright wrote: post #8

encoderer wrote: post #5

> Trading costs are high. The average round-trip trade in excess of $1,000 costs three percent in commissions and one percent in bid-ask spread. A lot has changed in 20 years. The conclusion may still be the same, but spreads are much tighter (thanks in part to HFT) and trade commissions no longer exist.

Trading also subjects you to short term capital gains tax rates, as well as losing the effects of compounding.

Short term capital gains rates have been 15%, right? Which is, based on my last gander at the tax charts, less than the regular w2 tax rate bracket many successful traders would file under.

Re: Trading Is Hazardous to Your Wealth [pdf] (2000)

#94

Post by Bubbadoo » Thu, May 14, 2020, 9:43 PM UTC

hash872 wrote: post #46

Not in any way defending day trading, but I think it's interesting that it's become such accepted wisdom about how bad it is- here on a website dedicated to startups. 90% of day traders lose money, what are the odds for startup founders? Probably more than 90% fail, yeah? Imagine if, within the next 20 years, it becomes normal & accepted wisdom that joining a startup and taking their basically worthless 'equity' is m…

Your making me glad I've been day trading instead of founding a new startup.

Re: Trading Is Hazardous to Your Wealth [pdf] (2000)

#95

Post by Bubbadoo » Thu, May 14, 2020, 9:45 PM UTC

jaredtn wrote: post #35

alexandercrohde wrote: post #14

It's my understanding that, if commissions are free (e.g. Robinhood) then on average, any trading strategy is going to perform comparable to the market average. If you can find any reliably bad strategy (in a fee-less market), then you have necessarily found an outperforming strategy that is the opposite.

Eh, if I wanted bankrupt a trading account by playing a reliably bad strategy, I'd buy deep out-of-the-money options expiring this Friday. The expected value is $0 (neither positive nor negative), but they have only a miniscule probability of profitability.

The idea of buying deep OTM options is that they are 1. cheap 2. still have the possibility of turning green prior to expiry.

Re: Trading Is Hazardous to Your Wealth [pdf] (2000)

#96

Post by clairity » Thu, May 14, 2020, 9:45 PM UTC

nostromo wrote: post #80

clairity wrote: post #38

Earlier quoted context omitted.

he's an investor, not a trader, and has outsized influence on the outcomes of his investments.

A distinction without a difference. He is an active trader that moves in and out of businesses all the time. In fact, he just dumped all of his airline stock recently due to Covid-19. It doesn't matter if you trade based on research or not, you're still a trader.

au contraire, it's precisely the most carnal difference, that of intent and of effect. investors want investments--the companies--to succeed, and thereby externalizes a net positive societal effect; traders want their bets to succeed, others be damned.

Re: Trading Is Hazardous to Your Wealth [pdf] (2000)

#97

Post by Bubbadoo » Thu, May 14, 2020, 9:47 PM UTC

halfcat wrote: post #82

The biggest problem with trading is unrealistic expectations. If people believed they could become a medical doctor by taking a weekend boot camp, you would see extremely high failure rates. But that high failure rate would not suggest that it’s impossible to become a doctor. Same with trading, if a person thinks they will make a few trades as their side hobby, it’s going to go about as well as the hobbyist surgeon.…

Studies have shown it takes about 3 years of constant trading to develop a sense or intuition about markets.

Re: Trading Is Hazardous to Your Wealth [pdf] (2000)

#98

Post by Nasrudith » Thu, May 14, 2020, 9:49 PM UTC

tlb wrote: post #70

lend000 wrote: post #26

If markets were truly random, you might expect 50% of day traders to lose money, not 90%. Of course, markets are not random and most untrained humans have emotional biases that actively optimize for losing money in markets. This is likely a controversial opinion: 90% of the time, someone who wants to break out of the "rat race" or achieve wealth for some future vision should go the startup route, or if the wealth par…

And it's not even that day traders' decisions are wrong. It's just that they're predictable in advance by HFTs who can act on news stories within milliseconds, so they're always buying after the uptick and selling after the downtick.

If they keep losing they are wrong or at least playing the wrong game in trying to play John Henry with a computer in fluctuations.

They need to compete like a human - using their pattern matching skills and reason on the fundamentals. Algorithmic traders that attempt sentiment analysis get fooled into doing things like buying Nintendo stock because female Bowser art was trending.

Re: Trading Is Hazardous to Your Wealth [pdf] (2000)

#99

Post by Nasrudith » Thu, May 14, 2020, 9:59 PM UTC

lend000 wrote: post #47

champagneben wrote: post #45

Earlier quoted context omitted.

>If markets were truly random, you might expect 50% of day traders to lose money, not 90%. Only if the humans were making decision to buy and sell randomly.

Intuitively, I don't think this is necessarily true. It probably depends on the type of random distribution for price movements.

More the magnitude of randomness in the total vs "ordered" growth. A truly random stock market would imply an utterly insane economy (avoiding the obvious jokes for now). A company with good current and future prospects that everyone knows going down over time continually while a doomed one rises? One at a time maybe from "glitches" or extreme circumstances. Like say a massive need for short term funds and more ending shorting than available shares to cover it and a margin call chain for the latter. Both at once? Likely impossible even with extremely weird economic circumstances which make the COVID-19 economy look perfectly normal.

Re: Trading Is Hazardous to Your Wealth [pdf] (2000)

#100

Post by clairity » Thu, May 14, 2020, 9:59 PM UTC

Bubbadoo wrote: post #92

hogFeast wrote: post #68

Earlier quoted context omitted.

Yep, that is a fairly common misunderstanding that the general public makes (and ends up with: if I just take the opposite decision then I will make money). The main reason why 90% lose money is costs. That is it. Most people probably are optimised for losing money but the main issue is really costs/overtrading. But related to this, most people believe that edge on profitable trades is very large...but in most market…

Costs? as in commissions? I haven't paid a commission in two years. Many brokers are now commission-free.

if it's commission free, it's likely because (1) fees are baked into the quoted price, or (2) firms are buffering trades with their own holdings and making money on traders' losses. you're paying somewhere for sure.