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Day Trading vs. Swing Trading vs. Position Trading 86 replies

The Essence of Trading and Financial Theories 1 reply

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The Essence of Trading

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  • First Post: Aug 20, 2011 3:49pm Aug 20, 2011 3:49pm
Ok lads and lasses...

So in my rollercoaster voyage ive been thinking lately more and more on how to simplify everything as much as possible.

So here goes an open question for all of you:

In one sentence or two, describe your interpretation of the market and the essence behind what you essentially do to profit from it.

Id also like to add that due to a lot of personal thinking along with some thought provoking comments from individuals on this forum ive come to the conclusion that trading and its essence can be described in a single sentence, irrelevant of the trading approach.

However this doesnt mean im yet consistent... yet like mentioned im on a trip to simplify everything to its core as much as possible. And then rebuild my beliefs with a good foundation.

I welcome all constructive comments and discussions.

Pip
everyone who has something to say is wrong (including me). unless you want to be like everyone else then you need to ignore the masses and listen to the few and make your own rules and beliefs.
Congratulations ScalaFX for coming out of the closet!
Quoting Pipalicious
In one sentence or two, describe your interpretation of the market and the essence behind what you essentially do to profit from it.

Market is reflection of supply and demand of people and institutions at current moment. To take profit from it you have to either
1) follow the big boys and those who can move the market by manipulating it. They are the winners in this game. Never follow the crowd that trades with witchcraft tools from bollinger bands to astrology cycles. Those are the loosers in the market.
2)find the mispricing in the market and exploit it.
my interpretation:

the market is advertising price all the time to facilitate a trade




the essence:

exploit the informed traders (strong hands) and piggyback them
analyse the condition of the market(where price overtime is building value)
and act accordingly
Market is a big game where many different players meet to achieve their different goals. The safest way to profit in this game is to play against the weak hand.
The cores :

1. Entry
2. Exit with profit
3. repeat

That's all buddy
Here is my simple equation distilled into the beautiful E=mc2

This is not an interpretation, but the real deal that no-one will ever tell you. So without all the fluff, pay close attention:

  1. (Literally): Trading is an influx of money coming in and an influx of money coming out. (I'm not talking about supply/demand nor mass behavior nor government/economy transfers.)

  1. As money comes in and out, there is a delay in the system. This delay allows one trader to make profit or make a loss.

  1. This delay is like a rubber band and not a rigid movement (example: if 100 units come in, it does not equate the same as 5 x 20 units)

  1. Market never changes, never have and never will (1, 2, 3, 5, 10, 25, 50, 100 years from now it will either be UP or DOWN)

  1. The swings or shift of market condition from one to another is governed by Quantum physics and cannot be predicted. Which a lot of people are deluded into thinking that it can be predicted through mass behavior, supply/demand, government or economical.

  1. A move in any direction is governed by Newtonian physics and can be calculated quantitatively. A fake bounce or a fake breakout are objectively and quantitatively significant compared to a real bounce or break.

  1. Although there is no universal platform to see the total amount of volume/influx of money coming in and out. It is mathematically (closely equivalent) to a certain degree reflected in certain/varying computations. -----> The flaw with this is that most (nearly all) quants are trapped into thinking of predicting the future that they add irrelevant parameters.


Thus, there is no room nor need for discretion and subjectivity.

Quoting CrucialPoint
The swings or shift of market condition from one to another is governed by Quantum physics and cannot be predicted. Which a lot of people are deluded into thinking that it can be predicted through mass behavior, supply/demand, government or economical.
Good post except this thing. Market is WAY too big to be governed by Quantum physics (whose effect is relevant up to atomic scale only). Just because there are too many variables to include into calculation and current models are unable to predict excat market bahaviour there is no need to include Quantum "woodoo" as an explanation for market behaviour.
Quoting nubcake
you need to ignore the masses and listen to the few and make your own rules and beliefs.
This is exactly what im getting at, but its interesting to observe other peoples points of view. All it takes is one comment, one sentence, one observation to provide a paradigm shift providing one is willing to deeply ponder it and come to objective conclusions.

Your thoughts are welcome Go for it.


Quoting reres
Never follow the crowd that trades with witchcraft tools from bollinger bands to astrology cycles. Those are the loosers in the market.
...find the mispricing in the market and exploit it.
I think tools do provide a purpose. But what im constantly seeing is the use of these tools in an incorrect manner. Not many can truly go into the details of xyz tool and clearly/objectively tell under which exact conditions they work/fail. Hence the random outcomes produced.

As for mispricings...what do you define as a mispricing? Can you clearly point it out on a chart? Or do you require exterior info (news, stop locations, etc) to identify such mispricings?

Quoting seagreen
Market is a big game where many different players meet to achieve their different goals. The safest way to profit in this game is to play against the weak hand.
How do you define a weak hand?


Quoting in_drag88
The cores :

1. Entry
2. Exit with profit
3. repeat

That's all buddy
Yep, thats it. But this can be simplified even more.

No matter what anyone says, we are all doing the exact same thing which is trying to profit from the markets, be it trading against weak hands, piggybacking strong hands, exploiting inneficiencies....

Yet in the end, we are simply doing one of two things:

Playing a bounce or a break of a reference point.

What changes here is the information people use to pin point the reference point on a chart, be it a supply/demand level, a specific news comment/phrase that could move markets up or down, a squiggly line, etc.

All we are doing, is betting on a bounce or a break of a line, be it dynamic/static.

That to me is the absolute basics of what we are all doing, irrelevant of info/approach/method/system.

Couple of months ago I thought to myself that no matter what method or approach is used all we are doing is filtering info and taking action (bounce/break) of a reference point on a chart.

Then I thought, well, all things being equal, trading into or off a static/dynamic line essentially is 50/50, PROVIDING, no additional info/analyzing is done.

So to tip the odds above 50% there is obviously certain objective/quantifiable information that can provide an edge here, irrelevant of method being traded.

Hence all we do is trade a break or a bounce from a reference point.

Obviously not all information is equal, hence the different thoughts and comments being brought up here

Quoting CrucialPoint
Thus, there is no room nor need for discretion and subjectivity.
Thank you. This is the aim of course!

Subjectivity is nothing more than:

(1) a trader who cannot truly formalize clearly what he is doing.

(2) someone who cannot be bothered to describe deeply how/why/where/when his actions are made.

(3) someone who wont disclose specifics.

But I could be wrong, I dont believe in wishful subjective thinking.
Yet in the end, we are simply doing one of two things:

Playing a bounce or a break of a reference point.

yea trading in the end is that simple isnt it !?!

its funny because the learning curve is steep and long and can be complicated at times.. but if u went thru all that and have a sound market understanding and know how or when its best to play the market ie set a trade .. its a simple craft in th end...
Quoting PrymeTyme
but if u went thru all that and have a sound market understanding and know how or when its best to play the market ie set a trade .. its a simple craft in th end...
Yep its simple once the core and essence is clearly and objectively defined. Thats what im looking into now.

1) No matter the style, we trade a bounce or a break from a reference point.

2) There exists quantifiable information (i.e. data) that allows a >50% odds of price moving further one way or the other.

3) How long the move is sustained for is the final part.

This is where 'part' of the edge lies.

I do humbly believe knowing this then even random entries are actually possible, since they in a sense arent random anymore due to such information one has.

Just thinking aloud
Finding a price of a particular asset where the amount of money I’m willing to lose, is so offset by the uncertainty of possible gains, that it's too great to ignore.
Quoting CrucialPoint
Here is my simple equation distilled into the beautiful E=mc2

This is not an interpretation, but the real deal that no-one will ever tell you. So without all the fluff, pay close attention:

  1. (Literally): Trading is an influx of money coming in and an influx of money coming out. (I'm not talking about supply/demand nor mass behavior nor government/economy transfers.)

[list][*] As money comes in and out, [b][color=DarkRed]there is...

There is just one thing missing...
You are absolutely correct about the bounce or break....

Now consider incorporating the two. This is the way I trade and will do for the rest of my career.

In a sentence... Follow the trend, enter on pullbacks, do not deviate, accept losses are guaranteed and profit in the long run, forget about the very next trade as it is meaningless in the grand scheme of things.!
Quoting CrucialPoint

  1. The swings or shift of market condition from one to another is governed by Quantum physics and cannot be predicted. Which a lot of people are deluded into thinking that it can be predicted through mass behavior, supply/demand, government or economical.

  1. A move in any direction is governed by Newtonian physics and can be calculated quantitatively. A fake bounce or a fake breakout are objectively and quantitatively significant compared to a real bounce or...

...

I don't understand the relationship between these 2 points. If the markets are unpredictable, what exactly are you quantitatively calculating? Isn't this a contradiction, if you calculated some value, according to you wouldn't it be irrelevant after the next tick?
Quoting AFX-UK
In a sentence... Follow the trend, enter on pullbacks, do not deviate!
Perfect.
"A is A"
Quoting lolpie
I don't understand the relationship between these 2 points. If the markets are unpredictable, what exactly are you quantitatively calculating? Isn't this a contradiction, if you calculated some value, according to you wouldn't it be irrelevant after the next tick?
Kind of like "Cause and Effect".
When will the "Cause" occur is unpredictable. The "Effect" can be calculated to a certain extent.

Example:
OK the sentiment is up, the Fundamentals are up, the price is at great value... When will you hit the buy/sell button? The least you expect it a tornado will come your way, power breakers cuts off, internet connection lost, you urgently need to go to the toilet because you had too much curry, you received a phone of unexpected emergency, one second away of hitting the button and a disgruntled employee rams a tank in to the building etc... Unpredictable causes "When" will impact the action of hitting the button. You cannot predict this.

But the moment when you hit the button (whenever that may be), it is objectively calculated "the effect" of that action is quantitative. You can predict a range of certain given parameters.

When will the large orders enter the market?... it is unpredictable.
The moment those large orders enters the market... it becomes predictable (to a certain degree because you don't "when" is the next set orders coming in).
Quoting lolpie
I don't understand the relationship between these 2 points. If the markets are unpredictable, what exactly are you quantitatively calculating? Isn't this a contradiction, if you calculated some value, according to you wouldn't it be irrelevant after the next tick?
I think he is saying you cannot predict it.. but you can watch what it decides to do..

Its like the theory of multi dimensions.. you see me walk down the road and take a right... well in a different dimension I take a left... and in another I was walking backwards.. and in another....

but what you can do is watch me take a left then decide on the route of action..

translated to the markets.. its going up.. I go long.. it starts going down I go down


but to anticipate when it will go up or down and try to enter long before its going long is anticipating and predicting




Problem being.. words are very misleading to the truth because words cannot explain the truth.. the truth is there are no words and the closer you get to the truth the harder it is to understand.

he says "predict" but in quantum levels that word does no exist.. so he is using words to the best of his ability to describe a truth that cannot be described. Point being forget his words and understand him on the level of a message he is trying to convey.
So...using a recent example that was on the news,

We can't predict when earthquakes will occur. However, we can objecetively calculate the effect it will have on civilization. Then we can use that data to plan a course of action to take.

Quoting newyear498
translated to the markets.. its going up.. I go long.. it starts going down I go down

but to anticipate when it will go up or down and try to enter long before its going long is anticipating and predicting
If the market's up and you long, isn't that still predicting? Instead of predicting when it will go up or down (aka turning points), you're predicting that it will continue its current course.

According to CP predicting the markets is futile, so that brings us back to square 1.

Maybe I'm nitpicking now, I don't know lol
Quoting lolpie
If the market's up and you long, isn't that still predicting? Instead of predicting when it will go up or down (aka turning points), you're predicting that it will continue its current course.
I agree with you.

Its all a matter of definitions and what each person understands or believes to be 'predicting' or 'non predicting'.

If we compare a train going north at a good pace and we jump on VS. a train heading south towards us and we jump on 'expecting' a change to northbound...

We either predict a change of direction or a continuation.

My opinion of course.

Unless you have a system that grinds profits irrelevant of direction, conditions, volatility,...hehe....that would be nice
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