|
On July 16 2010 07:08 Hidden_MotiveS wrote:
Assume x = decimal chance of winning in this bet.
70x - (1-x)*85 = 0
85=155x
.54839~=x
Your dad needs to be right 55% of the time to break even. This is obviously the sites advantage (assuming they don't charge a transaction fee).
Your dad thinks that it is possible to predict the stock market, but in an interval of time of five minutes, stocks are very volatile (no?), and I doubt even many professional stock traders could do it well through skill alone.
I think you should look for sites disproving this type of trading as a scam, see what other people have had to say about it.
Then perhaps agree with your dad to stop playing poker if he stops gambling as well.
Anyone who took statistics knows this is absolutely correct. If your dad believes he can forecast markets 5 minutes in advance he should start a hedge fund.
|
16935 Posts
On July 17 2010 02:28 Glacierz wrote:Show nested quote +On July 16 2010 22:47 Empyrean wrote:On July 16 2010 07:07 Caller wrote:
2nd Grade Probability:
The very idea of "binary" options suggests that the chances of one or the other at any given time is around 50/50 (expected).
Just to reiterate what a previous poster pointed out, this is flawed. Whether or not the sun will rise tomorrow is a binary option. The chance of it rising tomorrow is virtually 100%, and the chance of it not rising tomorrow is virtually 0. Lol but the chance of some stock going up in the next 5 min is 50%. What point are you trying to make here?
No, the chance of a stock going up in the next five minutes isn't 50%, it depends a lot on the market. For example, after Consumer Reports recommended users to stay away from the iPhone 4, do you think the chance of Apple's stock going up in the next five minutes is 50?
|
Poker is not gambling simply based on statistics, how do some people make it to the final table on WSOP multiple times in their career? As long as there is like 5% skill and 95% luck you can still make money.
|
On July 17 2010 02:32 Empyrean wrote:Show nested quote +On July 17 2010 02:28 Glacierz wrote:On July 16 2010 22:47 Empyrean wrote:On July 16 2010 07:07 Caller wrote:
2nd Grade Probability:
The very idea of "binary" options suggests that the chances of one or the other at any given time is around 50/50 (expected).
Just to reiterate what a previous poster pointed out, this is flawed. Whether or not the sun will rise tomorrow is a binary option. The chance of it rising tomorrow is virtually 100%, and the chance of it not rising tomorrow is virtually 0. Lol but the chance of some stock going up in the next 5 min is 50%. What point are you trying to make here? No, the chance of a stock going up in the next five minutes isn't 50%, it depends a lot on the market. For example, after Consumer Reports recommended users to stay away from the iPhone 4, do you think the chance of Apple's stock going up in the next five minutes is 50?
You are wrong, you will not be able to trade that information unless you have insider information. Price auto adjust as soon as that report is released, and you have nothing to gain unless you SPECULATE what the report is going to say before it gets released.
Simple example: if report released 5.00001 minutes before, stock go up 5.0000000001 minutes before option expire, you enter option at the adjusted price at 5 min mark, you have no new info to trade on.
if report release after you enter the option, then you don't know what the report will say when you enter the option. Hence there is nothing but gambling in this game.
|
16935 Posts
On July 17 2010 02:33 Glacierz wrote:
Poker is not gambling simply based on statistics, how do some people make it to the final table on WSOP multiple times in their career? As long as there is like 5% skill and 95% luck you can still make money.
Right. Everyone who plays poker at a decent enough skill level knows all the underlying statistics. When it gets to top levels like that, players are all competing against each other. I'd say at the highest levels it's much more skill than luck. Sure you may be dealt an unlucky hand, but as long as you have the skill to convince others otherwise, you'll come out ahead.
EDIT: In response to your most recent post, I suppose you're correct.
|
My suggestion is over the long run, your dad will run a net loss. He currently does not have enough data history for this statistics to become reality, but in time it will prove your point. Just give him some time.
|
The "patterns in the stock price" discussion is silly: to the extent they do develop and are predictable, they are arbitraged away in milliseconds - some 75% of trading in the US now is the so called "algorithmic trading". This means at any given time the price is really close to reflecting the "fair" value of sorts, including any "pattern" information.
|
On July 17 2010 02:32 Empyrean wrote:Show nested quote +On July 17 2010 02:28 Glacierz wrote:On July 16 2010 22:47 Empyrean wrote:On July 16 2010 07:07 Caller wrote:
2nd Grade Probability:
The very idea of "binary" options suggests that the chances of one or the other at any given time is around 50/50 (expected).
Just to reiterate what a previous poster pointed out, this is flawed. Whether or not the sun will rise tomorrow is a binary option. The chance of it rising tomorrow is virtually 100%, and the chance of it not rising tomorrow is virtually 0. Lol but the chance of some stock going up in the next 5 min is 50%. What point are you trying to make here? No, the chance of a stock going up in the next five minutes isn't 50%, it depends a lot on the market. For example, after Consumer Reports recommended users to stay away from the iPhone 4, do you think the chance of Apple's stock going up in the next five minutes is 50?
Then how do you know if a consumer report is coming out on the iphone with positive or negative info within the next 5 mins? Like everyone says.. stock prices are a random walk in the short term.
|
thedeadhaji
39489 Posts
yup, "short term" is definitley the key here.
|
|
|
I risk getting some mod action for this post, but I haven't seen anyone give a good enough answer. Let me try to explain:
Like retail scalping, binary options are bets against the house. This is different from actual trading, because in actual trading, you're taking money from other participants. However, binary option brokers, or "bucket shops", are the source of liquidity for those that partake in their services. If you make enough money, you will not be able to trade with them anymore because you are literally taking their money. (Jesse Livermore)
Retail scalping is taking the retail brokers money because the liquidity in the retail market is mostly provided by the retail broker itself. So, if you hold a position only for a few seconds for a news event, like the RBA rate cut hours ago, and then sold after profit, that profit would literally be coming out of the retail broker's pocket.
Some of the big brokers which allow retail trading have been in trouble for manipulating their platforms and such. They are in the business to make money, and will do things to prevent you from taking their money. (Not that they trade to make money, but the services they provide make them money.) They won't directly take the money out of the account, but if you have a stop order on your account, they can have a program which may have the price shown on your platform specifically hit the stop, even if the major inter-banks prices never did. They can make an EA stop being profitable because they will know how it works.
Btw, how is your dad doing?
|
Hi PanoRaMa,
I've been a mid stakes cash poker player for several years now. I would say we have similar understanding of EV and variance.
Recently I have investigated daytrading, and what your dad does is one form of it. There are many different betting structures such as the binary options your dad is doing, but ultimately it all boils down to whether you can predict short term movement in the market.
This is my take on daytrading: I came into looking at daytrading with extreme skepticism. Unlike poker, where +EV plays are clear, I couldn't see where a daytrader gets his edge. After a few months of reading forums/ebooks/talking to people, I STILL haven't found how a daytrader gets his edge. I've read some technical / fundamental / sentimental analysis tricks but I've yet to find anything that is a certain mathematical edge like we can find in poker.
However on the other hand, there are ALOT of daytraders. And even a lot of people claiming to be long term successful daytraders. So that suggests there may be some winning strategies out there, but until I find one I'm not convinced. It's also possible that there is no edge, and all these winning daytraders are just on the good side of variance.
I would say there's about 10% chance your dad actually has found some kind of strategy which gives him enough of an edge that he can overcome the 5% rake. The fact that your dad already knows some strategy for mid and long term investing in stocks makes this more possible. There's an 80% chance its impossible to have any edge in daytrading and your dad is just gambling. Theres a 10% chance you can have an edge in daytrading, but your dad hasn't found a successful strategy and his pseudo-strategy is nonsense and he's really just gambling.
I recommend you ask him to teach you how to daytrade. Then you'll have a better understanding of which of the above scenarios I mentioned we are dealing with here. If there really no edge in daytrading, you should be much better equiped to point out logical fallacies in his strategy from your poker training. This will be the best way to convince him at least that his strategy doesn't make sense. You may also discover that your dad indeed does have a real strategy that can be winning long term. This is an even better outcome - you've just found your next career after poker becomes unprofitable in 5-10 years time.
Rangi
|
Interestingly, until a while ago, some of the major binary option market makers actually had mispricings in their model, which made certain FX one-touch options very attractive and +EV. (i know this because some hedgie friends of mine used to make some massive bets on these regularly)
However, i digress.
Retail trading is mostly a scam. The bid/offer spread you have to pay up pretty much eats all possible edge you can think of, and the shorter term you get, the worse you get eaten by the spread
Broker/spreadbetting companies wow people with fancy charts and colours to make people think that they can trade/have an edge, when there is no edge to be had in the first place.
Retail daytrading is basically trying to play poker with a 20% rake. Not saying you can't win but... uh yeah you can't win lol. Pay a huge desk fee, deposit 100k, a fibre optic co-located connection with appropriate software and rebate schemes can get your costs down to the more reasonable 5% rake (or whatever arbitrary equivelant) - and then you enter the world of locals (historically used to describe prop traders in the pit, but obviously these days the same guys but on the screen). Then you have a chance. In a game where still, 95% of fully equipped locals still end up quitting/losing everything
And that's in a fair environment. You have no idea how shady these guys can get once you start trading any kind of reasonable size with regards to slippage, cancelled orders and other credit risk shenanigans
|
The only way I've found to make money at the stock marked is using technical analysis, however how stupid people want you to believe it is.
"double bottom" and "double top" are two good things to keep an eye out for.
And buy stocks in companies that make money, don't chase after "cheap" stocks in loser companies, which most people actually do.
Anyway, I've been a daytrader actually, and I specialized in one specific stock.
I made tons of money by just staring into the computer screen day after day..it was boring as hell, but you pick up on certain patterns.
I had to quit because in the end I traded with so much money that I just couldn't handle it in my head.
Believe it or not, losing money wasn't what made me quit, I was not being in the stock when it rocketed.
A shareholder was selling an insane amount, and the stock had plummeted for days...I predicted the price go up when he quit, which it did.
I had 200.000 NOK ready to invest, and wait 3 days and sell.
Everything went according to plan...absolutely everything, but I just didn't have the balls to buy, because it just kept falling and falling.
The seller quit, the price went up from 5.8 to over 10 NOK (on day 3, as I'd predicted).
If I had followed my plan, I would have made a lot of money.
But I just failed.
Thats when I found out I didn't have what it took 
|
On December 06 2012 08:49 Epicfailguy wrote:The only way I've found to make money at the stock marked is using technical analysis, however how stupid people want you to believe it is. "double bottom" and "double top" are two good things to keep an eye out for. And buy stocks in companies that make money, don't chase after "cheap" stocks in loser companies, which most people actually do. Anyway, I've been a daytrader actually, and I specialized in one specific stock. I made tons of money by just staring into the computer screen day after day..it was boring as hell, but you pick up on certain patterns. I had to quit because in the end I traded with so much money that I just couldn't handle it in my head. Believe it or not, losing money wasn't what made me quit, I was not being in the stock when it rocketed. A shareholder was selling an insane amount, and the stock had plummeted for days...I predicted the price go up when he quit, which it did. I had 200.000 NOK ready to invest, and wait 3 days and sell. Everything went according to plan...absolutely everything, but I just didn't have the balls to buy, because it just kept falling and falling. The seller quit, the price went up from 5.8 to over 10 NOK (on day 3, as I'd predicted). If I had followed my plan, I would have made a lot of money. But I just failed. Thats when I found out I didn't have what it took
200.000 NOK seems like a REALLY large amount for 1 trade. I was under the impression for trading, you shouldn't risk more than a small % of your bankroll on a single trade. Something like 1-5% (I'm guessing).
You say you have been a successful daytrader, how long did you do it for? And can u estimate for me how many trades in total you have done? 10s? 100s? 1000s?
Rangi
|
So you dad thinks his lone judgement can outdo investment institutions that run DTF optimization/quant models with better assumptions all day long and STILL can go under due to uncertainties in the market.
Ok.
|
On December 06 2012 08:49 Epicfailguy wrote:The only way I've found to make money at the stock marked is using technical analysis, however how stupid people want you to believe it is. "double bottom" and "double top" are two good things to keep an eye out for. And buy stocks in companies that make money, don't chase after "cheap" stocks in loser companies, which most people actually do. Anyway, I've been a daytrader actually, and I specialized in one specific stock. I made tons of money by just staring into the computer screen day after day..it was boring as hell, but you pick up on certain patterns. I had to quit because in the end I traded with so much money that I just couldn't handle it in my head. Believe it or not, losing money wasn't what made me quit, I was not being in the stock when it rocketed. A shareholder was selling an insane amount, and the stock had plummeted for days...I predicted the price go up when he quit, which it did. I had 200.000 NOK ready to invest, and wait 3 days and sell. Everything went according to plan...absolutely everything, but I just didn't have the balls to buy, because it just kept falling and falling. The seller quit, the price went up from 5.8 to over 10 NOK (on day 3, as I'd predicted). If I had followed my plan, I would have made a lot of money. But I just failed. Thats when I found out I didn't have what it took
I find it kind of funny how you say that technical analysis is the only way to make money, when in fact you used a very simple piece of market psychology (huge seller liquidates his position/stops selling) to have a view on the stock price
Personally i think coming up with "winning" ideas is actually very simple. There are some products which are absurdly simple to trade (like interest rate boxes), it's just the majority of people fuck up on the bit that actually matters (executing the price you want, keeping your costs down, bankroll management etc.)
![[image loading]](http://img84.imageshack.us/img84/7910/gasfoil.jpg)
Case in point, this is the kind of stuff i trade. It's really not hard, you sell at the top of the range and buy the bottom lol. No technicals, no fundamentals (not directly)
Unfortunately, you'll never have access to this product as a retail trader (unless you pay up HUGE costs, in which case you'll make zero). And even for those who do trade it, everyone fucks up by executing the wrong price, doing it too large in size, stopping out at the top and bottom, not watching out for the physical traders who actually move these things in the first place), being impatient (look at the timeframe, i'm literally holding these for weeks to make a tick)
Like, sometimes we get new guys in the office and they are lost, and i'll just show them a random chart of something that people are trading. In a lot of ways it's really simple, you can immediately see your edge and you should be able to experience what goes wrong if you try to execute it
Trading is (and honestly, should be), as boring and as simple as knowing your edge immediately (mean reversion in a fly in this case) and just selling the top and buying the bottom of that product lol
edit:
FYI, if you were to try and do this fly through a normal broker or any other kind of IR fly, the minimum spread on the outright alone will be like 3 ticks wide
That would basically mean even if the pictured product is trading at the ABSOLUTE bottom of the range, your spread as a normal person would mean you would be paying the top of that range to buy it IF you have a good broker.
|
The most reliable way to make profit in the stockmarket is go the index long and stay long.
If you can do fundamental research you could pick stocks individually, though i dont think annyone here is capable of doing high quality fundamental research.
Trading short term on technical indicators is gambling , just like poker is though there are not manny people willing to admit this, and manny dont even recognise this.
Your dad should stop trading binary options because of the costs structure.
Like someone else said in this thread, its like playing poker with a 20% rake.
The most efficient way to trade is with futures.
|
If i read correctly his dad has made 2500 so far. I know you would like to convince your dad to stop but as long as he isn't stupid and continues to bet when he is in the hole, then i don't really see a problem with it.
|
This seems like its the same thing as a long straddle, where you buy a call and put option together so you profit when the stock moves significantly in either direction. The only way to "beat" the options market on these kinds of trades is for you to understand their models and where it is flawed, so you can exploit the flaws. That is, your dad better have a good understand of schotastic differential equations, probability modeling, and the modified Black-Scholes formula. The guys on the other side of the trade are probably all quant geeks with financial engineering degrees from MIT. Honestly this trade seems like a good way to get screwed very quickly.
|
|
|
|
|
|
EPT
