options (finance)

[mistermuni]

rock1 check your privates

[The once and future king]

[ QUOTE ]
In a bull market, the trend is upward and the volatility is relatively lower with high predictability of movement. In a bear markert, the swings are crazy and predictability goes to hell. Systems that worked for predicting movements in a bull market are worthless. As far as trading goes, the market recently has DEFINITELY been a bull market.

[/ QUOTE ]

QFMT

[FakeKramer]

Wow there are a lot of uneducated, misinformed people in this thread pretending to be educated and informed.

[ QUOTE ]

Easy. Say I have 100 dollars. I keep the dollars as currency in a standard savings account for the period of the bull market. I earn X amount interest but the dollar has lost Y value.

Alternatively I invest that 100 dollars in the DOW at the start of the five year bull period, I show much better returns than the above example even accounting for dollar devaluation. Thus by putting $ into the DOW I have shown much much better returns than had I left my $ as $. This would not be the case had the market been bear.

I cant actually believe I am having this conversation.If you think the last 5 years have been a bear market you are in for some very rude awakenings. The idea that the last 5 years have been a bear market are at best just uninformed but at worst totally retarded.

[/ QUOTE ]

Bingo

[crashjr]

[ QUOTE ]
Wow there are a lot of uneducated, misinformed people in this thread pretending to be educated and informed.

[ QUOTE ]

Easy. Say I have 100 dollars. I keep the dollars as currency in a standard savings account for the period of the bull market. I earn X amount interest but the dollar has lost Y value.

Alternatively I invest that 100 dollars in the DOW at the start of the five year bull period, I show much better returns than the above example even accounting for dollar devaluation. Thus by putting $ into the DOW I have shown much much better returns than had I left my $ as $. This would not be the case had the market been bear.

I cant actually believe I am having this conversation.If you think the last 5 years have been a bear market you are in for some very rude awakenings. The idea that the last 5 years have been a bear market are at best just uninformed but at worst totally retarded.

[/ QUOTE ]

Bingo

[/ QUOTE ]

Those saying that the decline of the dollar relative to other currencies should be taken into account when comparing the market's overall return are not uneducated and misinformed, they just are not terribly good at making the point.

The point:

Merely by the act of holding dollars and operating in dollars, an investor (or anyone for that matter) is speculating in currency markets. In recent months, one major cost of trading in investment vehicles denominated in US dollars is the fall of the dollar relative to other currencies. The investments lose relative value just as the dollar does.

To be sure, calling the recent state of the US equities market a bear market is not accurate because the market has been expanding in a period of relative deflation. But the point that the relative decline of the US dollar should be taken into account when judging performance of an investment vehicle is a valid one and should not be dismissed out of hand.

[Kirkrrr]

Had a really great weekend in Mexico but now I'm back. Okay, some quick thoughts in reponse:

You make some good points and I take back what I said wrt you having no clue. You just have no clue exactly what "trading" involves, which is a different but a more forgivable sin.

[ QUOTE ]
Anyway that is irrelevant. My point was that for the past 5 years the market has been benign for day trading, it has been very predictable, so predictable that then need for selective bias is all most unnecessary to show a profit and a blind monkey throwing darts at a board could do it. (Where is this dealt with in this tread, swerved more like.)

[/ QUOTE ]

Intra-day action is very different from end-of-day results. You can look at the S&P going up a couple points every day and it would seem that the market is "benign" but intra-day the market is very volatile nevertheless. It doesn't steadily go up, it fluctuates pretty violently. Do this quick exercise: pull up an intra-day chart and scroll all the way to the left, to the beginning of the day. Then slowly start going right and seeing the day unfold. It's a cool picture.

Once you throw in some basic support and resistance levels, fibonacci retracements, and look at all of it in terms of volume as it's coming in and coming out (those are usually called "setups") you can in fact anticipate short-term price movements. As you pull out and look at the bigger picture you can anticipate and predict with a fair amount of accuracy longer-term trends as well. Bear in mind that the best traders have an efficacy rate of about 67%, ie the difference between being insanely rich and broke is not much greater than a coinflip, and yet it literally makes all the difference in the world. There are good reasons for that.

[ QUOTE ]
Obviously a blind monkey is less likely to make as much profit as someone with good selection bias but they would show a profit non the less.

[/ QUOTE ]

That's just plain retarded, and it's comments like this that make you look dumb. Avoid hyperboles, they rarely help your case in any situation.

[ QUOTE ]
Yes markets drop twice as fast as when they rise. But when those drastic drops occur historically they have allways caught the market by surprise, a few market players made some big bucks but the vast majority got burnt. You miss the pertinent fact about Bear markets, they are much more unpredictable than Bull markets, it is not the down trend that clears out investors, it is the unpredictability.

[/ QUOTE ]

It's the unpredictability in general that clears out investors, in both bull and bear markets. To provide a concrete example, see if you can sit down and figure out what the market will do by next month. You can't. In fact, no one can, traders or investors alike. And it is, in fact, the downtrend that clears out investors and traders love bear markets just as much as bull, if not more. It's a well known fact that traders thrive on markets that move, in either direction.

[ QUOTE ]
In a bull market, the shorts stand out against the calls in clear distinction

[/ QUOTE ]

...huh? You're somehow managing to mix being short stocks with some sort of options lingo which doesn't make much sense, at least to me. A lot of traders make a lot of money trading pure volatility (such as options) and that's done in any market. The average retail buy-hold-and-pray investor obviously does worse as vol increases.

[ QUOTE ]
Day traders are so out and behind of the information loop that it becomes very difficult for them to show profits in a bear market. This has been borne out many times and if you dispute the above point you are merely deluding your self.

[/ QUOTE ]

As always, you're confusing fundamental investing with technical trading. The inherent problem with fundamental investing is relying on unreliable information (ie Enron). With technical investing it's all there for you to see. Being able to correctly interpret it, however, is what separates the winners from the losers.

[ QUOTE ]
This is a total guesstimate admittedly but I would guess that for every 1000 would be self taught day traders 1 in 1000 has the intelligence, knowledge and skills to succeed in a true bear market.

[/ QUOTE ]

The figure I got from traders with decades of trading experience is 7.5% success rate, which would put the figure in your example at 75.

[ QUOTE ]
1: It is restricted by time

[/ QUOTE ]

Nah, not really. Yes, most traders like to end the day with no inventory, but if there's a good trend in place nothing would stop you from carrying it into the next day/week/month. We're not morons, y'know.

[ QUOTE ]
2: It is restricted by asset class

[/ QUOTE ]
You really need to let all the futures/options/commodities traders know that they can't be doing what they're doing. Just be aware that you will ruin careers, lives, and probably make whole firms go under in a day... on second thought, don't say anything.

[ QUOTE ]
Because I am not ignorant.

[/ QUOTE ]

You definitely have potential, once you become of an age where you stop blindly believing in what you know now - which please trust me isn't much and i'm not saying that out of malice - and start getting into the mindset that there's much to learn.

Bueno suerte,
Kirk

Edited for a little brevity's sake.

[Kirkrrr]

[ QUOTE ]
The point is that dollar movements don't make a market behave in a bearish way as it affects short term trading. If you were investing for long term growth, then you would absolutely be interested in how the dollar's movement affects the returns you get from American investments vs. foreign investments.

[/ QUOTE ]

As I'm sure you know "trading" isn't always intra-day. A lot of trades can take quite some type to span out and "currency risk" may come into play. This is obviously much less relevant when trading stocks and much more so with futures and forex trading. I should've been more clear when I made that point, and the resulting confusion is my fault.

[ QUOTE ]
Rather, they are focusing on those stocks because of easy to predict fluctuations.

[/ QUOTE ]

"Fluctuations" by their very nature are unpredictable, they are just noise which takes a lot of skill to separate from actual trends. Trying to trade "noise" is futile and is exactly what causes the demise of many traders. Those that stick around for the long run have learned how to ignore it. I, for one, am not at that stage yet [img]/images/graemlins/frown.gif[/img]

[ QUOTE ]
In a bull market, the trend is upward and the volatility is relatively lower with high predictability of movement.

[/ QUOTE ]

There is, sadly, no such thing as high predictability of movement. What you do is develop a skill set that lets you turn what's basically a 50/50 proposition - will it go up or down - into a coin slightly weighted in your favor.

Just think about it this way: in the current bull market we are having 90% of mutual fund managers will still fail to outperform the S&P. They are not stupid nor ignorant. There is a lesson there.

Yes, systems that worked in one market will not work in another type of market. That is called "system death." Knowing precisely which type of market you are currently in - and there is more than just bear and bull, believe it or not - is more difficult. It's easy to look at the past five years and nail it as "Hey, BULL market!!" The question is, where are we going to be a year from now. No one can say that confidently. Let me rephrase that: no one that knows what the [censored] they are talking about would say that confidently, and those that would try simply have no clue what they're talking about as the market is impossible to predict. The point I keep stressing is that it's not needed, the key lies in being able to correctly identify current trends in progress - on any scale, it being intra-day, weekly, or monthly - and implement the correct trading systems to trade in the current market. All of that is a gross oversimplification, by the way, but for the sake of brevity I'll just leave it at that.

Kirk