Paired Trade

[PassiveCaller]

[ QUOTE ]
I'm not playing every hand hoping to get lucky. I'm playing the probabilities. History shows the probability of six consecutive down days is tiny. Technical bounce, bargain hunters emerging, whatever you want to call it, the market usually does not go straight down day after day after day after day, etc.

Mr. Market might hit his one outter, but if he does, at least I'm not all in.

[/ QUOTE ]

I hope this is a joke.

[MrBlue]

The market, unlike a coin toss, is not completely random. If you have enough people believing it will bounce and betting money on it then it will bounce.

[hawk59]

[ QUOTE ]
The market, unlike a coin toss, is not completely random. If you have enough people believing it will bounce and betting money on it then it will bounce.

[/ QUOTE ]

It takes people a while in their investing careers to realize this. But once they learn that is when they can make money. The more people that believe the market will bounce the higher it bounces. If everyone believes the market bounces then it bounces really high, and EVERYONE makes money.

[Groty]

[ QUOTE ]
[ QUOTE ]
I'm not playing every hand hoping to get lucky. I'm playing the probabilities. History shows the probability of six consecutive down days is tiny. Technical bounce, bargain hunters emerging, whatever you want to call it, the market usually does not go straight down day after day after day after day, etc.

Mr. Market might hit his one outter, but if he does, at least I'm not all in.

[/ QUOTE ]

So you're saying if you flip a coin 5 times and it comes up heads everytime, that it's more likely to be tails the 6th flip?

-SmileyEH

[/ QUOTE ]

Nope. That's not what I'm saying. The other guy used a poker analagy so I tried to frame my response in poker related terms. Unfortunately, you are taking a literal interpretation of my language. I'll try again.

Markets are made of people. Prices are determined by people making self interested buy and sell decisions for the purpose of making gains or avoiding losses. Those decisions are usually not made by flipping a coin. Rather, they are normally motivated by emotions: fear and greed.

When a selloff occurs, fear is high, but there are always people motivated by greed to step in and take the other side of the trade. The same thing on the second day and each subsquent day of a sell off. At some pont, greed becomes the dominating emotion and the market bounces.

We know it's been 14 years since we've had 8 consecutive down days in the NAZ. I concluded, then, that since the NAZ had been down 7 consecutive days, we were getting close to the tipping point where greed would take over.

I don't know how better to explain it. Sorry if the poker analagy and the use of the word "probabilities" confused you.

[PassiveCaller]

Groty,

So your point is that the market will not go down forever, and that most of the time it will only go down XX days. The problem is even if this is true this does nothing to project the current conditions any better and the XX days is not going to necessarily be 6, or 7, or 8 no matter what the past. Yes the dip will encourage some market traders to take shots but this is a vast over simplification and not very useful.

This is dangerous speculation. You could easily be left muttered "What are the odds of that?" and in reality you'll never know since even though I'm a believer the market is just the past with a new twist on it. There's a lot of twists to each downswing. What if things had been running well for several years and this is the first they've seen and a large population of traders has extra cold feet or even begins to panic.

Predicting the madness of the masses with such basic knowledge seems futile in the long run.

[Groty]

I absolutely admit I am taking a shot. Pure speculation that the market was oversold and due for a technical bouce, based on history. It's a very short term trade. I'm not married to it. I'm closing it out next week if my stop doesn't get triggered in the interim.

As for this dangerously speculative trade, I explained that if I was wrong and the market did go down today, then I am protected on the downside with a stop loss order at 110. If the stop is triggered, I still book a profit on the total trade. That's not a horrible outcome.

[Paluka]

[ QUOTE ]

We know it's been 14 years since we've had 8 consecutive down days in the NAZ. I concluded, then, that since the NAZ had been down 7 consecutive days, we were getting close to the tipping point where greed would take over.


[/ QUOTE ]

How many times has it been down 7 days in a row? If it had been down 7 days in a row 5 or 6 times and never 8, then maybe your argument has some validity. Otherwise, it is completely meaningless.

[Groty]

Right. It goes down 7 consecutive days on above average volume. It's "completely meaningless" to think that the selling MIGHT be nearing and end by the 8th day.

Thank you for your compltely meaningless contribution to the thread.

[Sniper]

Groty...

At what point will you put the paired trade back on?

[chardog]

[ QUOTE ]

Rather, they are normally motivated by emotions: fear and greed. When a selloff occurs, fear is high, but there are always people motivated by greed to step in and take the other side of the trade. The same thing on the second day and each subsquent day of a sell off. At some pont, greed becomes the dominating emotion and the market bounces.

[/ QUOTE ]

I would be interested to know what people on this board think of the above statement. I would disagree that someone who is accumulating shares in a market sell-off is being motivated by greed. Further, I believe that market bottoms (and bounces) usually coincide with high levels of fear as the dominating emotion, not greed. Conversely, I would consider someone accumlating/holding shares at a market climax to be motivated by greed and that low levels of fear generally accompany the end of these market run-ups/tops.