Stock Market-Flawwed thinking?

[pologuy64]

With the violiatily that the market is going through right now. I have notice something and wondered why it would or woudlnt work. I think it would but im asking if its flawwed?

There are now online sites like zecco were you can trade for free. i have notice that a few big names stocks have been going up and down by big amounts. Would it be possible to by the stock, (say GS for example) on a down day. Few days later when the stocks up 5.86 on the day sell it. and wait for it to go down again. I understand you need alot of money, Lets use 100k for example. If The stock doesnt make the move u want, u can just hold it cause its still a good stock in the long run. but with the violiaty right now. Is this a easy way to make some quick money or am i missing something?

[CHAx]

If you know which way a stock is going on any given one day, you would get paid millions of dollars a day. I'd say that is all you're missing.


If you sold it today, how do you know tomorrow its not going up further? I know your answer is, well gee I made money, why would I be greedy and hold it. And therin lies the problem with your thinking. Your opportunity cost of selling today would be huge if you sold it and it continued to go up. You would be sitting on the sideline waiting for a new spot to buy in; which may never surface. Alternatively, lets suppose you sold it today. Tomorrow its down -5.00 and you buy again. Now the following day its down another -5.00. Now what? Your problem is that you think you can make money with perfect hindsight. Hindsight is useless in the stockmarket.

[PairTheBoard]

I think this is called "Channel Trading". Identify a range a stock trades in then jump in and out at the extremes of the range. I see the method advertised and touted after a period where the market doesn't go anywhere for a while. When I see the advertisements I take it as an indicator that the market is about ready to make a big move. lol

PairTheBoard

[CHAx]

[ QUOTE ]
I think this is called "Channel Trading". Identify a range a stock trades in then jump in and out at the extremes of the range. I see the method advertised and touted after a period where the market doesn't go anywhere for a while. When I see the advertisements I take it as an indicator that the market is about ready to make a big move. lol

PairTheBoard

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The biggest problem is that the OP thinks this is easily exploitable and I only wanted to make the point that there are thousands of traders who are intelligent and experienced, and they struggle to accurately predict stock movements. This is not to say its impossible, but certainly much more difficult then the OP implies.


My post above is not that good, but I wanted to disuade the OP from attempting to do something that is probably a losing proposition for him.

[dopp16]

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am i missing something?

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If you could make money trying to time the market, nobody would ever work. There are two principles to understand.

First, by the time you notice a trend, or there has been a press release about a company, the price of the underlying stock has already been adjusted accordingly, so unless you have inside information it is impossible to speculate on the market value with any certainty.

Second, it would be great to know when a security has reached it basement price and is going to trend upward. There are market analysts who study the market every day and use terms such as "resistence levels" and "support levels" to determine when to buy and sell. But these levels are redefined retrospectively and are not accurate predictors of the price of the stock in any reliable way.

[NajdorfDefense]

[ QUOTE ]
[ QUOTE ]
am i missing something?

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There are two principles to understand.

First, by the time you notice a trend, or there has been a press release about a company, the price of the underlying stock has already been adjusted accordingly,

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This is oft-repeated, but totally false.

For an example, read Adds and Drops of Coveage, Does the Market Overreact?'
Kent Womack

http://papers.ssrn.com/sol3/papers.c...ract_id=960501

Abstract:
Sell-side analysts typically add coverage of firms that are more in demand by investors and have better operating performance, whereas they drop coverage of firms that score poorly on these dimensions.

We document, however, that the stock market overreacts to adds and drops of coverage. Adds in one year are followed by worse returns the next year, whereas drops are followed by better returns. The increase-decrease spread from this reversal is about five percent on average, and the reversal persists even when size, turnover, institutional ownership, momentum, valuation, or risk are held fixed.

We conclude that the stock market reads too much into analysts' coverage decisions and subsequently corrects itself."

Market overreaction and investor psychology are always going to be one of the core reasons that some investors will be able to outperform the indes. Mechanical [and perhaps technical] methods of analyzing the market are one way to help outperform.

[tendog]

GS went from 100 to 215 from Jan 2005 to its high.

so a 10 point drop is not necessarily a sale.

stocks are really cyclical.

uptrends last a lot longer than you think and downtrends lat longer than you think.

also moves in one direction tend to be larger than you think. either from people being over leveraged or "protecting their profits" if they had been in GS early.

in aggregate yeah its better to buy on a down day i suppose but it is not the basis for a successful trading strategy. especially one where you would need lots of leverage.

i used to day trade for a living. its easier and more enjoyable than poker however, its not as simple as buy on the down days.

[gull]

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There are now online sites like zecco were you can trade for free.

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No commissions does not mean free. You still lose money every time you trade (the bid-ask spread).