Do We Really Need Strategy to Max. Our Profit?

[wmck6167 10]

If we have strategy on investment or trading, we feel better to face the uncertainty in the market. But Do we really need to play the strategy around to maximum our profit? It’s a very interesting question.

 

Here is what they say:

 

Mr. Warren Buffet: “Our favorite holding period is forever.” Warren plays for keeps and making amazing gains, like his, takes time.

 

Mr. Phil. Fisher: “…staying through all the fluctuations of a gyrating market proved far more profitable to far more people than did the more colorful practice of trying to buy them cheap and sell them dear.”

 

So when next trend is coming… You may play around with fancy strategy or just buy low and keep…see which one will win! Cheers.

[Niko 10]

Perhaps the market is tougher now, and yes you need a strategy, unless you wanted to invest 1 dollar in 2000 to get 1 dollar 13 years later.

 

[MaksymGra 10]

Perhaps the market is tougher now, and yes you need a strategy, unless you wanted to invest 1 dollar in 2000 to get 1 dollar 13 years later.

 

 

But why should we hold up for investment for 13 years?

 

I think you must try strategies now and then, but stick to few of them and try them for longer periods of time, rather than jumping every day or week and using 100+ signals weekly/bi-weekly/monthly.

[DionysusToast 10]

Perhaps the market is tougher now, and yes you need a strategy, unless you wanted to invest 1 dollar in 2000 to get 1 dollar 13 years later.

 

 

Good point.

 

There is a method called "AIM" that makes you money during these periods but of course will make you less if ti goes straight up.

 

Holding forever is still a strategy, in fact the only "no strategy" is not trading.

 

Even as a day trader, it seems to me the most important decision you have to make is which mode the market is likely to be in right now. That's before you even think about where to get in and where to get out.

[sergso 10]

Perhaps the market is tougher now, and yes you need a strategy, unless you wanted to invest 1 dollar in 2000 to get 1 dollar 13 years later.

 

 

He forgot the dividend payouts. Typical mistake of a trader who never invested any money in stocks.

[Niko 10]

He forgot the dividend payouts. Typical mistake of a trader who never invested any money in stocks.

 

If you are good at trading dividends are the last of your worries. Good luck making 5% yearly on div yields. I guess that is a good strategy.

[sergso 10]

If you are good at trading dividends are the last of your worries. Good luck making 5% yearly on div yields. I guess that is a good strategy.

 

Niko, dividends are not traded, they are handed to you as a bonus for staying invested for a long time. If someone bought the S&P 500 basket or for example VOO, the dividend payment is about 2.5% - 3% annually for the period in your chart. That is a lot of dough if someone invested millions and given that inflation has stayed low..

[Ammeo 10]

A strategy is not necessarily required but whats always required is common sense and a plan....there is a difference between a strategy and a plan..a strategy is specific with not much room for a change but a plan has room for changes with situation to situation......

[M.A 10]

Yes we do even if this strategy is to hold a stock forever or for one day. There has to be a plan and then implementation of that plan. This whole process makes up a strategy. It is not like you buy stock and then keep it forever in hope that it will go up which may or may not happen even in 10 years.

 

No doubt that position traders have far more chances of winning than scalpers. But it doesn't mean they do not have a strategy.

[Larry1234 10]

IMO we should definitely have a strategy to reduce our losses.

[Gekko78 10]

What if your strategy is to have no strategy , what then?

 

What if you believe price is random and you just just random?

 

No , I do not trade like this but just curious ....I am sure there has been some kind of test or something where a person just went in a bought/ sold for no reason other than to just do it.

 

I believe , and others argue my point , that trading in the end is 50/50 ..... eventually you will either win or lose there really are no other alternatives ( hence the word EVENTUALLY)

[Ammeo 10]

More than strategy we need market awareness and common sense.

[ticks 10]

The "arguement" that the market is either a "random walk" or "predictable" goes on almost forever with knowledgeable proponents on both sides. I have traded for a long time -- always trying to predict market direction and cycles using technical indicators and charting techniques. The old quest for the "holy grail". The more experienced, and fortunately the more consistently profitable I have become, the more I find myself in the Random Walk camp. So if no-one can in fact predict the markets with consistency then why should we not turn to strategy to "trump" direction. Strategy will take out the need for directional predictions. It also allows for trading without the need of stops for exits. Stops are really "evil" as the stops take us out of trades prematurely either with a smaller win or sometimes a bigger loss if chosen incorrectly. Strategy selection allows for mechanical trading without the need to be right on market direction.

 

By now you are saying "all well and good" but is what i have written correct? Is it probable? Can it be demonstrated and shown to be correct? Yes. Consider the fact that there are hundreds and even thousands of charting tools and indicators -- often presented by trading "gurus". Why is then is it that most traders who employ the use of indicators lose in the long run? Who do you know that can cosistently predict market direction better than a 50/50 choice?

 

Strategy trumps Direction. The markets can go up down or sideways. No-one knows for sure. Strategy permits making money even if you are wrong on your direction prediction.

 

This thread was well started as it may save traders years of frustration and thousands of dollars pursuing statistically wrong approaches. I hope that traders will finally come to the understanding that what they are doing results in trading against the odds of winning and change their thinking to what really makes statistical sense.

 

Sorry if you believe that I am preaching. I just offer this as a result of being in the trading trenches for years -- mostly at a loss -- until I was guided to strategic trading. BTW please don't think I am trying to sell any system or that I have "an axe to grind" which will line my pockets with your gold.

[BlueHorseshoe 10]

So if no-one can in fact predict the markets with consistency then why should we not turn to strategy to "trump" direction.

 

Hi Ticks,

 

This is an interesting post. Some types of strategy involve simple directional "prediction", while others don't. It would be helpful if you could provide a little more basic information about the kinds of strategy that you employ to trade without needing to predict market direction - are we talking arbitrage, market making, something with options?

 

I certainly agree with your other point - hard stops are indeed evil!

 

BlueHorseshoe

[tradingwizzard 10]

If we have strategy on investment or trading, we feel better to face the uncertainty in the market. But Do we really need to play the strategy around to maximum our profit? It’s a very interesting question.

 

Here is what they say:

 

Mr. Warren Buffet: “Our favorite holding period is forever.” Warren plays for keeps and making amazing gains, like his, takes time.

 

Mr. Phil. Fisher: “…staying through all the fluctuations of a gyrating market proved far more profitable to far more people than did the more colorful practice of trying to buy them cheap and sell them dear.”

 

So when next trend is coming… You may play around with fancy strategy or just buy low and keep…see which one will win! Cheers.

 

it depends very much on the type of person you are too, and the size of your investment portfolio........if you invest a small amount that 10 percent ROI may be too little for you to hold the investment on the long run.........however, investing a large amount for 1% may be much more rewarding

[wmck6167 10]

it depends very much on the type of person you are too, and the size of your investment portfolio........if you invest a small amount that 10 percent ROI may be too little for you to hold the investment on the long run.........however, investing a large amount for 1% may be much more rewarding

 

Thanks for sharing your feeling about the profit impact on the trading, but just sometime, Is it a wonderful feeling to forget the money you earn during the trading time frame? I think you may agree with it.

 

There is a opinion from a old book:

"The control of a large force is the same principle as the control of a few men: it is merely a question of dividing up their numbers. it is merely a question of instituting signs and signals......" Cheers,

[ticks 10]

Hi Ticks,

 

This is an interesting post. Some types of strategy involve simple directional "prediction", while others don't. It would be helpful if you could provide a little more basic information about the kinds of strategy that you employ to trade without needing to predict market direction - are we talking arbitrage, market making, something with options?

 

I certainly agree with your other point - hard stops are indeed evil!

 

BlueHorseshoe

 

I trade as if the markets are cyclical -- the price is hard to predict but we do see movement either up down or sideways. So therefore I do not try and pick a direction but instead chose a strategy that allows me to have]both sides of the market. So to accomplish this I use different strategies depending on choice of the underlying. For example using a future contract long on the ES and buying 2 ES puts to have a close to equal market exposure which may be measured with the delta on the options and the delta of the future being close to zero delta. Now with that position the market is eventually going to give me a profit on one side -- either the puts benefit from a move down in price of the future or the long future will give me a profit on a price move up.I can monitor this with the change in delta and when the delta changes by 8 or 10 I capture that profit by adjusting the trade back to the original deltas. On the ES this provides a profit of say $200 and I then wait for the market to move however it wishes until the delta again changes to offer another profit opportunity. Another strategy which I use will be a pairs trade -- such as trading 2 NQ contracts short against 1 ES contract short. The ratio can be 2 to 1 or 5 NQ to 2 ES futures. So again the strategy is non-directional and is based on the belief that markets are cyclical. The ratios are based on the point values: 20.00 a point on the NQ and 50,00 a point on the ES. So 5 NQ's equal $100 and 2 ES contracts equal $100. On the 2 to 1 ratio it is close enough as then it is $40 vs. $80. I have a mechanical system to pick which contract I will chose short and which one long -- but it really doesn't matter -- again to the fact that the NQ and ES normally trade in lockstep so when there is divergence (one stronger than the other) there will be a reversion to the mean. In all my trades I need no stops and both of these as examples illustrate the fact that duration trumps direction. These trades give me "time to be right" and will not shake me out of a winning trade with a stop being hit. Perhaps this very confusing to those who hold to the belief that the proper way to trade is to pick a direction and use a stop. I can demonstrate the profitability of this strategy of trading easily by showing actual live examples but that will necessitate some way of posting live trades. Meanwhile just try it in a paper account and you will see it is hard to lose money. Another advantage to these trades is the fact that you receive about 85% margin relief from the clearing firm. This proves that the trades carry much less risk as the margin is to protect the broker from loss. I hope this illustrates the point in a way that makes it somewhat clear. There are rules that make the trades very mechanical and when followed it generally produces consistent profits. The more volatile the markets you trade the more opportunity for profit. So CL (crude oil futures) works well. The reason, of course, is the more swings (since you are holding both sides long and short) the more opportunities to take profits and readjust your trade deltas. Now you can easily see that you have profit on one side of the trade and a loss on the other side of the trade and therefore how can that produce profits. The answer is in the cyclical nature of the markets -- you take profits mechanically when the market gives you the profit and you are left with an "unrealized loss" on the opposite side of the trade. Then the market eventually swings the other way and the loss on that side becomes a profit and you "rinse and repeat". I doubt that many will grasp this from this post but hopefully at least it will shed some light on the subject.

[M.A 10]

What if your strategy is to have no strategy , what then?

 

What if you believe price is random and you just just random?

 

No , I do not trade like this but just curious ....I am sure there has been some kind of test or something where a person just went in a bought/ sold for no reason other than to just do it.

 

I believe , and others argue my point , that trading in the end is 50/50 ..... eventually you will either win or lose there really are no other alternatives ( hence the word EVENTUALLY)

 

50/50 is the ideal situation which will happen rarely and yes u will either loose or win if u trade randomly. In the end result will be either in favor of loss or profit. But who would take risk, with real money, to test if he makes profit or not. This can obviously be tested on demo if someone has enough time.

I believe no one has enough time to test this randomness for a long period.

[tradingwizzard 10]

50/50 is the ideal situation which will happen rarely and yes u will either loose or win if u trade randomly. In the end result will be either in favor of loss or profit. But who would take risk, with real money, to test if he makes profit or not. This can obviously be tested on demo if someone has enough time.

I believe no one has enough time to test this randomness for a long period.

 

of course it is 50/50......in the end, you have only two choices.......to BUY or to SELL.........right?

[tradingwizzard 10]

I trade as if the markets are cyclical -- the price is hard to predict but we do see movement either up down or sideways. So therefore I do not try and pick a direction but instead chose a strategy that allows me to have]both sides of the market. So to accomplish this I use different strategies depending on choice of the underlying. For example using a future contract long on the ES and buying 2 ES puts to have a close to equal market exposure which may be measured with the delta on the options and the delta of the future being close to zero delta. Now with that position the market is eventually going to give me a profit on one side -- either the puts benefit from a move down in price of the future or the long future will give me a profit on a price move up.I can monitor this with the change in delta and when the delta changes by 8 or 10 I capture that profit by adjusting the trade back to the original deltas. On the ES this provides a profit of say $200 and I then wait for the market to move however it wishes until the delta again changes to offer another profit opportunity. Another strategy which I use will be a pairs trade -- such as trading 2 NQ contracts short against 1 ES contract short. The ratio can be 2 to 1 or 5 NQ to 2 ES futures. So again the strategy is non-directional and is based on the belief that markets are cyclical. The ratios are based on the point values: 20.00 a point on the NQ and 50,00 a point on the ES. So 5 NQ's equal $100 and 2 ES contracts equal $100. On the 2 to 1 ratio it is close enough as then it is $40 vs. $80. I have a mechanical system to pick which contract I will chose short and which one long -- but it really doesn't matter -- again to the fact that the NQ and ES normally trade in lockstep so when there is divergence (one stronger than the other) there will be a reversion to the mean. In all my trades I need no stops and both of these as examples illustrate the fact that duration trumps direction. These trades give me "time to be right" and will not shake me out of a winning trade with a stop being hit. Perhaps this very confusing to those who hold to the belief that the proper way to trade is to pick a direction and use a stop. I can demonstrate the profitability of this strategy of trading easily by showing actual live examples but that will necessitate some way of posting live trades. Meanwhile just try it in a paper account and you will see it is hard to lose money. Another advantage to these trades is the fact that you receive about 85% margin relief from the clearing firm. This proves that the trades carry much less risk as the margin is to protect the broker from loss. I hope this illustrates the point in a way that makes it somewhat clear. There are rules that make the trades very mechanical and when followed it generally produces consistent profits. The more volatile the markets you trade the more opportunity for profit. So CL (crude oil futures) works well. The reason, of course, is the more swings (since you are holding both sides long and short) the more opportunities to take profits and readjust your trade deltas. Now you can easily see that you have profit on one side of the trade and a loss on the other side of the trade and therefore how can that produce profits. The answer is in the cyclical nature of the markets -- you take profits mechanically when the market gives you the profit and you are left with an "unrealized loss" on the opposite side of the trade. Then the market eventually swings the other way and the loss on that side becomes a profit and you "rinse and repeat". I doubt that many will grasp this from this post but hopefully at least it will shed some light on the subject.

 

amazing post, I find it really good........seriously

[SIUYA 11]

I trade as if the markets are cyclical -- the price is hard to predict but we do see movement either up down or sideways. So therefore I do not try and pick a direction but instead chose a strategy that allows me to have]both sides of the market. So to accomplish this I use different strategies depending on choice of the underlying. For example using a future contract long on the ES and buying 2 ES puts to have a close to equal market exposure which may be measured with the delta on the options and the delta of the future being close to zero delta. Now with that position the market is eventually going to give me a profit on one side -- either the puts benefit from a move down in price of the future or the long future will give me a profit on a price move up.I can monitor this with the change in delta and when the delta changes by 8 or 10 I capture that profit by adjusting the trade back to the original deltas. On the ES this provides a profit of say $200 and I then wait for the market to move however it wishes until the delta again changes to offer another profit opportunity. Another strategy which I use will be a pairs trade -- such as trading 2 NQ contracts short against 1 ES contract short. The ratio can be 2 to 1 or 5 NQ to 2 ES futures. So again the strategy is non-directional and is based on the belief that markets are cyclical. The ratios are based on the point values: 20.00 a point on the NQ and 50,00 a point on the ES. So 5 NQ's equal $100 and 2 ES contracts equal $100. On the 2 to 1 ratio it is close enough as then it is $40 vs. $80. I have a mechanical system to pick which contract I will chose short and which one long -- but it really doesn't matter -- again to the fact that the NQ and ES normally trade in lockstep so when there is divergence (one stronger than the other) there will be a reversion to the mean. In all my trades I need no stops and both of these as examples illustrate the fact that duration trumps direction. These trades give me "time to be right" and will not shake me out of a winning trade with a stop being hit. Perhaps this very confusing to those who hold to the belief that the proper way to trade is to pick a direction and use a stop. I can demonstrate the profitability of this strategy of trading easily by showing actual live examples but that will necessitate some way of posting live trades. Meanwhile just try it in a paper account and you will see it is hard to lose money. Another advantage to these trades is the fact that you receive about 85% margin relief from the clearing firm. This proves that the trades carry much less risk as the margin is to protect the broker from loss. I hope this illustrates the point in a way that makes it somewhat clear. There are rules that make the trades very mechanical and when followed it generally produces consistent profits. The more volatile the markets you trade the more opportunity for profit. So CL (crude oil futures) works well. The reason, of course, is the more swings (since you are holding both sides long and short) the more opportunities to take profits and readjust your trade deltas. Now you can easily see that you have profit on one side of the trade and a loss on the other side of the trade and therefore how can that produce profits. The answer is in the cyclical nature of the markets -- you take profits mechanically when the market gives you the profit and you are left with an "unrealized loss" on the opposite side of the trade. Then the market eventually swings the other way and the loss on that side becomes a profit and you "rinse and repeat". I doubt that many will grasp this from this post but hopefully at least it will shed some light on the subject. [/quote

 

I follow what you're saying.But how do you cope when a market keeps grinding in one direction as bull markets can do for long periods of time?

Q2- do you think the FED believes the market is random?

Q3- do you believe that after years of trading it's impossible to become more skilled at reading a market or is it that those who do believe they can are just kidding themselves

and those who conclude they can't are proof that it cannot be done?

 

..................

The first strategy with the options is simply trading gamma - you are offsetting the time decay of the options against what will become historical volatility....a good strategy when used with some leverage for those days when you wake up and a crash occurs. Grinding markets probably wont hurt too much, but will still cost none the less.

the other pairs trading strategy with some statistical arb thrown in also makes sense ---- IMHO - --- it looses it when the talk about unrealised v realised profits come in.

Accounting fudges are delusional.

 

Its simple if you have a pairs trade and you take off one leg at a profit and leave the other one until it also goes into a profit or back to BE then no matter how you cut and dice it - you have a simple directional trade in which you are crossing your fingers and may as well have done that in the first place once you change the nature of the trade.

 

I do think ticks has done the right thing in a few respects but many then fall into the trap of changing what they do and not understanding it.

Put simply - if markets are cyclical in nature and you are willing to risk they will swing back then wait put on the single trade that you would do when and if you would take off the first leg of the pairs trade - end result is the same with less brokerage.

[bobcollett 10]

 

 

Ticks may just be very smart about how he does this exactly.There maybe some elements we don't know about.

 

Hi Ticks

Where have you been .....8 posts in 6 years?

I agree with mitsubishi. You have left out something.

I would think you have very low costs, or even better you work for a brokerage and trade for free.

kind regards

bobc

 

PS To all those traders that think its 50/50....... Buy the TOP, and Sell the BOTTOM.

[MightyMouse 12]

I trade as if the markets are cyclical -- the price is hard to predict but we do see movement either up down or sideways. So therefore I do not try and pick a direction but instead chose a strategy that allows me to have]both sides of the market. So to accomplish this I use different strategies depending on choice of the underlying. For example using a future contract long on the ES and buying 2 ES puts to have a close to equal market exposure which may be measured with the delta on the options and the delta of the future being close to zero delta. Now with that position the market is eventually going to give me a profit on one side -- either the puts benefit from a move down in price of the future or the long future will give me a profit on a price move up.I can monitor this with the change in delta and when the delta changes by 8 or 10 I capture that profit by adjusting the trade back to the original deltas. On the ES this provides a profit of say $200 and I then wait for the market to move however it wishes until the delta again changes to offer another profit opportunity. Another strategy which I use will be a pairs trade -- such as trading 2 NQ contracts short against 1 ES contract short. The ratio can be 2 to 1 or 5 NQ to 2 ES futures. So again the strategy is non-directional and is based on the belief that markets are cyclical. The ratios are based on the point values: 20.00 a point on the NQ and 50,00 a point on the ES. So 5 NQ's equal $100 and 2 ES contracts equal $100. On the 2 to 1 ratio it is close enough as then it is $40 vs. $80. I have a mechanical system to pick which contract I will chose short and which one long -- but it really doesn't matter -- again to the fact that the NQ and ES normally trade in lockstep so when there is divergence (one stronger than the other) there will be a reversion to the mean. In all my trades I need no stops and both of these as examples illustrate the fact that duration trumps direction. These trades give me "time to be right" and will not shake me out of a winning trade with a stop being hit. Perhaps this very confusing to those who hold to the belief that the proper way to trade is to pick a direction and use a stop. I can demonstrate the profitability of this strategy of trading easily by showing actual live examples but that will necessitate some way of posting live trades. Meanwhile just try it in a paper account and you will see it is hard to lose money. Another advantage to these trades is the fact that you receive about 85% margin relief from the clearing firm. This proves that the trades carry much less risk as the margin is to protect the broker from loss. I hope this illustrates the point in a way that makes it somewhat clear. There are rules that make the trades very mechanical and when followed it generally produces consistent profits. The more volatile the markets you trade the more opportunity for profit. So CL (crude oil futures) works well. The reason, of course, is the more swings (since you are holding both sides long and short) the more opportunities to take profits and readjust your trade deltas. Now you can easily see that you have profit on one side of the trade and a loss on the other side of the trade and therefore how can that produce profits. The answer is in the cyclical nature of the markets -- you take profits mechanically when the market gives you the profit and you are left with an "unrealized loss" on the opposite side of the trade. Then the market eventually swings the other way and the loss on that side becomes a profit and you "rinse and repeat". I doubt that many will grasp this from this post but hopefully at least it will shed some light on the subject.

 

The only way this strategy will work to your benefit is if you are entering positions when the instruments you are choosing are mis-priced; otherwise, you will always be better off waiting to enter only one leg of the trade at the extreme where you would take your first profit rather than entering both legs at the same time. When you take your first profit you are actually experiencing a loss. A return to your breakeven entry will also, generally, leave you with a loss to overcome. This is a very difficult game to play with in a retail trading environment with a limited ability and speed to calculate the premium or discount of the derivatives you are choosing to trade.

 

You are free to believe anything you like about the strategy you are employing, but you are not free to escape the long term results that will be produced by employing such a strategy.

Edited July 27, 2013 by MightyMouse

[BlueHorseshoe 10]

The only way this strategy will work to your benefit is if you are entering positions when the instruments you are choosing are mis-priced;

 

So then there's the question - "mis-priced how?" Statistically mispriced? Fundamentally mis-priced?

 

And who else is looking at the same thing (faster)?

 

I'm with the other comments here (Mitsubishi, Siuya, MightyMouse etc) - there would have to be more to this than what Ticks is describing for it not to have an unhappy ending . . .

 

BlueHorseshoe

[wcicom 10]

Mighty Mouse, this is the most ridiculous thing I've ever heard. All you are doing is giving extra commissions to your broker. First of all - what if the Market keeps going against you on remaining position where you already have unrealized loss ? Second - why execute two trades, if like you say you are waiting for some sort of cycle to appear, just watch the market, and according to you....once it swung one way enough to where you feel it is ready to go the other way - just execute second part of the trade. Don't you realize that you are not gaining anything by doing two trades here ?

 

When someone writes something like this....I know this is a guy who just started trading and is still looking for an edge of sort, in the place where it does not exist.

This is simply funny.........