Haha I'm about to as I'm not impressed!
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Its nothing like gambling, well as much as picking stocks to invest in is like gambling. Decisions are based on data, on charts on policy etc.
I can understand why it's not for most people, but it's what professional traders do for a living. They pick the markets, not always successfully but on average and with good risk management it is very lucrative and that is why they get paid the big bucks.
If you are disciplined it's actually hard to get it very wrong.
Like in my trading & investing portfolios I have lightened up considerably in the last 6 weeks or so and even gone short US indices up until last week.
But even if I had got that wrong and just sat on cash, if markets kept going higher, which they didn't, I have just lost opportunity or perhaps a small loss if I was short as I would have stopped out.
More often than not I ride an index higher until the chart or data is telling me its maxing out & I will take my win, sit back for however long it takes to correct within the chart pattern then go long again. Or I'll halve my position and reset in full lower.
But if there is a fundamental shift which we saw 6 weeks ago I will flip & go short.
At the moment after picking up a long at just over 34000 in the Dow, I closed out this morning.
I tend to to ride Fridays long or cover shorts early, as Fridays generally see traders covering short positions prior to the weekend.
We are now what I would say is nowhere land, right in the middle so I will be cautious and trade small until I see a better opportunity.
The goal of any active investor or trader is to earn a return that beats what can be earnt passively ie owning the SP500. The problem is that there are practically no traders that can consistently beat the sp500 over a long period of time say 10-20 years. Often traders can make great returns over a short period through speculation, which I would attribute to luck and it is why I make the gambling comparison. No gambler comes out ahead given enough time like the trader.
If your data telling you the index is "maxing out" had some statistical significance, why wouldn't it be priced into the market?
EDIT: I'm no believer in EMH but something so simple as pattern recognition should be able to be done by a computer, with it's order filled 100x faster than any human could, thus removing any competitive advantage you could have
That is absolutely incorrect re beating the index.
Prop traders do virtually year in year out otherwise they wouldn't have a job.
And as I don't just trade equities, but FX & Commodities amoung other things the measure is quite irrelevant.
You have never worked on a trading floor so it's probably best not to speculate on what they can & can't do or achieve. There are many types of traders. Some specialise trading one product like US Treasuries, equities, Crypto, or could the European Repo market, FX, Credit, Commodities etc. Some are are long only traders, others trade long & short and some trade across a range of products as I do. Some traders specialize in a particular financial instrument, be a spot trader, forward trader, arbitrage or option trader and again some will do all of the above.
I knew some traders at some banks that earned $20M bonuses back in the day and there is the private equity & hedge fund traders who generally get very large performance bonuses and matching an index would not be considered performing. You might not lose your job initially bit if that's all you could return year in year out then it's likely you would get sacked.
What I think most of you guys are getting mixed up with is fund managers in the equities world, that is not proprietary trading.
I'm not trading for a few pips here and there as you are correct you cannot beat the algorithms at that game. But most prop traders and tge algorithms trade technically almost ignoring fundamentals and this where they can come unstuck. AI will be interesting in this area as it will be able to feed a lot more information into the algorithms at lightning speed, but it doesn't mean you can't follow similar patterns. I do wonder if this will create more volatility or less in the future.
Well the indices did fall about six weeks ago, down quite sharply & now have bounced back some of that in the last week which has worked out very nicely.
My contention is that the impact of the China economy is yet to be priced in fully. Global interest rates will also continue to be a drag on the global economy for some time yet. As I have said on multiple occasions, I'm not saying I'm right, and I'm not suggesting anyone else follow suit, but its my current view and as I am now reasonably cashed up I can take advantage of which ever way the markets go after making a nice profit out of the recent volatility.
Personally I would like to see the US indices go back to the highs and I will be assessing all the way whether or not to re-establish a short position.
What is the goal of a trader then? Beating the index is the minimum since you can literally sit back and do nothing and you're very likely to earn a return similar to its historical average return. If you aren't beating the index, there's no point in trading or actively investing.
Yeh you're a real pro! Stuffed your KiwiSaver by moving it to a cash fund while six months of super-bull went by in the US markets.
And to top it off, you, the "international day trader", sleep through the US trading day!!!!!!
I don't think anyone on this website should listen to a word you say.