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Comment by ersii | Hacker News Reader

If you're generally interested in asset trading and came looking at this story for lessons to learn, these are the two I found in the story:

* Cut your losses quickly and with determination, while you should let your winners run as long as possible.

* Buy stocks that is being bought. Sell stocks that are being sold. (In other words, keep track of the stock order flow. Bid/asks).

Feel free to complement this, if I missed anything. In general an interesting read/story.

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The best advice for non-professionals is to simply not trade. Taking commissions into account, your expected excess return is negative, i.e. you'll better off just going long on some index fund. All the advice being thrown around at laymen on stock trading are nothing more than empty platitudes that have not been empirically shown to consistently work.

Keep in mind that when you're playing the markets, you're competing against institutional investors and hedge funds that have far superior resources (data, algorithms, etc) to better analyze the market and to even move the market in a direction favorable to their holdings (e.g. Warren Buffet). The most likely outcome of trading is that you'll get out-gamed by these sophisticated investors.

There are a lot of studies and theories which can help you to outperform professionals. There are also a lot of examples on amateurs doing much better than professionals. You can check "Random walk down Wall Street" if you are interested on this matter.

Also if you know where to look (twitter, forums), you can find plenty of amateurs that outperform the market, and post their trades publicly.

Just like you can find plenty of people who toss heads more often than tails.

Do you care that you might be quite uninformed on this particular matter?

Right, but those aren't for day traders. Most of those strategies depend on holding for long periods of time.

If I'm being honest, I trade as a form of gambling. And I treat it just like I'd treat traditional gambling if I partook (the most I'll do is $5 or $10 in a poker machine). I only trade with money I can afford to lose. It's a fun pastime, and I have been lucky (yes, lucky, not smart) enough to come out ahead so far. But I'm always sure to avoid getting cocky and throwing in money I can't lose.

Did you 'come out ahead' in the sense that you made money, or in the sense that you beat the S&P or similar indices?

I don't doubt that you, specifically, may have beat the S&P, but I think lots of people don't keep a great track record of how they've done, tend to forget their average or bad trades, and overemphasize their good trades in their minds. I'll then ask them how much their overall portfolio has grown from year 1 to year 5, and then calculate the S&P's growth in that time, and they almost always have only managed to match it (with a lot of time wasted to do so) or actually did worse.

I keep obsessive track, and over the last 12 years I've been roughly equivalent to the S&P 500 (which, again, I attribute far more to luck than anything else). Like I said, this is for fun, not for true investment purposes. So anything that doesn't lose money is a win in my eyes. My real investments are primarily in index funds.

* I think lots of people don't keep a great track record of how they've done

Ha! This is true for me, I only realize how much I've lost when I see those negative numbers in TurboTax before filing my tax return.

Agree, mostly. The one advantage of being a small trader vs. the hedge funds is that your trade blocks are too small to swing prices, so you can get in and out of positions quite easily. I would definitely also not recommend day trading per say, a timeframe of 1-5 days per trade is IMO better as you can actually see a decent swing in price.

It is possible to win, but you need to be good, and most people who do it in their part time simply don't have the knowledge or experience required...

> Buy stocks that is being bought. Sell stocks that are being sold.

Except that he first made his fortune by buying stocks that were being sold (due to an error of the other side, but still being sold).

>Buy stocks that is being bought. Sell stocks that are being sold. (In other words, keep track of the stock order flow. Bid/asks).

This is one of the most overlooked things in trading when it comes to non-professionals. Not all price shifts are created equal. Watching the order flow, especially the volume of trades at each price, is far more informative than simply looking at price shifts. A few small trades at a lower price does not necessarily make a trend.

> Cut your losses quickly and with determination, while you should let your winners run as long as possible.

Yes. You can also learn this from playing Poker. Science even has a name for the inverse behavior: Disposition effect.

> Buy stocks that is being bought. Sell stocks that are being sold. (In other words, keep track of the stock order flow. Bid/asks).

And this is way I stopped doing this. It takes a lot of time and you feel guilty whenever you are not looking. Many people may know this effect from Facebook or Twitter. Consider it much worse, when you have a lot of money at stake.

What would you say is the best source for these data?

This was pure gambling. Unless he statistically did the sums (nothing mentioned in the article), this was pure and simple gambling (probably going off candlestick trading which is big in Japan). In the finance world, this is also called dumb money.

Remember kids, there are two types of traders:

  1. Quants

  2. Gamblers

Know which one you are.

3. The ones who use inside information.

From your generalisation we can then say that LTCM falls under "Quants", and Warren Buffet under "Gamblers".

Warren buffet is definitely a quant (he does his homework) even if he doesn't use heavy duty math (though I'm sure he has access to that).

Then you are using the wrong term. Value investors (those who use models such as DCF and DDM) are not considered 'quants' in the investment community. My point is, quants can be speculators too (and more often than not they are). I just wanted to point out (in a somewhat pedantic manner) that the above comment is just a random comment, without any substance.

Put lipstick on a pig it's still a pig.

Gamblers come in various forms, some like the thrill, some make informed wagers and some use inside information. Not sure what makes a 'Quant' so different.

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