This is what I thought as well when I was initially introduced to the idea of technical analysis and day trading. I was very skeptical.
I don't want to call myself a probability expert but after studying poker theory and reading mainstream works like Fooled by Randomness, I bought into the idea that it was just a bunch of a guys throwing darts and the "winners" whom were trying to sell all their BS were simply benefiting from survivorship bias.
But after seeing the numbers themselves first hand, there's just no way it's random chance. Being net positive 80% of all days traded with all your winners and losers falling in a relatively tight distribution -- luck can't create highly specific, repeated outcomes like that. There is virtually zero tails risk since 99% trades are intraday only.
My loss was a failure of discipline. I froze like a deer in the headlights, failed to execute like I normally do and paid the price. Hope you keep reading to find out what happened!
Unless something meaningful happens to the business while you're exposed, no?
Not only does significant breaking news have to happen while you are in the position, which is already very rare, it has to happen in a way in which you cannot respond and cut it off -- like the stock getting halted. Most intraday stock halts that occur are not exactly a shock (like a biotech or a stock under investigation of any kind) so if you are highly leveraged on that stock to the point where your entire equity can get hurt, that's on you.
If something big like GE or AAPL halts, the move proably won't be extraordinarily huge like 20%+, unless it's an Enron scenario.
Yes, it can. E.g. you could sell deep out-of-the-money puts and collect a $1 premium day after day, say 99% of all days. Until one day a {terrorist attack in the US, humongous earthquake in Japan} happens and you lose more money than you ever made.
I am as well-rehearsed in financial history as anyone. I have read about LTCM, Nick Leeson (I even watched the movie), etc. In these situations there was so much size being used that if any unexpected squeeze scenario occurred, those guys would move the markets and cause a horrible chain reaction.
I understand on the surface this totally looks like I'm trading in a "eat like a chicken, shit like an elephant" type of fashion. If I were in your shoes and I read "guy made x, x, x consistently and lost 20x one time!!!" I'd be thinking along the same lines. The difference is, I had more control of my outcome. It's hard to prove this and you won't totally believe me unless you are also a day trader who grinds it out and has a feel for intraday liquidity and slippage (particularly on the otc/pink sheets). I wasn't trading such a large size where I would move the market if I was squeezed out. The risk distribution of intraday scalps is not at all similar to writing naked options with unlimited loss.
It's like this: normal trade: entry signal occurs. get in. exit signal occurs. get out. the trade in particular: exit signal occurred and i chose to ignore it and keep scaling in. would there have been awful slippage? yeah but it would have manageable. in the heat of the moment on the largest loss ever, 10-15c slippage on a $4 stock massive size feels like the end of the world but it's better than riding it down 50c or a point.
It's also why it's important to trade small, and have a large number of uncorrelated positions.
You can go on believing that nobody makes money doing this sort of thing over the long term. That's fine. But it's definitely not true.
Derivatives have no more risk than the underlying. What makes them more risky is the leverage. Selling 1 option w/ a 0.5 delta is no more risky than selling 50 shares of the underlying.
> Being net positive 80% of all days traded with all your winners and losers falling in a relatively tight distribution -- luck can't create highly specific, repeated outcomes like that.