Conservative Daytrading

Ok, to go any further with this, we have to ask your friend a few questions.


Do all trades begin from the Long side, or has he made some profits starting off with a Short Sale?


Does he add to an initial position during the day when it goes his way?


Or when it goes against him?


Or never?

He has only bet the long side and has never added to his position.

Well, given everything you’ve said, it looks like your friend is on to something, but, fair warning, these days it’s difficult to distinguish between the sound and the unsound.

He is almost certainly NOT onto something. Going 45 out of 50 when you are a 2-1 favorite is a lot more than one standard deviation. In fact it is more than three. However firstly he is a lot more than a 2-1 favorite to have a winning trade because of his technique (but he is laying big money odds) and secondly you run into the bias that we only hear about the lucky ones on this forum. I will let others elaborate.

It's over 8600 to 1 that he could not do it by just luck as a 2 to 1 Fav.


I thought my questions eliminated the big money odds that he's laying, but to be sure, we'd have to see the actual numbers of his 50 days.

...if the expected frequency is 2/3rds is 0.013% (about one in 7500). It's roughly a 3.5 sigma event.

My friend has been trading a small number of stocks which have been outperforming the market. Basically, he looks for highly rated, high volume, and volatile stocks which are trending upward. Once commissions and taxes are subtracted from his results, I'm not sure how much more money he will have made compared to if he had bought-and-held these stocks. Though I think his approach may be less risky than buy-and-hold, I'm not sure it's worth the effort. I'm also not sure he didn't exaggerate his batting average a bit.

Regarding the bias you mentioned, I have many acquaintances who've lost big bucks by buying and holding popular stocks. My daytrading friend is the only person I know who has tried it. However, I admit it is possible that I am not aware of acquaintances who tried daytrading and were unsuccessful.

Well, it's true enough that tone deaf students quickly drop out of the Glee Club.


This must be what Sklansky's getting at.

But what do you think about Sklansky's main point?


I'd like to know, because I've often wondered about it.