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  #1391  
Old 06-28-2018, 10:58 AM
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redprinceton redprinceton is online now
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Originally Posted by mathmajor View Post
I don't believe this. The market invariably overreacts to major news (china, brexit) and quickly recovers. In my limited time tracking the market it happens over and over. If I were an active timer, I would keep a significant amount in liquid non-stock and buy on any dip of 5%+ over one or two days. Boom, there's most of a year of gain.

Worked for me for brexit. Shrug.
I back-tested this strategy on the last five years of market data.

So it works like this: If the S&P closes at a decline of 5% or more from the previous closing price, or the closing price from two market days ago, buy one share of the S&P at the opening of the market on the following trading day.

Under this strategy, we buy 5 shares of the S&P over five years at an average cost basis of $2,071. The market closed yesterday at just about $2,700. That's an appreciation of ~30%, or a five year CAGR of 5.4%.

If, instead, all of that money was invested on day 1, five years ago, the cost basis would have been $1,611. An appreciation of ~67.5%, or a five year CAGR of 10.9%.

Buy and hold wins by greater than 5%. You could say that you're not actually holding cash here, but treasuries. It helps the strategy a little bit, but the spread between the 10 year treasury yield and the S&P dividend yield is small enough that the impact is negligible.

It gets even worse though. Because this comparison supposes that you already knew exactly what your cost basis would be over the five years. i.e., you knew that the market would drop 5% X times for a total investment cost of $Y. In reality, you don't know. So you may be holding even more money in cash (or treasuries) at the end of year five, waiting for that next 5% drop. So that's even more money that missed out on the 10.8% CAGR.
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  #1392  
Old 06-28-2018, 11:06 AM
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Originally Posted by redprinceton View Post
I back-tested this strategy on the last five years of market data.

So it works like this: If the S&P closes at a decline of 5% or more from the previous closing price, or the closing price from two market days ago, buy one share of the S&P at the opening of the market on the following trading day.

Under this strategy, we buy 5 shares of the S&P over five years at an average cost basis of $2,071. The market closed yesterday at just about $2,700. That's an appreciation of ~30%, or a five year CAGR of 5.4%.

If, instead, all of that money was invested on day 1, five years ago, the cost basis would have been $1,611. An appreciation of ~67.5%, or a five year CAGR of 10.9%.

Buy and hold wins by greater than 5%. You could say that you're not actually holding cash here, but treasuries. It helps the strategy a little bit, but the spread between the 10 year treasury yield and the S&P dividend yield is small enough that the impact is negligible.

It gets even worse though. Because this comparison supposes that you already knew exactly what your cost basis would be over the five years. i.e., you knew that the market would drop 5% X times for a total investment cost of $Y. In reality, you don't know. So you may be holding even more money in cash (or treasuries) at the end of year five, waiting for that next 5% drop. So that's even more money that missed out on the 10.8% CAGR.
i think what you're missing here is that the really astute traders can see and know the upcoming inflection points whereas the b&h folks can't /red
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  #1393  
Old 06-28-2018, 01:04 PM
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Originally Posted by yoyo View Post
you are better educated on investing and finance that most. it's common to see individual investors panic and go to cash with their 401, ira, personal holdings, etc., and then not get back in until the market has made significant gains
Yup, I know several people who did this during the financial crisis and many, many more who were seriously considering it. I couldn't believe how many people came to me for "advice" during late 2008 like I had some crystal ball to tell them what to do with their stock investments.
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  #1394  
Old 06-28-2018, 01:14 PM
Westley Westley is offline
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Originally Posted by lulzEMH View Post
Eh, I knew it was going down in 2007 and 2008!! I made a ton. I also knew it was doomed in 2011 when the PIGS were going to take down the Euro, and in 2013 when QE was going to end/start to unwind. I was so confident that the chinese fraud HRBN wouldn't actually close its going private deal that I sold a crap ton of calls with a built in Vig of like -30% (because the entire short inverse knew it was a fraud)... there a lot of others. Only the 2008 call was a home run with the others hitting into triple plays.
Did you at any point in this run consider changing your username to "lulzEMH...well,maybe"

Anyway, read a story not that long ago, wish I could find it but can't remember the source and it was from 20+ years ago, basically a prof at a big-name school, maybe MIT, released a paper showing that you could beat the market with a pretty straightforward strategy of selling blue chip stocks when they were down more than 10%, and buying when they were up more than 10% - basically a momentum strategy. Annual returns in the 20+% range, consistently for decades. Didn't want to release the data, but somebody finally got him to. Basically, was assuming you sold at the -10% point - even if the stock closed at $12 and opened the next day at $8, his "analysis" assumed you sold at $10.80. Well, if you assume you can sell a stock at $10.80 when it's already at $8, you can "make" a lot of money lol.

Anyway, there are lots of really good ways to beat the market with simple rules.
Pros: the rules are really simple
Cons: they don't actually work.
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  #1395  
Old 06-28-2018, 02:28 PM
lulzEMH lulzEMH is offline
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Originally Posted by Westley View Post
Did you at any point in this run consider changing your username to "lulzEMH...well,maybe"

Anyway, read a story not that long ago, wish I could find it but can't remember the source and it was from 20+ years ago, basically a prof at a big-name school, maybe MIT, released a paper showing that you could beat the market with a pretty straightforward strategy of selling blue chip stocks when they were down more than 10%, and buying when they were up more than 10% - basically a momentum strategy. Annual returns in the 20+% range, consistently for decades. Didn't want to release the data, but somebody finally got him to. Basically, was assuming you sold at the -10% point - even if the stock closed at $12 and opened the next day at $8, his "analysis" assumed you sold at $10.80. Well, if you assume you can sell a stock at $10.80 when it's already at $8, you can "make" a lot of money lol.

Anyway, there are lots of really good ways to beat the market with simple rules.
Pros: the rules are really simple
Cons: they don't actually work.
I've poked some fun at my user name/I think most know my original name on here. I think this name was maybe created about the time I was trying to get Sadman to bet me 10k that I could beat the market. It was a pretty big turning point for me for the worst. Karma I suppose.

I opted to stick with the name because there was a big inefficiency that I never discussed here (a tiny hope that it once again presents itself keeps me from talking about it still)... but as EMH would suggest it was taken away from me in 2014, which really highlighted how bad I was doing on my stock picking/market timing portion of my trades (nothing to paper over the losses/underperformance).

Close End Funds are the only spot I'm still pretty confident there is an edge in but it's consumes more time, more capital and provides a much smaller egdge than prior opportunities (except during market turmoil).

Another reason to keep the name was the XIV blow up and ridiculous premium that it was trading at prior to close that day. I suspect there were shares to short (if not then my regrets are all for nothing).. it could have been a retirement day had I actually been following it half as close I as i've followed some other instruments in the past.


That story you presented is interesting. I have a friend that I have to talk out of trading forex about ever 4 months because he made money trading paper account and can't seem to grasp that a limit stop order doesn't guarantee a transaction at the stop price in a non continuous market.. and he has no appreciation for the impact of leverage on losses.
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  #1396  
Old 06-28-2018, 04:36 PM
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July 2 - lock in those gainz!

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Opinion: July 2 will be the most bullish day of the year for stocks
By Simon Maierhofer
Published: June 28, 2018 10:21 a.m. ET

The ‘win’ rate so far this century: 83%


Getty
Here are stats on the most bullish S&P 500 Index trading day of the year since the beginning of the new century:

• When: First trading day of July (in 2018, that’s July 2)

• Average return: 0.35% (see chart below for more details)

• Win rate: 83.33%

The win rate for the Dow Jones Industrial Average DJIA, +0.41% is 77.77%. The win rate for the Nasdaq COMP, +0.79% is 72.22%. So the S&P 500 SPX, +0.62% is the winner.

S&P 500 day traders may be content with 83.33% odds, but investors might be wondering if July 2, 2018, could be more significant longer-term.

S&P 500 seasonality
It may come as a surprise that the best trading day of the year happens in the middle of what many consider a seasonally weak period of the year: the summer doldrums.

The chart below provides some clarification and context. The black graph represents S&P 500 seasonality based on all years since 1950.

The blue graph illustrates mid-term election year seasonality (2018 is a mid-term election year).


The first half of July tends to be mildly bullish, and often hosts a brief summer rally. Keep in mind, though, that the summer rally tends to be the weakest of all seasonal rallies.

In mid-term election years, the S&P 500 doesn’t get going until October.

Based on seasonality, the best trading day of the year has the potential to kick off a one- to three-week bounce.

After this week’s drop, investors may hope for seasonality to provide a “shot in the arm,” but the truth is that seasonality is only one of many factors that affect stocks.
https://www.marketwatch.com/story/ju...cks-2018-06-28
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  #1397  
Old 06-28-2018, 05:04 PM
d123454321 d123454321 is offline
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Originally Posted by yoyo View Post

Out of pure randomness it is likely to have 1 day that had 83.3% win percentage in 21st century.
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  #1398  
Old 06-28-2018, 05:29 PM
Colymbosathon ecplecticos's Avatar
Colymbosathon ecplecticos Colymbosathon ecplecticos is offline
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Originally Posted by d123454321 View Post
Out of pure randomness it is likely to have 1 day that had 83.3% win percentage in 21st century.
Sure, the probability can be estimated as follows:

Pr(any given day having 15 or more wins out of 18) is 0.377% assuming 50/50.

252 trading days in a year.

Using Poisson with lambda = np = 252*0.00377 we find the probability of one or more such days to be 1 - exp(-lambda) = 61.32%.
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