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Freetrader comments on Welcome to Less Wrong! (2012) - Less Wrong

25 Post author: orthonormal 26 December 2011 10:57PM

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Comment author: Freetrader 03 January 2012 10:37:19PM *  5 points [-]

Hi everyone,

I am Freetrader, 31, from Barcelona. I am an engineer and I worked in the industry for some years, especially in the fields of operations management and quality, since I enjoy analyzing stuff and creating systems.

I have a very eclectic nature and I'm a bit of a hack, jumping from one thing to another (which is a trait I don't like very much of myself), anyway this led me to often change jobs from one company to another (luckily it seems I am good at getting new jobs, for some reason), until I finally realized that I was not good at getting the paycheck at the end of the month and what I really wanted is to be my own boss.

So, long story short, I also failed at entrepreneurship, however by the end I found out about day trading, and I good hooked by it. I've been studying and practicing day trading on the currency markets for almost a year now, and I'm finally starting to see some (small, weak) success.

(By the way, I'd like to mention my nickname Freetrader doesn't come from being a trader -I was using it long before-, but from the RPG Traveller, where the Free Traders are the small ragtag cargo ships that go from planet to planet taking the odd jobs no one else would and living adventures - think Firefly or Han Solo. I always wanted to be like that, and to a point I realize I managed my business like that, which didn't work so well, but was fun.)

Just recently I found Less Wrong in my RSS aggregator, however I can't remember how it got there (I kind of recall I found the link while doing some research on planned cities and I thought to myself: "this could be important, save it for later", then forgot about it). Anyway when I started reading it, it hit a cord inside myself and for the last weeks I've been reading articles and some sequences with great interest and delight. So I'll stick around. Maybe contribute a little, but I'm shy.

Finally I'd like to take the chance to ask if someone else here are fellow traders. I noticed many of the articles mention trading in examples, however I have not found any article specifically about it, or from the perspective of a trader. Indeed day trading seems like an excellent path for a rationalist with good bayescraft and who doesn't mind staring at a computer screen all day if it makes them good money. There's lots of irrationality in that field, especially within the world of what I call "pop traders", self-taught traders who trade their own money from home (like myself, so it's the world I know). Still many cowboy traders have hacked a way into making a pretty decent living from it, so a good rationalist will be able to get much more.

In summary, I'd really like to meet a rationalist trader and compare experiences. Or well, anyone interested by the topic in general. Or any nice people, so feel free to say hi!

Comment author: Chriswaterguy 08 January 2012 09:28:26AM 1 point [-]

I used to trade the stock market, getting into Bollinger Bands and other kinds of chart analysis. Had some successes, but the times that losses came, they were sudden and brutal. In the end, I decided I didn't enjoy it enough to do it well. And I wasn't quite sure I had the ability - the charts seem to work in hindsight, but there were a lot of factors that made looking at patterns in old charts deceptive - the fact that bankrupt stocks were removed from the data history by my data supplier was one obvious problem. And almost every other trader I knew seemed to be hopeful of making a buck, rather than already making a buck - with only one exception, a guy who did brilliantly, but I could never work out his methods.

I'm now earning some money as a consultant, and when I've got enough to put in the market, I'll be doing it longer term, probably in some variation of the "Dogs of the Dow" methodology, with a basic ethical filter. Or if that's too much work, an index fund. Maybe I could have been richer if I'd dedicated myself to paper trading and then working hard on real life trading, or maybe I would have lost more money. Either way, I'm happier with my life now - but that's just me.

Good luck!

Comment author: Freetrader 28 January 2012 03:07:48PM 2 points [-]

In my experience most technical analysis and indicators are unreliable, and most of the patterns that many traders use and teach others are spurious. Like with the Bollinger Bands, let's say the price approaches the extreme of the band, people will tell you it means it's moving and it will break out, or that it is an extreme value and soon will go back the the average. But which one is it? No one can really tell you, and if you try to calculate the probabilities with past results it comes out around 50/50, as you would expect by the theory of efficient market. In hindsight it works every time, but when you are trading you might as well toss a coin. And the same happens with many techniques people trade with, trusting them without questioning them, blinded by winning streaks, or by apparently excellent results in hindsight.

The only thing I found useful for day trading is that the price most of the time moves in sudden little bursts, so if you can detect a burst early you can hop in and capture 5 to 30 pips from the move (1 pip is 0.01% of a currency value). It's a work-intensive way of trading, but I am having good results with it so far. Another problem is that it relies a lot on intuition. Most people who do this kind of thing cannot explain very well why they took a position, they just felt the move was about to happen after lots of experience in the market. I am sure bayesian analysis can help with that.

Comment author: CWG 25 May 2012 10:08:50AM 0 points [-]

A trader once said to me that price cycles aren't consistent, but volatility cycles are. Bollinger Bands can be good signals of sudden volatility... but as for what to do with that to reliably make a profit, I don't know.