If it takes time to learn how to trade profitably, those initial losses would probably counteract later gains in such a way that even an experienced, successful trader would have been better off sticking with SPY from the start.
A way around this would be for rookies to keep 90% of their portfolio in an index fund and play around with 10% silly money.
If after a decade or so the proto-trader reckons he's ready for the big time, he might increase the amount of funds he plays with. If he finds the results disappointing (more likely), the losses will be limited and he will have painlessly learned his lesson.
I think most people trade or pick stocks just to prove to themselves or to finance Twitter bros how clever they are. I credit all my success with money to admitting that I'm an idiot.
Feb 13, 2022·edited Feb 13, 2022Liked by Market Sentiment
I've been bench trading for several months, with your sentiment tracking tool as one of my inputs, and I'm averaging a little under 1% per day over S&P 500 on ≤24-hour trades and about 1.5% on 24-48 hour trades. Compound that over 252 or 126 trades per year and the results are tremendous.
It's not straightforward, mind you: I track (currently - always expanding) four different buy/sell timing strategies and eight selection strategies, and have created an analytics platform to test them and optimize. Preliminary testing of optimizations in progress suggests I can increase those 1- or 2-day returns by a further 0.5% - 1%.
There may be opportunities to improve your sentiment tracker, which would further increase its predictive power. My suggestions, if not already implemented:
• Weight your sources according to the reputation of the poster, ex. Reddit Karma, Twitter followers, etc.
• Weight your sources according to the positivity of the response to the post, ex. Reddit upvotes, Twitter likes, Twitter retweets, etc. I suggest some combination of the total positivity and the positivity ratio (ex. likes per follower).
• Create a weighting factor that correlates sentiment with stock price movement. This will reduce the influence of the meme stocks and the stocks users "can't let go of". My inferences are that: 1. users who invested in meme stocks can't accept their sunk costs and move on, so they keep discussing - with undue optimism - their poor investments; 2. stocks with high beta values were frequent "winners" during the extreme bull market of the past two years, and users may have difficulty letting go of these stocks in the (probable) upcoming bear market.
Thank you for your sentiment tracker and your newsletter! Excellent resources and I look forward to where they can go in the future.
A note about poker is that when you look at the top 5, say, then we see a much larger share of repeat winners. The question of whether we should only look at the top 1 Vs top 10 isn't an easy one either. If you did chess and randomised a few of the movements or rules I wonder if we wouldn't see similar charts atop.
Trading is a discipline in its own right that requires very specific skills. The problem is that very few people have these skills. Many will still want to trade and lose a lot of money because they will be up against experienced traders who have more experience and skill.
If you don't have these skills, your best option is to use your greatest natural advantage: the time you are willing to spend in the market. Playing the long game is your best option.
If it takes time to learn how to trade profitably, those initial losses would probably counteract later gains in such a way that even an experienced, successful trader would have been better off sticking with SPY from the start.
A way around this would be for rookies to keep 90% of their portfolio in an index fund and play around with 10% silly money.
If after a decade or so the proto-trader reckons he's ready for the big time, he might increase the amount of funds he plays with. If he finds the results disappointing (more likely), the losses will be limited and he will have painlessly learned his lesson.
I think most people trade or pick stocks just to prove to themselves or to finance Twitter bros how clever they are. I credit all my success with money to admitting that I'm an idiot.
I've been bench trading for several months, with your sentiment tracking tool as one of my inputs, and I'm averaging a little under 1% per day over S&P 500 on ≤24-hour trades and about 1.5% on 24-48 hour trades. Compound that over 252 or 126 trades per year and the results are tremendous.
It's not straightforward, mind you: I track (currently - always expanding) four different buy/sell timing strategies and eight selection strategies, and have created an analytics platform to test them and optimize. Preliminary testing of optimizations in progress suggests I can increase those 1- or 2-day returns by a further 0.5% - 1%.
There may be opportunities to improve your sentiment tracker, which would further increase its predictive power. My suggestions, if not already implemented:
• Weight your sources according to the reputation of the poster, ex. Reddit Karma, Twitter followers, etc.
• Weight your sources according to the positivity of the response to the post, ex. Reddit upvotes, Twitter likes, Twitter retweets, etc. I suggest some combination of the total positivity and the positivity ratio (ex. likes per follower).
• Create a weighting factor that correlates sentiment with stock price movement. This will reduce the influence of the meme stocks and the stocks users "can't let go of". My inferences are that: 1. users who invested in meme stocks can't accept their sunk costs and move on, so they keep discussing - with undue optimism - their poor investments; 2. stocks with high beta values were frequent "winners" during the extreme bull market of the past two years, and users may have difficulty letting go of these stocks in the (probable) upcoming bear market.
Thank you for your sentiment tracker and your newsletter! Excellent resources and I look forward to where they can go in the future.
A note about poker is that when you look at the top 5, say, then we see a much larger share of repeat winners. The question of whether we should only look at the top 1 Vs top 10 isn't an easy one either. If you did chess and randomised a few of the movements or rules I wonder if we wouldn't see similar charts atop.
Trading is a discipline in its own right that requires very specific skills. The problem is that very few people have these skills. Many will still want to trade and lose a lot of money because they will be up against experienced traders who have more experience and skill.
If you don't have these skills, your best option is to use your greatest natural advantage: the time you are willing to spend in the market. Playing the long game is your best option.