4 ms·
Unless you're extremely well capitalised, you'll be ruined by variance. If you can predict stock movements with 50.1% accuracy, you have a potentially profitabl
by jdietrich 10y ago
Unless you're extremely well capitalised, you'll be ruined by variance. If you can predict stock movements with 50.1% accuracy, you have a potentially profitable trading strategy. To make meaningful profits, you need a massive reserve of cash behind you. If you're right 50.1% of the time, you're still wrong 49.9% of the time. The wins and losses won't be evenly distributed.
Poker is much the same, on a smaller scale. A professional player can turn consistent profits in the long run, but there's a huge amount of variance; they might have a mean hourly profit of $200, with a standard deviation of +/-$2000. You need a huge amount of capital to absorb that variance without going bust.
- bluetwo 10y agoI can't argue with your point or your analogy. The amount of capitalization needed however doesn't seem prohibitive as long as you are sure you have that slight, if inconsistent, edge. Options are made to slice and dice exactly this kind of risk for a reasonable cost.