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I Had to Develop an iPhone App to Understand Swing Trading

67 points by riveralabs 12y ago

lotsofcows 12y ago
"Successful swing traders win only 50% of the time." Save yourself a lot of effort, toss a coin.
chollida1 12y ago
Good for this guy for making this app. However, this makes me worried for him... > There’s a 50% chance that I can lose $50.00 in a few days, but there’s also a 50% chance that I can make $100.00 or more in a few days. Why 50% chance? This number will be different for every person depending on his profit & loss history. Ummm..... This doesn't seem true to me. What if the stock just stays flat? That's more often than not the default for many stocks. if you make the dubious assumption that all three outcomes are equally valid then you loose 2/3s of the time. If the stock stays flat then you lose as you have to pay commissions to enter into the trade and to exit the trade. Lots of people model algorithms, very few model them accurately, sometimes myself included unfortunately:) > But swing traders need to win at least 50% of the time in order to be profitable. If you don't pay any commissions or have any overhead, sure. But I'm guessing you pay commission and I'm guessing you have overhead. I would read up on the Kelly Criterion to imporove your capital allocation. http://en.wikipedia.org/wiki/Kelly_criterion http://en.wikipedia.org/wiki/Kelly_criterion > You should stay away from stocks priced below $5.00 because these are Penny Stocks and involve a higher risk. You might consider stocks between $5.00 and $10.00, but again, they involve higher risk and even worse, they might go into Penny Stock territory. This is just plain false. Being under $5 is one of 3 criteria that make up a penny stock, its a necessary but not sufficent condition. There are plenty of good companies with stock prices under $5. The price of a stock isn't a good indicator of its risk. > The reality is that it’s easier said than done! It’s actually very hard to make money in the stock market! You will win but you will also lose a lot! To put it into perspective Full points to the author for realizing this! I'm still amazed at the number of people who think they can slap together some machine learning, nlp or deep learning and make money. People literally spend all their time doing this, if there was free money to be made someone would be making it:)
- jeffreyrogers 12y ago
  > People literally spend all their time doing this, if there was free money to be made someone would be making it:) I agree with everything you said above, including this. I want to add though, that there is effectively free money in the stock market. For example, just by buying a low-fee index fund (e.g. something from Vanguard), you're almost guaranteed to do better than most investors and probably better than nearly all speculators. (And there are other investment strategies that typically outperform the indices as well). I guess the reason people do poorly in the stock market is similar to why people start dumb startups that don't really have any hope of being profitable: The idea of rapidly creating an enormous amount of money for very little effort in a very short amount of time is much more appealing than making 12+% per year indefinitely, even though this strategy is much more likely to net you a higher return in the long-run... plus you actually have to save money if you want to invest this way :) Edit: It's also interesting to learn about how some of the big quant trading firms started. D.E. Shaw, for example, originally had some bond trading algorithms they used. It was very profitable and the hours were short compared to the rest of the Wall Street/Finance world. Then they got greedy and tried some more aggressive strategies, blew up, and nearly lost the fund. Fortunately for them they seem to be doing much better now, though I'm not sure what their current strategy is.
  - mistrQ 12y ago
    > People literally spend all their time doing this, if there was free money to be made someone would be making it:) I used to think this, then I worked on a trading system in an investment bank. Don't underestimate how quickly and easily you can learn and exceed people who should know what they're doing, given sufficient motivation.
    - falsestprophet 12y ago
      There are thousands of buy side firms all over the world stocked with stone cold geniuses who do this all day every day after having trained in maths and science all their lives. The fact that you saw some people you perceived to be clowns once, does not demonstrate the market is anyone's for the taking.
hoopism 12y ago
"The reality is that it’s easier said than done! It’s actually very hard to make money in the stock market!" There should be a follow on sentence... It can be very difficult to make money in the stock market IN THE SHORT TERM. You should not do this... most people should not do this. See this: https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-emotion https://personal.vanguard.com/us/insights/investingtruths/in...
- fennecfoxen 12y ago
  I'll go a step back from that to something simpler: You can use the stock market to make money. You can't use the stock market to make free money. There's a number of different ways to pay for your money. You can pay for it by doing intensive in-depth research and figuring out undervalued stocks. You can pay for it in cash up front (buying a bond or index fund) and make it back over time while other people do the work (your returns will be lower). You can pay for it by taking crazy risks with your money, hoping the market will swing in your favor (not necessarily gambling if you accurately understand the risks involved and don't overpay for risky assets). It's just like a lot of other business, when you get down to it, except the really crazy risks are easier to find and harder to analyze.
squidmccactus 12y ago
Wow looks like a really thorough Monte Carlo simulation. DAE this for Android or mobile-first HTML5?
mstefff 12y ago
> But swing traders need to win at least 50% of the time in order to be profitable. That's not true. It completely depends on your strategy/system. You can be highly-profitable with a 30% win-rate (or any number) granted the amount you win is far higher than the amount you lose. If my average win is $1000 and my average loss is $100, I can be profitable with only 10% wins (excluding commissions).
mlrtime 12y ago
It is certainly not 50%, each stock will have an implied volatility that will statistically determine the likelihood of a move.
dirtyaura 12y ago
A tangential question: It seems that a lot of smart people believe in technical analysis, but to me it sounds like telling the future from tea leaves. Does it really work or are successes just part of the standard randomness of stock investing?
- encoderer 12y ago
  I believe there's efficacy to it as one input; it's not an exact science. Technical analysis is just acknowledging that while price moves are random (and if you plot daily price moves, they represent a bell curve with fat ends), there are still patterns that reappear. And if you have tight stops in place to manage risk, you can (try to) take advantage when a pattern emerges.
- chollida1 12y ago
  This is a good question, and I don't think you'll get a definitive answer. If by technical analysis do you mean watch for patterns to appear, then yes it works. There are patterns all over the place. Renaissance Technologies is famous for its pattern matching AI. They hired 2 key employees out of IBM many years ago that layed the base for their technology and the rest has been money making history. See: http://www.businessinsider.com/bob-mercer-peter-brown-2010-3 http://www.businessinsider.com/bob-mercer-peter-brown-2010-3 and http://en.wikipedia.org/wiki/Renaissance_Technologies http://en.wikipedia.org/wiki/Renaissance_Technologies The world of trading has been a cat and mouse game of pattern matching for awhile. One of the earliest attempt at hiding large orders was an algorithm called POV( Percent of Volume). It's an order that would slice up a big order into smaller chunks and sell it throughout the day. The first variations would just sell every 10 minutes. Its easy to see how someone could find this pattern (Hmm, it seems like 1,000 MSFT are being sold at market every 10 minutes by Goldman Sachs) and exploit it which lead to more intelligent order spreading, and the cycle continues. However, if by technical analysis you mean looking for patterns like "head and shoulders" (http://www.investopedia.com/terms/h/head-shoulders.asp http://www.investopedia.com/terms/h/head-shoulders.asp) then it might be true only in that if so many people/computers believe in it that it becomes a self fulling prophecy. For example, if every one believes that when a stock crosses above its 20 and 50 day moving average then its going to fall, then it will fall just because everyone will start selling because they believe it will fall, which causes it to fall which reinforces everyone's belief that the pattern works and you have a positive feed back cycle. Does that mean technical analysis works? IMHO this type of investing doesn't work, but who am I to say...
TDL 12y ago
Nice job. This looks like a much better and more complete position sizing tool then the one I built (more of a learning exercise for me.) I wonder if the William Eckhardt position sizing algorithm was used. http://powerful-reaches-1118.herokuapp.com/ http://powerful-reaches-1118.herokuapp.com/ [very much a work in progress.]
emcnicho 12y ago
The chances of the stock moving from {$25 - $24 = 4.00%decrease} is much more likely than a move from {$25 - $27.5 = 10% increase}-plain intuition. To be brutally honest, it will most likely hit both of those price targets assuming the stock has been trading between that range and they are within one standard deviation of the historical price records. The most important part of being a trader is TIMING and the second most important part is being able to make decisions based off of analysis of technical parameters and NOT based off of your emotions. This type of analysis tells me that you are not comfortable emotionally with losing more than $50 on one trade which I see as a sign that you should be looking into more traditional investment practices. I would suggest you analyze the opportunity cost for the amount of research, training, and actual trading it will take before you become profitable. Don't forget about taxes! As a seasoned trader, I can assure you this is the type of analysis that will result in lost money and unimaginable negative emotions. It is too simplistic and lacks both fundamental theory and actual technical analysis.
phkahler 12y ago
>> I have the potential to make a higher 2R profit, with the same amount of risk as before, because I’m simply buying more shares. What he's really doing here is demanding a much larger percentage gain in the stock price to get that higher return. It has nothing to do with the number of shares.
gregonicus 12y ago
Sounds like this type of trading could generate near 1000 taxable events per year. How do you manage this data for your tax filing?
- jonknee 12y ago
  Computers... Your broker does the math and you get a form in the new year that details your various gains and losses (mainly capital gains and then dividend income, which may not apply if you're not holding positions).
pbreit 12y ago
Since even lots and round numbers don't matter anymore in the stock market, seems a strategy would be to _not_ follow the $10-25 guide.
zak_mc_kracken 12y ago
> Successful swing traders win only 50% of the time. Is this better than just picking stocks at random instead of carefully selecting them?
cheepin 12y ago
> It’s actually very hard to make money in the stock market! Can't you just buy an index fund, forget about it and come back to ~8% per year gain?
- lutusp 12y ago
  Good for you for knowing this. It's true, and it's something brokers wish people wouldn't point out. If you're simply interested in making money in equities and not gambling, index funds are the way to go. http://arachnoid.com/equities_myths http://arachnoid.com/equities_myths
ipsin 12y ago
So won't high frequency traders discover your limits (by posting and canceling orders rapidly) and drive you into them, costing you money? I thought this was the simplest kind of fish for them to catch.
- Mikeb85 12y ago
  I don't think you know what HFT is...
Mikeb85 12y ago
While this is interesting, it's pretty much useless. Traders can do the basic maths in their head, in a split second. If they can't, they have no chance of making sense of any sort of financial numbers and indicators. Furthermore, the price of the stock doesn't really matter for anything above a penny stock. 100 shares at $25 is the same as 10 shares at $250, all else equal (for instance, market cap). I also think larger positions are better, for instance $10K per trade is a good number. It's high enough that commissions are trivial, so you can make money off a 1-2% swing, rather than needing to make 3-4%. Of course, the ideal is 5-10% (well, more is ideal, but 5-10% is a realistic enough number for a short time frame, say a week or two), but it's nice to exit out of a trade that turned against you and still take a small profit at the end. And of course, this app ignores the most important part - picking and timing stocks. Some understanding of technical analysis as well as sentiment is required, and basic market dynamics (supply vs. demand, volume, etc...).
jonknee 12y ago
Weird idea for an app, but at least it's pretty. Swing trading probably isn't for you if you can't do basic math in your head.
kelvin0 12y ago
The development of this app, and the technical know-how gained is really something positive. However, doesn't it worry anyone how the Stock Market seems to be reduced to a mobile game? It`s not even about adding value to the market, but just piggy backing on this humongous money machine for the sake of individual gain... Please correct me if my perspective is missing some 'optimism'.

67 points by riveralabs 12y ago

"Successful swing traders win only 50% of the time." Save yourself a lot of effort, toss a coin.

Good for this guy for making this app. However, this makes me worried for him... > There’s a 50% chance that I can lose $50.00 in a few days, but there’s also a 50% chance that I can make $100.00 or more in a few days. Why 50% chance? This number will be different for every person depending on his profit & loss history. Ummm..... This doesn't seem true to me. What if the stock just stays flat? That's more often than not the default for many stocks. if you make the dubious assumption that all three outcomes are equally valid then you loose 2/3s of the time. If the stock stays flat then you lose as you have to pay commissions to enter into the trade and to exit the trade. Lots of people model algorithms, very few model them accurately, sometimes myself included unfortunately:) > But swing traders need to win at least 50% of the time in order to be profitable. If you don't pay any commissions or have any overhead, sure. But I'm guessing you pay commission and I'm guessing you have overhead. I would read up on the Kelly Criterion to imporove your capital allocation. http://en.wikipedia.org/wiki/Kelly_criterion http://en.wikipedia.org/wiki/Kelly_criterion > You should stay away from stocks priced below $5.00 because these are Penny Stocks and involve a higher risk. You might consider stocks between $5.00 and $10.00, but again, they involve higher risk and even worse, they might go into Penny Stock territory. This is just plain false. Being under $5 is one of 3 criteria that make up a penny stock, its a necessary but not sufficent condition. There are plenty of good companies with stock prices under $5. The price of a stock isn't a good indicator of its risk. > The reality is that it’s easier said than done! It’s actually very hard to make money in the stock market! You will win but you will also lose a lot! To put it into perspective Full points to the author for realizing this! I'm still amazed at the number of people who think they can slap together some machine learning, nlp or deep learning and make money. People literally spend all their time doing this, if there was free money to be made someone would be making it:)

jeffreyrogers 12y ago
> People literally spend all their time doing this, if there was free money to be made someone would be making it:) I agree with everything you said above, including this. I want to add though, that there is effectively free money in the stock market. For example, just by buying a low-fee index fund (e.g. something from Vanguard), you're almost guaranteed to do better than most investors and probably better than nearly all speculators. (And there are other investment strategies that typically outperform the indices as well). I guess the reason people do poorly in the stock market is similar to why people start dumb startups that don't really have any hope of being profitable: The idea of rapidly creating an enormous amount of money for very little effort in a very short amount of time is much more appealing than making 12+% per year indefinitely, even though this strategy is much more likely to net you a higher return in the long-run... plus you actually have to save money if you want to invest this way :) Edit: It's also interesting to learn about how some of the big quant trading firms started. D.E. Shaw, for example, originally had some bond trading algorithms they used. It was very profitable and the hours were short compared to the rest of the Wall Street/Finance world. Then they got greedy and tried some more aggressive strategies, blew up, and nearly lost the fund. Fortunately for them they seem to be doing much better now, though I'm not sure what their current strategy is.
- mistrQ 12y ago
  > People literally spend all their time doing this, if there was free money to be made someone would be making it:) I used to think this, then I worked on a trading system in an investment bank. Don't underestimate how quickly and easily you can learn and exceed people who should know what they're doing, given sufficient motivation.
  - falsestprophet 12y ago
    There are thousands of buy side firms all over the world stocked with stone cold geniuses who do this all day every day after having trained in maths and science all their lives. The fact that you saw some people you perceived to be clowns once, does not demonstrate the market is anyone's for the taking.

hoopism 12y ago

"The reality is that it’s easier said than done! It’s actually very hard to make money in the stock market!" There should be a follow on sentence... It can be very difficult to make money in the stock market IN THE SHORT TERM. You should not do this... most people should not do this. See this: https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-emotion https://personal.vanguard.com/us/insights/investingtruths/in...

fennecfoxen 12y ago
I'll go a step back from that to something simpler: You can use the stock market to make money. You can't use the stock market to make free money. There's a number of different ways to pay for your money. You can pay for it by doing intensive in-depth research and figuring out undervalued stocks. You can pay for it in cash up front (buying a bond or index fund) and make it back over time while other people do the work (your returns will be lower). You can pay for it by taking crazy risks with your money, hoping the market will swing in your favor (not necessarily gambling if you accurately understand the risks involved and don't overpay for risky assets). It's just like a lot of other business, when you get down to it, except the really crazy risks are easier to find and harder to analyze.

squidmccactus 12y ago

Wow looks like a really thorough Monte Carlo simulation. DAE this for Android or mobile-first HTML5?

mstefff 12y ago

> But swing traders need to win at least 50% of the time in order to be profitable. That's not true. It completely depends on your strategy/system. You can be highly-profitable with a 30% win-rate (or any number) granted the amount you win is far higher than the amount you lose. If my average win is $1000 and my average loss is $100, I can be profitable with only 10% wins (excluding commissions).

mlrtime 12y ago

It is certainly not 50%, each stock will have an implied volatility that will statistically determine the likelihood of a move.

dirtyaura 12y ago

A tangential question: It seems that a lot of smart people believe in technical analysis, but to me it sounds like telling the future from tea leaves. Does it really work or are successes just part of the standard randomness of stock investing?

encoderer 12y ago
I believe there's efficacy to it as one input; it's not an exact science. Technical analysis is just acknowledging that while price moves are random (and if you plot daily price moves, they represent a bell curve with fat ends), there are still patterns that reappear. And if you have tight stops in place to manage risk, you can (try to) take advantage when a pattern emerges.
chollida1 12y ago
This is a good question, and I don't think you'll get a definitive answer. If by technical analysis do you mean watch for patterns to appear, then yes it works. There are patterns all over the place. Renaissance Technologies is famous for its pattern matching AI. They hired 2 key employees out of IBM many years ago that layed the base for their technology and the rest has been money making history. See: http://www.businessinsider.com/bob-mercer-peter-brown-2010-3 http://www.businessinsider.com/bob-mercer-peter-brown-2010-3 and http://en.wikipedia.org/wiki/Renaissance_Technologies http://en.wikipedia.org/wiki/Renaissance_Technologies The world of trading has been a cat and mouse game of pattern matching for awhile. One of the earliest attempt at hiding large orders was an algorithm called POV( Percent of Volume). It's an order that would slice up a big order into smaller chunks and sell it throughout the day. The first variations would just sell every 10 minutes. Its easy to see how someone could find this pattern (Hmm, it seems like 1,000 MSFT are being sold at market every 10 minutes by Goldman Sachs) and exploit it which lead to more intelligent order spreading, and the cycle continues. However, if by technical analysis you mean looking for patterns like "head and shoulders" (http://www.investopedia.com/terms/h/head-shoulders.asp http://www.investopedia.com/terms/h/head-shoulders.asp) then it might be true only in that if so many people/computers believe in it that it becomes a self fulling prophecy. For example, if every one believes that when a stock crosses above its 20 and 50 day moving average then its going to fall, then it will fall just because everyone will start selling because they believe it will fall, which causes it to fall which reinforces everyone's belief that the pattern works and you have a positive feed back cycle. Does that mean technical analysis works? IMHO this type of investing doesn't work, but who am I to say...

TDL 12y ago

Nice job. This looks like a much better and more complete position sizing tool then the one I built (more of a learning exercise for me.) I wonder if the William Eckhardt position sizing algorithm was used. http://powerful-reaches-1118.herokuapp.com/ http://powerful-reaches-1118.herokuapp.com/ [very much a work in progress.]

emcnicho 12y ago

The chances of the stock moving from {$25 - $24 = 4.00%decrease} is much more likely than a move from {$25 - $27.5 = 10% increase}-plain intuition. To be brutally honest, it will most likely hit both of those price targets assuming the stock has been trading between that range and they are within one standard deviation of the historical price records. The most important part of being a trader is TIMING and the second most important part is being able to make decisions based off of analysis of technical parameters and NOT based off of your emotions. This type of analysis tells me that you are not comfortable emotionally with losing more than $50 on one trade which I see as a sign that you should be looking into more traditional investment practices. I would suggest you analyze the opportunity cost for the amount of research, training, and actual trading it will take before you become profitable. Don't forget about taxes! As a seasoned trader, I can assure you this is the type of analysis that will result in lost money and unimaginable negative emotions. It is too simplistic and lacks both fundamental theory and actual technical analysis.

phkahler 12y ago

>> I have the potential to make a higher 2R profit, with the same amount of risk as before, because I’m simply buying more shares. What he's really doing here is demanding a much larger percentage gain in the stock price to get that higher return. It has nothing to do with the number of shares.

gregonicus 12y ago

Sounds like this type of trading could generate near 1000 taxable events per year. How do you manage this data for your tax filing?

jonknee 12y ago
Computers... Your broker does the math and you get a form in the new year that details your various gains and losses (mainly capital gains and then dividend income, which may not apply if you're not holding positions).

pbreit 12y ago

Since even lots and round numbers don't matter anymore in the stock market, seems a strategy would be to _not_ follow the $10-25 guide.

zak_mc_kracken 12y ago

> Successful swing traders win only 50% of the time. Is this better than just picking stocks at random instead of carefully selecting them?

cheepin 12y ago

> It’s actually very hard to make money in the stock market! Can't you just buy an index fund, forget about it and come back to ~8% per year gain?

lutusp 12y ago
Good for you for knowing this. It's true, and it's something brokers wish people wouldn't point out. If you're simply interested in making money in equities and not gambling, index funds are the way to go. http://arachnoid.com/equities_myths http://arachnoid.com/equities_myths

ipsin 12y ago

So won't high frequency traders discover your limits (by posting and canceling orders rapidly) and drive you into them, costing you money? I thought this was the simplest kind of fish for them to catch.

Mikeb85 12y ago
I don't think you know what HFT is...

Mikeb85 12y ago

While this is interesting, it's pretty much useless. Traders can do the basic maths in their head, in a split second. If they can't, they have no chance of making sense of any sort of financial numbers and indicators. Furthermore, the price of the stock doesn't really matter for anything above a penny stock. 100 shares at $25 is the same as 10 shares at $250, all else equal (for instance, market cap). I also think larger positions are better, for instance $10K per trade is a good number. It's high enough that commissions are trivial, so you can make money off a 1-2% swing, rather than needing to make 3-4%. Of course, the ideal is 5-10% (well, more is ideal, but 5-10% is a realistic enough number for a short time frame, say a week or two), but it's nice to exit out of a trade that turned against you and still take a small profit at the end. And of course, this app ignores the most important part - picking and timing stocks. Some understanding of technical analysis as well as sentiment is required, and basic market dynamics (supply vs. demand, volume, etc...).

jonknee 12y ago

Weird idea for an app, but at least it's pretty. Swing trading probably isn't for you if you can't do basic math in your head.

kelvin0 12y ago

The development of this app, and the technical know-how gained is really something positive. However, doesn't it worry anyone how the Stock Market seems to be reduced to a mobile game? It`s not even about adding value to the market, but just piggy backing on this humongous money machine for the sake of individual gain... Please correct me if my perspective is missing some 'optimism'.