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I have my own theories on why "following others" adds efficiency to the market. It's a losing strategy if applied on every situation with zero context obviously

I have my own theories on why "following others" adds efficiency to the market. It's a losing strategy if applied on every situation with zero context obviously (which is why most traders lose money), but traders who find a consistent edge doing it "bring the market closer to where it's supposed to go" so to speak, in general. But this is all theory in my little head with no substantial research so I don't care to stake my life on it. In the end, I don't care that much to argue about social utility. I trade my own cash or I trade the money of guys who completely understand my objectives and choose to back me. I respect your views and I won't bother to persuade you otherwise. I get the feeling if this thread was about losing $200k to Phil Ivey heads up in Hold Em or Nate Silver losing $200k by betting against Obama on a political betting site, nobody would care to bring up social utility.

andrewchambers 12y ago
I kind of mixed 3 points. 1. Is it luck or skill. I'd say there must be some skill, but luck too, kind of like poker maybe? 2. Is it useful to society? No idea if its a benefit, a drain, or neutral. 3. Should it be allowed? It is your money after all.
- peterkto 12y ago
  1) There's always some element of luck involved. After all, I can't control everything that happens. I played poker before trading. There are similarities and differences. You can tell when you get unlucky, like when you get aces cracked by two runners. It's hard to tell if you get unlucky when stopped out on a day trade. 2) At the very least, I don't think what I do is harmful to anyone. I'd also like to add that I make many trades that are a better example of adding value. In the trade example of buying the dip in AAMRQ (prior blog post on my site), I am making the market more efficient (I'm saying this with the benefit of hindsight, of course). AAMRQ was moving adversely against its clear fundamental value (based on a stock merger deal with US Airways) and by buying it on weakness, I'm adding liquidity on the side that it should "eventually go to". This only works if I'm consistently right more than wrong. I also short garbage stocks that have no fundamental value, another example of trying to restore efficient prices. Price discovery is important so capital isn't allocated inefficiently. 3) Impossible to ban trading without destroying market liquidity. It's also way too difficult to define what trading is helpful vs. parasitic and have everyone agree on it. One could easily place a seemingly "outlawed" type of trade and claim to have sound intentions, which is what makes market manipulation difficult to prosecute.

andrewchambers 12y ago

I kind of mixed 3 points. 1. Is it luck or skill. I'd say there must be some skill, but luck too, kind of like poker maybe? 2. Is it useful to society? No idea if its a benefit, a drain, or neutral. 3. Should it be allowed? It is your money after all.

peterkto 12y ago
1) There's always some element of luck involved. After all, I can't control everything that happens. I played poker before trading. There are similarities and differences. You can tell when you get unlucky, like when you get aces cracked by two runners. It's hard to tell if you get unlucky when stopped out on a day trade. 2) At the very least, I don't think what I do is harmful to anyone. I'd also like to add that I make many trades that are a better example of adding value. In the trade example of buying the dip in AAMRQ (prior blog post on my site), I am making the market more efficient (I'm saying this with the benefit of hindsight, of course). AAMRQ was moving adversely against its clear fundamental value (based on a stock merger deal with US Airways) and by buying it on weakness, I'm adding liquidity on the side that it should "eventually go to". This only works if I'm consistently right more than wrong. I also short garbage stocks that have no fundamental value, another example of trying to restore efficient prices. Price discovery is important so capital isn't allocated inefficiently. 3) Impossible to ban trading without destroying market liquidity. It's also way too difficult to define what trading is helpful vs. parasitic and have everyone agree on it. One could easily place a seemingly "outlawed" type of trade and claim to have sound intentions, which is what makes market manipulation difficult to prosecute.