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/biz/ - Business & Finance

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892236 No.892236 [Reply] [Original]

Can someone who is knowledgeable on the subject pick apart my theory?

So stocks basically have a 50% chance of going up or down in a single day right? Well lets say Analysts are right 3/5 times. If I buy $100,000 worth of a $20 stock and set a limit order of 10 cents above my purchase price (which is well within the standard deviation of this stock). I also put a stop limit 10 cents under purchase price. If you choose stocks that analysts recommend, you would average making $1500 a week (3*500) and losing $1000 a week (2*500). So you end up averaging about $500 a week ($400 after fees). So in a year, one could average $25,000 (or $20,000).

What is wrong with this theory? Is it really so wrong to think that analysts could be right 60% of the time? 20% avg ROI sounds way too good to be true.

>inb4 hurr durr you're a retard I won't even tell you why thats all so wrong. You don't deserve my intellectual advise

>inb4 hurr durr google it phaggit, I couldn't find any data on analyst's accuracy in periods of 1 day

>> No.892262

>>892236
>So stocks basically have a 50% chance of going up or down in a single day right?
lol no

this is literally the same as saying "stocks are just like gambling", which is the most middle class thing you can do except for spending half of your pay on a massive fucking car downpayment.

>> No.892285
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892285

>>892236

You're basically starting a position and closing on the same day - either make or lose 10 cents on a 5,000 share position.

I'd start at the 50% chance assumption. Stocks and markets aren't necessarily that random. An underlying bull market and prevailing investor sentiment would make probabilities stochastic and likely introduce autocorrelations. It's way too big of an assumption.

Buying what analysts recommend - I dig the shyg. When your holding period is 1 day, I don't see why this would matter. Many analysts have no skin in the game. Analysts being right 60% of the time is more of a stretch than you can imagine. Even if that 1 day return is based on days of upgrades/downgrades, you run the risk of added volatility based on the news - enough to whipsaw you even if right.

Slippage, market impact costs, commissions, volatility on 5000 share positions will absolutely ruin your strategy. Win/Lose 10 cents per trade - not a chance. Equal payout/loss strategies are always doomed. 10 cents is also way too narrow. Intraday volatility has U-shape distribution - guaranteed buttfucking in the morning.

There's several other holes in the strategy - constant capital employed ($100000, $20 per share, 5000 shares).

>> No.892306

>>892285
Thank you