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RE: Diversify & HODL: The Risk Free Way to Retire Early
The stock market is a rigged casino.
All the people who are stuck in 401k's are being fleeced left and right.
Trend trading works, if you are good at recognizing the trends.
Technical analysis also works, if you are ok with 60% odds.
In both, you have to keep your fear in check.
And both you need to have a strong knowledge of the market.
The things I hate about the stock market is that:
- Computer algorithms are designed to front run your order. So, the actual investor pays more / gets fleeced with each transaction.
- Large investors actually move the market to make a profit. Little boats get smashed by big storms.
- That you don't actually own any of the stock you buy, without jumping through a lot more hoops. Often, to only find that you don't own the stock at all.
- The entire market is rigged...
How did you come up with 60%?
It is a rounded number from the basics of technical analysis. (books)
Given such a pattern in a stock price / volume, then the likelihood is that the stock is going to do X.
This is better than a 50/50 guess, but not by much.
If you see a cup and handle, the price is going to go up... a lot of the time.
If you see a shoulder and head, then you will probably see another shoulder... a lot of the time.
Statistics is nothing but history.
It does not tell the future.
60% chance of being right is still 40% chance of not being right.
Do not bet the house on the 60%.
Bet a little on many different assets that will moon if you are right.
Recommendation:
Black Swan by @nntaleb
The Black Swan is why I don't place any trust in the stock market at all.
And yes, technical trading is betting on just above average odds. But there are people who make a living off of it.
My recommendation, to be more succinct,
If you don't have the skill, the knowledge and the guts (emotional control) for technical trading, Don't do it. All you will do is lose money.
The problem is a lot of people will overestimate their skill, knowledge and emotional control for technical trading.
That is indeed very true. (And truth be told, many of them are just addicted to gambling.)
"If you see a cup and handle, the price is going to go up... a lot of the time.
If you see a shoulder and head, then you will probably see another shoulder... a lot of the time."
This is exactly how the large boys take your money. Because they know you know these things.
I agree that the stock market is rigged. Index funds are the safest way to go although one might not enjoy big gains.
Trend trading does not work. Obviously everyone knows the trends but some lose and some win. That game is also rigged from whales that sell false hopes and pull out early with inside training. Most traders, on the long run, are going to suffer big losses even if they know the trends.
"Computer algorithms are designed to front run your order. So, the actual investor pays more / gets fleeced with each transaction."
Read "Flash Boys". it describes this very well.
As an example of trends losing, as you say. Gold. The trend for gold is up... but the reality has been flatlined. Mostly because of huge market manipulations, but still...
This is why indexing is smarter than trading.