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Msg  8531 of 9491  at  9/19/2019 1:29:59 PM  by


Flipping probabilities

 In the late 1970s I had a conversation with a very successful dealer in single family residential houses. He said to me something like:
   " Dan, it is much easier to sell 10 houses in the 100,000 range and make 10,000 on each than to sell a one million dollar house making 100,000."
Adjust the above for inflation and it might be 10 houses in the 300,000 range making 30,000 on each than selling one 3 million house making 300,000 on it.
When I thought about that, it made sense to me because the market for 100,000 houses was soo much bigger than the market for a million dollar house. He used the words "much easier". He was really saying the probability of him selling 10 houses making 10,000 on each was much greater than the probability of him selling one house making 100,000.....both being a 10% profit.
Now let's switch to the stock market. I just made 3% on ET in two days. Of all the stocks being traded, how many go up 3% in 2 days? Then ask how many go up 30% in 20 days. Or make the question 1.5% in 3 days vs 15% in 30 days.
I don't know the definitive answer but I know in my gut I have a higher probability of making 10 trades at 1.5% each in two days than making 15% on one stock in 20 days.
Just like the market for median priced houses is so much bigger than multi-million dollar houses, the stock market for small, fast gains is so much bigger than big gains in a proportionately longer period. That's throwing darts at a listing of all stocks.
Add knowledge of how a stock trades because you see it daily, and you increase your odds. Take Abbott Labs (ABT). I have a lot I bought in 1997 and I don't pay any attention to it. I can't remember ever flipping it because its trading is so dull. A fuddy-duddy old lady stock personified.
Last week I noticed it was down a bit over 3.5% shortly after the open. First I looked for for bad news like a failed drug trial. There was none.
So I bought 1,000 shares. There are 3 buys listed because I set my limit price a few cents above a rising ask, so I got 3 different prices. I sold it 2 hours later making 1,009 for dinners (1.24%). Not a big percent. I traded for a grand and got it the same day.
 I'm a believer that I have a better chance of making lots of small profits than waiting longer for a proportionately bigger profit. The same pot of flipping money turns over many times in a year with me. 
Most of the time I enter a sell order on a flip lot as soon as I see the buy, setting a dollar profit or percentage profit plus a penny to cover commissions and the sec fee. Then I let the market volatility do the rest. 
I have also posted here before, "He who fights and runs away lives to fight another day."  Put another way, he who takes a fast flip profit has the money (or margin capacity) for the next flip.

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