Oh ye seekers after perpetual motion, how many vain chimeras have you pursued? Go and take your place with the alchemists. Leonardo da Vinci, 1494

So, the story goes like this – You have amount of money X and an asset at Price P1. The followers of the “The Perpetual Motion” of Trading “ strategy believe it is possible to:

• Acquire some M1 amount of the asset (“A”) at price P1, probably slowly over time , [so spending some par X1 of your money]; - This part I do not argue this is indeed doable.
• Then using your remaining money X2 = X- X1, Continue driving the price of “A” up by buying more of it. So driving the price to a level P2 (P2>P1 obviously) - This part I do not argue this is indeed doable.

So you end up with average acquisition price of “A” of Pa – Pa would obviously be between P1 and P2; more precisely P1 < Pa < P2.

• Now comes the sweet part, the meat of the strategy… You just sell “A” at price above Pa. Why – cause the price is already at P2… you see and P2 > Pa so you make money. Nice ah?
  Why this a fallacy. Why it is impossible to consistently (aka in more than 50% of the cases) to do that.

Let’s start with the layman’s explanation:
If this was possible no need of any other trading strategy will be needed. You just buy something with part of your money. Use the rest of your cash to drive the price up. Sell at those higher prices. Rinse and repeat. Endless profit for everyone ‘following’ the great …the only startegy.

Here is the deeper reason why this strategy does not work (actually works in reverse)
It is based on the obviously wrong assumption that: You can buy amount M2 of asset A, [in the drive the price from P1 to P2 phase above] and drive the price up. And consecutively sell amount M2 plus the original amount M1 at price higher than the Pa. Now this might happen from time to time (mainly due to other buyers/sellers being on the market as well as we do), but expecting this to happen on a consistent bases is a fallacy.
We are buy amount M2 and selling a bigger amount M1+M2. The only logical, consistent outcome we can expect as a result of our operation is the average sell price ( Ps) to be smaller than even P1…and we make a profit at price above Pa … Pa>P1.

PS
This a fictional strategy that I do not think anyone in his right mind has ever tried in real life.
What is important though is this strategy is very true and well in the minds of some particular blogging – AND -stable-currency-platform. And based on their believe in this strategy important system design decision were made and continue to be defended

:)
#trading #finances #sd #steem #steemit

and
Pay me 0% in Steem Power!!! :)