What is the reason for not wanting to short the stock versus buying puts. Is it the margin that needs to be put up? It's a very important question regarding what you want out of your position and what you don't want. What you want is to be able to profit on the short side of the stock. At the same time you don't want to deal with wide option spreads and time decay right. Do you know you can create a virtual option with just using stock? Think about what an option is and what it does and what the profit profile looks like and then ask yourself how can I duplicate this profile using just stock. Remember its the curvature in options that create your profit profile. You can create that same curvature by buying and selling the stock with the same slope of the option. Example. If you want to buy a put on xyz you could short 50 shares of stock and then continue to sell 10 shares every .50 down for let’s say 2 1/2 pts, at that point you will be short 100 shares of stock. As the stock comes back up you could buy back those shares in the same increments. If you bought the front month ATM put you would be doing the same thing. The put would be the same as being short 50 shares of stock and as the stock dropped you would be getting shorter by the same amount up to parity. Why should you do this? For one, you don't have to pay the enormous spreads in some cases that options have and two, no time decay. Think about it. You could buy a virtual put with no time decay and no spread. Just something to think about. What you will learn about options and even trading in general is that it does pay to be creative. Think outside the box.
HOLY GRAIL OF TRADING/INVESTING - CUT YOUR LOSSES SHORT. LET YOUR PROFITS RUN.
Even A Broken Clock Is Right Twice A Day
Lot of the trades LTCM put on were total crap shoots. They did a lot of short equity volatility. Over a billion dollars worth. That is insane. They had no hedge on that so pure naked exposure there. They also began speculating on stocks and junk debt. They lost billions on this stuff. Let’s ignore all this for a moment and stick to the mathematical arbitrage trades. The fact of the matter is their bet was wrong. Anyone can make the claim that they had to get out of their trades early and if they just had enough capital they could have weathered it out. Ever heard of the saying the markets can remain irrational longer then you can remain solvent? If we use your rationality, that given enough time they would have come out ahead then why can't everyone use that excuse. Hell given enough time most good companies bounce back right, most sports teams, most businesses, most marriages, the weather, traffic, you name it, any pattern in nature, even evolution. As mark twain once said, in the long run we are all dead. Well in the long run we are all right. A 6 year old child can make predictions and be even right in the long run. A broken clock is right twice a day right? So if I am out on the street screaming the wrong time. Eventually, given enough time, I will be right at least twice. The problem is I don't see the skill in that. I don't see any edge. Now as far as credit spreads go in the fixed income market, everyone knows that they always come back to some normal level. The trick is being able to time it, not in the prediction that it will eventually happen. But here is the kicker. Society is full of people who make money every day on flawed theories due to random luck yet call it skill. But given enough time, every man that has made his living on luck and false theories eventually gets to meet his black swan. And you know what he says when he comes face to face with that black swan. He tells everyone that what happened to him was a once in a thousand year event. Something that could have not been predicted. But then he will go on to say that if he had been able to wait it out or if he had more capital, given enough time, he would have been right.
Long The Bull. Short The Bear
1. The first and most important rule is - in bull markets, one is supposed to be long. This may sound obvious, but how many of us have sold the first rally in every bull market, saying that the market has moved too far, too fast. Thus, we've not enjoyed the profits that should have accrued to us for our initial bullish outlook, but have actually lost money while being short. In a bull market, one can only be long or on the sidelines. Remember, not having a position is a position.
2. Buy that which is showing strength - sell that which is showing weakness. The public continues to buy when prices have fallen. The professional buys because prices have rallied. This difference may not sound logical, but buying strength works. The rule of survival is not to "buy low, sell high", but to "buy higher and sell higher". Furthermore, when comparing various stocks within a group, buy only the strongest and sell the weakest.
3. When putting on a trade, enter it as if it has the potential to be the biggest trade of the year. Don't enter a trade until it has been well thought out, a campaign has been devised for adding to the trade, and contingency plans set for exiting the trade.
4. On minor corrections against the major trend, add to trades. In bull markets, add to the trade on minor corrections back into support levels. In bear markets, add on corrections into resistance. Use the 33-50% corrections level of the previous movement or the proper moving average as a first point in which to add.
5. Be patient. If a trade is missed, wait for a correction to occur before putting the trade on.
6. Be patient. Once a trade is put on, allow it time to develop and give it time to create the profits you expected.
7. Be patient. The old adage that "you never go broke taking a profit" is maybe the most worthless piece of advice ever given. Taking small profits is the surest way to ultimate loss I can think of, for small profits are never allowed to develop into enormous profits. The real money in trading is made from the one, two or three large trades that develop each year. You must develop the ability to patiently stay with winning trades to allow them to develop into that sort of trade.
8. Be patient. Once a trade is put on, give it time to work; give it time to insulate itself from random noise; give it time for others to see the merit of what you saw earlier than they.
9. Be impatient. As always, small loses and quick losses are the best losses. It is not the loss of money that is important. Rather, it is the mental capital that is used up when you sit with a losing trade that is important.
10. Never, ever under any condition, add to a losing trade, or "average" into a position. If you are buying, then each new buy price must be higher than the previous buy price. If you are selling, then each new selling price must be lower. This rule is to be adhered to without question.
11. Do more of what is working for you, and less of what's not. Each day, look at the various positions you are holding, and try to add to the trade that has the most profit while subtracting from that trade that is either unprofitable or is showing the smallest profit. This is the basis of the old adage, "let your profits run."
12. Don't trade until the technicals and the fundamentals both agree. This rule makes pure technicians cringe. I don't care! I will not trade until I am sure that the simple technical rules I follow, and my fundamental analysis, are running in tandem. Then I can act with authority, and with certainty, and patiently sit tight.
13. When sharp losses in equity are experienced, take time off. Close all trades and stop trading for several days. The mind can play games with itself following sharp, quick losses. The urge "to get the money back" is extreme, and should not be given in to.
14. When trading well, trade somewhat larger. We all experience those incredible periods of time when all of our trades are profitable. When that happens, trade aggressively and trade larger. We must make our proverbial "hay" when the sun does shine.
15. When adding to a trade, add only 1/4 to 1/2 as much as currently held. That is, if you are holding 400 shares of a stock, at the next point at which to add, add no more than 100 or 200 shares. That moves the average price of your holdings less than half of the distance moved, thus allowing you to sit through 50% corrections without touching your average price.
16. Think like a guerrilla warrior. We wish to fight on the side of the market that is winning, not wasting our time and capital on futile efforts to gain fame by buying the lows or selling the highs of some market movement. Our duty is to earn profits by fighting alongside the winning forces. If neither side is winning, then we don't need to fight at all.
17. Markets form their tops in violence; markets form their lows in quiet conditions.
18. The final 10% of the time of a bull run will usually encompass 50% or more of the price movement. Thus, the first 50% of the price movement will take 90% of the time and will require the most backing and filling and will be far more difficult to trade than the last 50%.
2. Buy that which is showing strength - sell that which is showing weakness. The public continues to buy when prices have fallen. The professional buys because prices have rallied. This difference may not sound logical, but buying strength works. The rule of survival is not to "buy low, sell high", but to "buy higher and sell higher". Furthermore, when comparing various stocks within a group, buy only the strongest and sell the weakest.
3. When putting on a trade, enter it as if it has the potential to be the biggest trade of the year. Don't enter a trade until it has been well thought out, a campaign has been devised for adding to the trade, and contingency plans set for exiting the trade.
4. On minor corrections against the major trend, add to trades. In bull markets, add to the trade on minor corrections back into support levels. In bear markets, add on corrections into resistance. Use the 33-50% corrections level of the previous movement or the proper moving average as a first point in which to add.
5. Be patient. If a trade is missed, wait for a correction to occur before putting the trade on.
6. Be patient. Once a trade is put on, allow it time to develop and give it time to create the profits you expected.
7. Be patient. The old adage that "you never go broke taking a profit" is maybe the most worthless piece of advice ever given. Taking small profits is the surest way to ultimate loss I can think of, for small profits are never allowed to develop into enormous profits. The real money in trading is made from the one, two or three large trades that develop each year. You must develop the ability to patiently stay with winning trades to allow them to develop into that sort of trade.
8. Be patient. Once a trade is put on, give it time to work; give it time to insulate itself from random noise; give it time for others to see the merit of what you saw earlier than they.
9. Be impatient. As always, small loses and quick losses are the best losses. It is not the loss of money that is important. Rather, it is the mental capital that is used up when you sit with a losing trade that is important.
10. Never, ever under any condition, add to a losing trade, or "average" into a position. If you are buying, then each new buy price must be higher than the previous buy price. If you are selling, then each new selling price must be lower. This rule is to be adhered to without question.
11. Do more of what is working for you, and less of what's not. Each day, look at the various positions you are holding, and try to add to the trade that has the most profit while subtracting from that trade that is either unprofitable or is showing the smallest profit. This is the basis of the old adage, "let your profits run."
12. Don't trade until the technicals and the fundamentals both agree. This rule makes pure technicians cringe. I don't care! I will not trade until I am sure that the simple technical rules I follow, and my fundamental analysis, are running in tandem. Then I can act with authority, and with certainty, and patiently sit tight.
13. When sharp losses in equity are experienced, take time off. Close all trades and stop trading for several days. The mind can play games with itself following sharp, quick losses. The urge "to get the money back" is extreme, and should not be given in to.
14. When trading well, trade somewhat larger. We all experience those incredible periods of time when all of our trades are profitable. When that happens, trade aggressively and trade larger. We must make our proverbial "hay" when the sun does shine.
15. When adding to a trade, add only 1/4 to 1/2 as much as currently held. That is, if you are holding 400 shares of a stock, at the next point at which to add, add no more than 100 or 200 shares. That moves the average price of your holdings less than half of the distance moved, thus allowing you to sit through 50% corrections without touching your average price.
16. Think like a guerrilla warrior. We wish to fight on the side of the market that is winning, not wasting our time and capital on futile efforts to gain fame by buying the lows or selling the highs of some market movement. Our duty is to earn profits by fighting alongside the winning forces. If neither side is winning, then we don't need to fight at all.
17. Markets form their tops in violence; markets form their lows in quiet conditions.
18. The final 10% of the time of a bull run will usually encompass 50% or more of the price movement. Thus, the first 50% of the price movement will take 90% of the time and will require the most backing and filling and will be far more difficult to trade than the last 50%.
Ninety Percent
There was an interesting article some time ago that was talking about the number of people who over time have been successful at speculating going all the way back to like the 1600's. They said even 400 years ago about 90% of the people who made a try at it failed. Same numbers from 300 and 200 and 100 years ago. Same percentage failed in the 1920's, the 1950's and 1980's. All the way up to today. That 90% number is still alive and well. The interesting thing about this article was and that it pointed out that despite all the information we have today, the lower cost of trading, electronic lightening fast executions, all these fancy charts and instant news, despite all of that, technology has in no way shape or form allowed more people to make money at speculating. Bottom line, trade where you want to trade, whatever product, whatever exchange, whatever timeframe, just don't blame others for your failures. People don't fail at trading because of bad fills and high commissions and greedy specialists and evil locals, they fail because they can't trade. When people can't make money trading they will blame everyone but themselves. The exchange fees, their trading software, their prop firm, they only have 3 flat screens instead of 6, whatever. They are just excuses. The day they can look in the mirror and blame themselves for their losses will be the day they start cleaning up in the market and stop worrying about the miniscule amount that exchanges charge to clear your trades. You know what's funny, 10 years ago, guys use to pay 10 times the commissions and exchange fees they pay today and use to trade over the phone instead of computer and they still made ungodly amounts of money.
Its Going Well
There is nothing new about options. They haven't changed in the last 29 years. They are the same as when calls first started trading on the CBOE in 1973. There have been no new developments. I would run fast away from anyone that says they have something new to tell you about options that hasn't been written about the last 30 years. Next thing, options cannot be learned at a seminar or in a classroom. You may learn how they can be put together but until you've made 5,000 to 10,000 trades you will not have even the foggiest clue as to why they respond and change value the way they do. OK, last thing. I can assure you this that the few people in this world that know how to take money out of options, do not talk. They do not talk. They do not sell their ideas on TV, they do not sell their ideas at seminars and they don't even tell their buddies at the bar. They keep their mouth shut and when people ask them how their options trading is coming along they answer with a simple, "It's going well."
Hedging A Naked Portfolio
You can't manage risk with negative gamma. You can hedge it at any point in time but when the market gaps up or gaps down, the negative gamma will eat you alive. You can't hedge that because you won't be given the opportunity to. If you tell me you have a portfolio of naked options that is bullet proof and then to take it even a step further and say rare events don't hurt you and then on top of that say you can manage the risk with a naked portfolio is a joke. It doesn't matter what your returns a year are doing this strategy. It could be 1000% a year. One event, one singular event will wipe out every profit you ever made the last 10 years, and then it will take whatever is left. I assure you, you will be bankrupt soon. In the world of dynamic hedging, you cannot hedge a naked portfolio. It's not possible. And in times of crisis everything is 100% correlated to everything else. No such thing as diversifying naked premium. The black swan always gets it man.
Options Secrets
There are no such things as secrets in options. And yes there have been hundreds of books written about selling options. Options haven't changed in 30 years. You want to know what guys do on the floor. Go ask them, they will tell you. Why? Because it's no secret what they do, they just have the advantage of earning the spread, seeing the order flow, fading the order flow they don't like, and no capital limitations. Oh, also dirt cheap transaction costs. But they aren't doing anything secretive. I don't know why there is this myth that there are these magical secrets out there and once you discover them you will be wealthy beyond your wildest dreams. Look 99% of the money made in the market, in any market is made in one of two ways. One through order flow information and two execution and cost of execution. The other 1% or so comes from pure speculation. Everyone and their brother knew what LTCM was doing, it wasn't a secret. They could just put on their trades much cheaper than anyone else and got financed better than anyone else. When you study options you learn there are only so many things you can do and none of them are a secret. In fact, somebody correct me if I'm wrong but has there been any new strategies in options since the call options started trading in 1973 on the CBOE? I don't think so.
Naked Options
For those who want to sell premium, don't use naked options. Do what the guys on the floor do. Put on back spreads. You can put them on for a credit initially have a position with positive theta and negative vega and collect the premium. If the stock takes off you will then have a position with unlimited upside as you will now have a long gamma and long vega position. This strategy is 10 times better then the dream your way to millions by selling options by the dream man. Why? Because you give yourself so many options. Your position can profit in many ways. Either by lack of movement or sharp movement. Depending on where you sell the strike and how you pivot the slope on the back spread will determine if you want the position to provide a better return by earning the time decay or on the possibility of a big move. Either way, back spreads are unlimited reward and limited risk. Naked options are limited reward and unlimited risk. This spread will also allow you to sleep at night. And when that ten sigma event comes, instead of filing for bankruptcy, you'll be buying your neighbor's house who sold the naked options.
Short Gamma
Let’s say you go ahead and short a boatload of premium on the OEX because it is way up there now. And everything is going along just fine. Then out of the blue the United States launches an attack on Iraq. And Iraq in turn launches an attack on Israel. First news headline in the morning, 10 American fighter jets shot down. Guess what buddy. Game over. That could wipe out your account the first hour of trading. That's the point about selling premium. You never know when that will happen. And when it does, you have no way to hedge that short gamma. Because the vol is going to jump. Most traders that work on the floor who have any kind of lengthy career have done so by staying long as much gamma as they can afford. Every trader that has gotten escorted off the floor because he blew out his account was short gamma not long gamma. There is not a single guy on the floor that blew out of his account because he was long gamma.
Options Are Very Very Complicated
First of all, a good trader doesn't listen to other traders to find out what works, he finds out what works himself. Second, I could tell you that delta neutral trading is the most profitable trading style ever and you could proceed to lose your house using it. Options are very very complicated. You need to understand volatility forward and backward, not just how its calculated mathematically, but how it moves and changes with the market. You need to understand the vol skew and why that happens. You need to know why market makers juice the premium. You need to know the relationship between statistical volatility and implied volatility and why those two trade at different levels. As far as deltas go, you need to know what delta bleeding is. You need to know the relationship that delta has to time, to volatility and to price. You need to know the difference between standard delta and true delta. You need to know what CEV (constant elasticity of volatility) is. Then if you’re going to trade delta neutral you need to know what gamma is. You also need to understand the gamma of the gamma which is the second derivative of gamma. Also volatility has a second derivative, the volatility of the volatility. You also need to know what the alpha is which is gamma's relationship to theta. You also have to understand what stochastic volatility is and how it is different than regular volatility. There are 100 things you need to know about options before you can make it work. Its not as easy as just saying buy straddles. There is a very good reason why 95% of the people who trade options lose money. It's because they are asking if such and such a strategy works and they use it like a one size fits all strategy. Options is a zero sum game unlike stocks. That means for every winner there is a loser. It's the top 5% that take the other 95% money.
Knowledge & Trading
It is not about earning a good living. It is about the positive correlation to results and education. If you go to a great school and prostitute yourself to the corporate world you will make a good upper middle class living. For those people who don't like to think on their own and need to be told what to do and how to do it then the corporate world is for you. You can earn a very nice safe salary with benefits. But you will be a slave to your master. Nothing wrong with that. However some people decide to grab their nut sack and put their money where their mouth is. They may not know much about trading. They may not be managing a 100 million dollar portfolio but that does not make them a worse trader. Every magazine article, every newspaper article, every tidbit, and all the evidence points to no correlation between your ability to trade and education. The fact of the matter is that around 90% of the traders trading on their own will not be able to live off their trading. But guess what, the numbers are the same for institutional traders. Most of them don't make money either. Good traders are successful because of personal qualities or characteristics they have, not knowledge. There is no special indicator, no quantitative science, no magic formula, and no secret method. It's the same qualities that allow one quarterback to be able to hit a guy in the end zone with .03 left on the clock with three guys in his face while the other guy takes a sack or throws an interception. It's one ability to step up under pressure and make the big plays. Do you think NFL coaches care what college a quarterback went to or his ability to make plays under pressure? Think about it. It's exactly the same with trading.
Market First
Always remember, the basic rule of technical analysis - market first; and then only stocks. The market has the major influence on the performance of an individual stock. It means one should never get bearish on an individual stock if overall market is bullish. Similarly, one should never get bullish on an individual stock if market setup is bearish, irrespective of individual stock chart.
Writing Options
If you want to make supplement income from it, writing options is good and easy money when you watch them expire worthless most of the time. Even if the market crashes, by just holding a small position, you would not be completely wiped out anyway. The essence of option writing lies in making many small but probable gains. However, if you go big time, it takes only one big move to kill you out. To play professional, take covered position like doing a spread. Although this severely reduces your profits, as least you sleep better. Beware more of naked puts then calls. A sudden market collapse will leave you little time for actions. Even volatility will turn against you.
Reversals
Complex strategies like butterflies, condors and such are just for pros who have a smaller spread then retail traders. Spread will cost you about 15-20% of your projected profit if you are a retail trader. No matter how much one knows about expectancy, greeks and hedging, if you do not know how to spot reversals you will never make money in options markets. If you know how to spot or forecast reversals, all you need to know is how to buy a call or put or how to write credit spread. All the theory goes out of windows if you cannot spot reversals.
Inefficiency
If a system is shown to be a winner in the past and is implemented going forward, even if it continues to be a winner short term, it will eventually cancel itself out as a winning system because the market will adjust prices to eliminate what it recognizes as an inefficiency. From a practical standpoint a retail trader finding such inefficiency is about as likely as a high school biology student finding a cure for cancer. It’s a waste of time trying to devise a strategy to beat the markets. And it's even more non-sensical following someone else's system. Winning traders have no system. They are rigorous risk managers of course. But they trade not on any predetermined set of rules. They improvise and adapt to circumstances in an effort to make money.
Job Description Of A Trader
I am a trader....so I should trade. Well, this is the biggest mistake a trader can make. The trader's job is not to trade....but trade well. There is a big difference between the two. Trading is a business. A business of making few good trades in a month. In order to achieve this - trader needs to do his job well. To do the job well, he/she should be aware of his/her job description.
Job Description # 1: Be an Opportunity Watcher. Opportunity does not travel on any schedule; you have to watch for it Trader's job is to wait for an opportunity that can deliver explosive profits. Hence, this is a business of patience (waiting for a good opportunity). Few good trades in a month are all that one needs to make big bucks. Trying to trade every small move (read overtrading) only leads to underperformance, frustration and stress. The goal is not to trade often but trade well. Trader needs a different mindset for this - Patience, and Boredom
Job Description # 2: Look for Disbelief. I love when somebody says - This cannot happen. Remember, market has a habit of moving in a direction that causes pain to maximum people. When markets move up, it causes pain because it creates a feeling of left out and hence buying frenzy. Similarly, when market goes down, it creates panic of holding up losing position. The explosive profit comes when there is strong disbelief; and that disbelief results in large moves. The trader's job is to wait for a disbelief opportunity. A good trade should fulfill following conditions - 1. Technical Trigger; 2. Element of disbelief and 3. Trigger response - swift and sudden - there should be some shock element.
Job Description # 3: Do not apply your brains. Remember, Trader is like a watchman. He is paid to watch and not think. So, don't apply your brains when you are not supposed to. Trade what you see and not what you think. Always approach market with open and opportunistic mindset. Remember, the disbelief comes from thinking. Please try to see the market as it is and not as you desire. Have a healthy respect for the market and give preference to eyes and discipline than brain. As a trader, keep your focus on what market is doing and not on what market should be doing. Lots of times, we miss a great opportunity because we are so caged in our thinking that we dismiss real moves.
Job Description # 4: Your job is to preserve capital. Trading is one business that can give you highs and lows pretty quickly. It is in these highs and lows, traders make stupid mistakes like getting overcautious in lows and throwing all caution to winds in highs. A trader should never get carried away or bogged down by success and failure. Remember, trading is a journey and one bad mistake can wipe you out of business. Hence, as a rule, one should never get carried away; and focus should be on trading capital all the time. Sometimes, it is better to miss an opportunity than lose capital. The focus is to make money while preserving capital.
Job Description # 5: Be a good employee and be disciplined. Market (Read boss) is always right, no matter how illogical he/she may sound. Never fight with the market. The price on the screen should be the guide, and not the price in your mind. Always have healthy respect for the market and never keep your focus away from the goal - TRADE WELL. Markets can do crazy things at times and the only self defense a trader can employ - Discipline. Remember, it is the discipline and passion for markets that keeps trader in the market for long run. The moment you lose discipline or passion for markets - you are done.
Job Description # 1: Be an Opportunity Watcher. Opportunity does not travel on any schedule; you have to watch for it Trader's job is to wait for an opportunity that can deliver explosive profits. Hence, this is a business of patience (waiting for a good opportunity). Few good trades in a month are all that one needs to make big bucks. Trying to trade every small move (read overtrading) only leads to underperformance, frustration and stress. The goal is not to trade often but trade well. Trader needs a different mindset for this - Patience, and Boredom
Job Description # 2: Look for Disbelief. I love when somebody says - This cannot happen. Remember, market has a habit of moving in a direction that causes pain to maximum people. When markets move up, it causes pain because it creates a feeling of left out and hence buying frenzy. Similarly, when market goes down, it creates panic of holding up losing position. The explosive profit comes when there is strong disbelief; and that disbelief results in large moves. The trader's job is to wait for a disbelief opportunity. A good trade should fulfill following conditions - 1. Technical Trigger; 2. Element of disbelief and 3. Trigger response - swift and sudden - there should be some shock element.
Job Description # 3: Do not apply your brains. Remember, Trader is like a watchman. He is paid to watch and not think. So, don't apply your brains when you are not supposed to. Trade what you see and not what you think. Always approach market with open and opportunistic mindset. Remember, the disbelief comes from thinking. Please try to see the market as it is and not as you desire. Have a healthy respect for the market and give preference to eyes and discipline than brain. As a trader, keep your focus on what market is doing and not on what market should be doing. Lots of times, we miss a great opportunity because we are so caged in our thinking that we dismiss real moves.
Job Description # 4: Your job is to preserve capital. Trading is one business that can give you highs and lows pretty quickly. It is in these highs and lows, traders make stupid mistakes like getting overcautious in lows and throwing all caution to winds in highs. A trader should never get carried away or bogged down by success and failure. Remember, trading is a journey and one bad mistake can wipe you out of business. Hence, as a rule, one should never get carried away; and focus should be on trading capital all the time. Sometimes, it is better to miss an opportunity than lose capital. The focus is to make money while preserving capital.
Job Description # 5: Be a good employee and be disciplined. Market (Read boss) is always right, no matter how illogical he/she may sound. Never fight with the market. The price on the screen should be the guide, and not the price in your mind. Always have healthy respect for the market and never keep your focus away from the goal - TRADE WELL. Markets can do crazy things at times and the only self defense a trader can employ - Discipline. Remember, it is the discipline and passion for markets that keeps trader in the market for long run. The moment you lose discipline or passion for markets - you are done.
Everyone Rich = Oxymoron
The fact that the game gives you a zero expectancy is good news. No one should get depressed because of this. Not having a negative expectancy is a huge benevolent thing. Take a look out of the window; there are more ordinary women than beautiful ones, more ordinary cars than Ferraris, more ordinary people than rich people. Not to mention that probably every gambling game in the book gives a negative expectancy to the player. In a world where the odds are against you, enjoying a zero expectancy may be an edge. As the old saying goes... "In the Blind Men Land, if you have one eye you become the King". There isn't a formula to get rich - and if that thing existed, everyone agrees it wouldn't last much. If such thing as an option strategy that gives a positive expectancy no matter what existed, a basic computer program would get anyone rich. And everyone rich = oxymoron. Wealth needs the pyramid concept to survive. Bottom line is: Thank God math is not against you. Learn how to work on the grey area. Keep your eyes opened always. Be dynamic. Be ready. Be smart. No one in this world has the ability to predict the future, but this same world has a lot of rich people on it. And never forget that while the market follows mathematics principles, it doesn't end there. Albert Einstein believed, according to his own words, that "God doesn’t play dices". He meant that there is no contingency in the world. No randomness. Everything follows a rule.
Market Is Always Right
Even after trading market for good period of time - the market is still a mystery to me. Why me? It is a mystery to nearly everyone — professionals and so called experts on TV. What is market? The market is the sum total of the wisdom ... and the ignorance...of all of those who deal in it. [All those - human beings...and not machines.] The wisdom of ALL THOSE is driven by emotions of fear and greed; and not rational/logical thinking. That's why market is all about understanding people's behavior and how might people think/behave in different circumstances. Also, the psychology of greed and fear has a tendency to destroy rational thinking when emotions overpower thinking process. That's why when market is in good mood - stock prices start moving to moon and when mood is bad - it can be hammered out of business. I can calculate the motion of heavenly bodies but not the madness of people...Issac Newton. Market has a mind of its own There is a saying that market is moody and you don't know when it's going to do what. Market has a habit of doing the most obvious thing in the least obvious way. That's why trading becomes a difficult job. Sometimes, market does what you expect but not when you expect. Market also does not care what you/experts think. Mr. XYZ thinks market will go up. He gave a very logical explanation. Yet market was down.....Please...market does not read blogs....or listen to experts on TV. It does what it has to do. That's the nature of the market. Remember, market has nothing personal against anyone. Market does not discriminate. It has no personal favorites. Market has a mind of its own, which can be very different from so called expert/logical line of thinking. Understanding Market wisdom/mind = Constructing different scenarios. Since, market is moody, driven by emotions of fear and greed - it always throw up surprises and different scenarios. Hence, it is important for trader not to have any trading bias. Trading is not about predicting what will happen next but developing a game plan for different scenarios. The best way to trade is construct different scenarios and position accordingly when those scenarios play out. It is important to understand that you have no control on what market will do. What is in your control - what you can do when market behaves in a certain way?
The financial markets generally are unpredictable. So that one has to have different scenarios... The idea that you can actually predict what's going to happen contradicts my way of looking at the market....George Soros. Market rewards flexibility. Market rewards contrarians and traders with flexible attitude - one who is willing to accept mistakes on the go and change opinion if market changes its nature. As a trader one should regularly ask - What's the one thing that nobody expects to happen? The best trading move happens in the direction of the surprise. There is a saying that market has a habit of moving in a direction that causes pain to maximum people. The pain is inflicted upon traders who have inflexible attitude. Lots of amateur traders refuse to acknowledge whenever market changes its behavior and rubbish the move as illogical. It only leads to their downfall. Market should never be looked with firm view. Remember, trader has a tendency to trade his belief but market rewards traders who accept mistakes and trade in the direction of disbelief, if market asks them to do so. The lesson - See the market as it is and not as you want it to be. Market is your Boss; and Boss is always right For a trader, there is only one boss and i.e. market. So, one should never try to impose one's views on one's boss i.e. market. The trader's job is to follow the market irrespective of one's beliefs. At times, traders do get carried away and indulge in what is called as revenge trade. Remember, it is easy to get angry at the markets but the consequence of that can be very painful. Market is a ruthless boss and it does not scold you...it just takes money from your pocket. Few losses and all thinking gets blurred...confidence goes for a toss. Despite being ruthless, market does not hate anyone. Market is very fair and does not discriminate one on past behavior. There is only one way you can win the heart of market - Accept - Market is always right....There is no harm in being skeptical about the market, but don’t dare to go against the market.
The financial markets generally are unpredictable. So that one has to have different scenarios... The idea that you can actually predict what's going to happen contradicts my way of looking at the market....George Soros. Market rewards flexibility. Market rewards contrarians and traders with flexible attitude - one who is willing to accept mistakes on the go and change opinion if market changes its nature. As a trader one should regularly ask - What's the one thing that nobody expects to happen? The best trading move happens in the direction of the surprise. There is a saying that market has a habit of moving in a direction that causes pain to maximum people. The pain is inflicted upon traders who have inflexible attitude. Lots of amateur traders refuse to acknowledge whenever market changes its behavior and rubbish the move as illogical. It only leads to their downfall. Market should never be looked with firm view. Remember, trader has a tendency to trade his belief but market rewards traders who accept mistakes and trade in the direction of disbelief, if market asks them to do so. The lesson - See the market as it is and not as you want it to be. Market is your Boss; and Boss is always right For a trader, there is only one boss and i.e. market. So, one should never try to impose one's views on one's boss i.e. market. The trader's job is to follow the market irrespective of one's beliefs. At times, traders do get carried away and indulge in what is called as revenge trade. Remember, it is easy to get angry at the markets but the consequence of that can be very painful. Market is a ruthless boss and it does not scold you...it just takes money from your pocket. Few losses and all thinking gets blurred...confidence goes for a toss. Despite being ruthless, market does not hate anyone. Market is very fair and does not discriminate one on past behavior. There is only one way you can win the heart of market - Accept - Market is always right....There is no harm in being skeptical about the market, but don’t dare to go against the market.
You Are Your Enemy
According as circumstances are favorable, one should modify one's plans. We should only add to winning positions and never average down on a loser. Profits are carried by momentum, and if you are on the right side of momentum, you can make a lot of money. When losing, stick to the plan and exercise stop losses. When winning, increase position size as new entry signals are confirmed. When you engage in actual fighting, if victory is long in coming, then men's weapons will grow dull and their ardor will be damped. If you lay siege to a town, you will exhaust your strength. If the expectation of your trade is not working out in a timely fashion, then you have read the market wrong and it is best to exit the position. It is only one who is thoroughly acquainted with the evils of war that can thoroughly understand the profitable way of carrying it on. If you think the stock market is fair, quit trading immediately. Hence the saying: If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb to every battle. If you know the market and know yourself, you will consistently profit. If you know the market but not yourself, your success will be random. If you do not know the market or yourself, you will consistently lose money. Success in the stock market is not just about the market, it is also about knowing how you react to fear and greed. The onset of troops is like the rush of a torrent which will even roll stones along in its course. The trend is your friend. The good fighters of old first put themselves beyond the possibility of defeat, and then waited for an opportunity of defeating the enemy. Good traders know that they can consistently make money, and that confidence fuels them to consistently make good decisions. To lift an autumn hair is no sign of great strength; to see the sun and moon is no sign of sharp sight; to hear the noise of thunder is no sign of a quick ear. Great traders see more than the obvious. There are not more than five primary colors (blue, yellow, red, white, and black), yet in combination they produce more hues than can ever been seen. Keep stock trading simple. You need only understand support, resistance, optimism, pessimism, price volatility and abnormal behavior.
Time & Money
Do not squander time for that is the stuff life is made of - Benjamin Franklin
We have heard this before - Time is money. Your most precious resource is your time. But lot of us struggle - what to do with our time? We always think our Net worth in terms of money rather than time. There are millions of articles on - "How to save money?" but is that the case when it comes to time - "How to save time?” No I am not talking of time management. I am talking of investment. We always focus on - Where should we invest our money? Do we really think the same when it comes to time? One of the smartest things you can do is so start investing time in places which matters most to you. This also helps us getting ready for the opportunity when it knocks our door. The grass is always greener on the other side When we are young, and we have lot of time on our side to become what we want to - we tend to ignore that and start chasing money. Our success criterion is how much money we can have as soon as possible. We are impatient as we don't value time. The whole philosophy is - "If we can’t get what we want and we can’t get it right now, then that’s just not good enough." We love momentum. That is why - you will see very few 30 years old value investors. Please note - I am not suggesting momentum is bad, and Value investing is nirvana. When we become old, we suddenly start valuing time. This is the period when time becomes the most important aspect. Patience becomes the key. Value investing becomes the key. We will always seek what we need while the debate may continue on time over money. I am also confused on the subject that what should be the priority - time or money. But it's an important subject to think over. Anyways - Time is precious and we should always try to make best use of it by spending it in places which we can cherish later. Good memories can be great source of energy. So, one should not get too much obsessed with saving money. It's alright to spend occasionally on stuff that can buy you great time. "It's better to waste money, than it is to waste time. You can always get more money." - Hal Sparks.
We have heard this before - Time is money. Your most precious resource is your time. But lot of us struggle - what to do with our time? We always think our Net worth in terms of money rather than time. There are millions of articles on - "How to save money?" but is that the case when it comes to time - "How to save time?” No I am not talking of time management. I am talking of investment. We always focus on - Where should we invest our money? Do we really think the same when it comes to time? One of the smartest things you can do is so start investing time in places which matters most to you. This also helps us getting ready for the opportunity when it knocks our door. The grass is always greener on the other side When we are young, and we have lot of time on our side to become what we want to - we tend to ignore that and start chasing money. Our success criterion is how much money we can have as soon as possible. We are impatient as we don't value time. The whole philosophy is - "If we can’t get what we want and we can’t get it right now, then that’s just not good enough." We love momentum. That is why - you will see very few 30 years old value investors. Please note - I am not suggesting momentum is bad, and Value investing is nirvana. When we become old, we suddenly start valuing time. This is the period when time becomes the most important aspect. Patience becomes the key. Value investing becomes the key. We will always seek what we need while the debate may continue on time over money. I am also confused on the subject that what should be the priority - time or money. But it's an important subject to think over. Anyways - Time is precious and we should always try to make best use of it by spending it in places which we can cherish later. Good memories can be great source of energy. So, one should not get too much obsessed with saving money. It's alright to spend occasionally on stuff that can buy you great time. "It's better to waste money, than it is to waste time. You can always get more money." - Hal Sparks.
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