Gee Cutten that wouldn't be an article. It would be a friggin book. Chapter One: I wish I hadn't bought a 600 lot in Bonds as a horrendously recieved 30yr Treasury auction was hitting the wire......
I guess it depends on how much of a persons net worth is tied up in their trading. Some people have 10k in their account and it's all they have. Other guys have a 100k and it's a pittance. Livermore had a line in Reminiscences that I dis-agree with. He said something to the effect that if someone has only 10k to their name and they risk it all then they're effectively ballsier than someone who risks a million when they have a few more million "salted away." BS. One can moonlight at a job or borrow 10k. A million isn't quite as easy to replace. Even if you have a few of them.
Overall, a very good article but: What appears to be "noise" to you is used to generate very good returns for short-term traders, so don't be so dismissive in your comments about it. Your position sizing rules don't apply to short-term traders, so why are you talking about them here? Emphatically disagree. Doing work in this area will yield the greatest results for a trader to achieve consistent returns in their trading. This is the most important area of all, and the reason why most traders fail. *** As I said, overall a good article, but it would be better if you focused-in on the areas that you are good at, while speaking minimally about the areas which aren't really your forte. Good trading.
I know less than nothing about options trading. But how do you arrive at a 50% probability for the futures trade? Simply because the market can go either up or down does not mean that it necessarily has an equal likelihood of going in either direction at a given point in time. Am I missing something here?
I had the same notion when I read asap's post . Also, an 8-1 expected profit/loss on the option trade does not necessarily equate to 12.5% prob of success. Al least not imo.
sure. but, if you'd analyze a statistical relevant sample, you'd come up with 50/50 chances on average or to be more precise, roughly 51/49 when accommodating survivorship bias, positive drift and inflation. this is revealed by empirical analysis as well.
Couldnt agree more about having a mental market map of many different asset classes even if you only trade one. Everything is correlated and connected.
Psychology IS the most important and it was a misnomer on my part to title it "Accept...". Really should have been "Recognize....." I wanted though to emphasize to guys that it's not just THEM who're fucked up. EVERYONE is. Accept it but try to change it as little or much as you can. I was EXCLUSIVELY a short term trader for years. I was trading for only a tick before many on ET were born. I began testing on TradeStation in 1994. I'll repeat: There's big money to be made on shorter term time frames. My partner will trade 800 a side today and make a few thou. But that money is NOT being made by guys using canned indicators. Life should be so easy......
from a statistical standpoint it does. i mean, if that would not be the case, then the market maker would have never filled you in the first place. dont forget options are zero sum game. a bet that pays 8 for 1 has the following payout equation. meaning, in the long run, the net result of this trade will converge to zero (negative after adding trading costs). 7*.125 (winning) - 1*.875 (losing) = zero.
Okay, but does it not get a bit more complicated than that? For example, up or down for what distance and/or what length of time? And how does the answer to that question compare to the context of the trading strategy in question? What may well be a loss for one trader may be a winning trade for another, depending on exit criteria and so on. Further, if we are to assume that the chances remain 50/50 across the board, then it would make little or no sense to have an entry timing strategy of any kind. In a truly 50/50 environment, I suppose that the trader would want to be either always in or always out, depending on the quality of the back end of his strategy. But then, even that would be 50/50 wouldn't it? That is why "up" or "down" has to be qualified to the point where such studies are rendered meaningless to the individual trader and his specific trading strategy. Just my opinion, of course.