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Common Trading Errors

2012/08/30 22:44:48 網誌分類: 未分類
30 Aug

From a US forum on Options, which applies to stock trading as well:

After a good trade, a trader concluded as follow:

I do not focus on trades, I focus on strategies. And this strategy is intent on capitalizing on a few items:

1) BEHAVIORALLY, as human beings we are not programmed to accept strategies like
this one, with frequent small (if you do your money maanagement right) losses
and infrequent large gains. This behavioral bias = opportunity for those who
can control it.

2) LESSER followed stocks and options. I don't want to be playing in the same

pool as the institutions and I don't want intelligent eyes on the trade.
Liquidity + intelligence = efficiency. I don't want efficiency, I want
inefficiency.

3) At EXPIRATION the models break down. There c reates huge opportunities,

because no one knows how to price the options.

4) A CATALYST that offers the potential to render the historical and implied

vol calculations irrelevant.

5) LEVERAGE is the most beautiful thing in the world. Positioned correctly, you

can lose many, many times and still make enormous profits because of the
leverage that options convey.

Comments from another Trader:

1) Assuming that a behavioral bias allows options to be mispriced. We all want
to think we are contrarians and that somehow we have found some secret advantage that the herd fails to see
. The thing is that a professional somehow was not duped into selling you your hundred lot because of a behavioral bias/flaw. You
can spend years data mining and backtesting and developing complex algorithms
and when it comes to actually executing your order, its scooped up in a
nanosecond. Do you really think the pro on the other side of this trade
completely screwed up how it was priced?

2) Illiquidity does not mean inefficiency. It means greater risk and thus

whoever has to absorb the risk of making a market has to price in a premium to
compensate for that risk in trading with you. I can assure that unless you have
true insider info, everything you think you know, the market knows.

3) "(A)t expiration the models break down...no one knows how to price options"

Really? How many billions of trades have gone through expiration? Somehow no one
can get these right? But you've figured it out.


4) A "catalyst" i.e. a known event like an earnings release makes historical

and implied volatility irrelevant. I agree in part with this but for the reason
that ANY historical or implied volatility is irrelevant. If you trade based on
the past under any circumstances you are playing a fool's game.


5) Leverage is your friend. And it can be your worst enemy. Your real friend is

disciplined position size relative to your capital.
Let's assume that Bernard's
strategy wins 25% of the time. Edge is not the issue here yet; its how much
capital is risked that may impact whether you can even trade enough times to
realize edge.

If you win 25% of the time that means you will lose 75% of the time. If you risk

$1000 each time it is really important that you balance that against your
overall capital. If you only have $5k (ie you risk 20% of your capital) you will
almost certainly go bust.
In fact there is about a one in four chance you will
lose everything. If on the other hand you have $100,000 (ie you risk only 1% of
your capital) with the same strategy, your chance of going bust shift to about
one in three trillion. That gives you a lot of opportunity to see if your
strategy makes money.

Now consider edge. If the strategy wins $4k one time and loses $1k three times,

on average you make $0.33 for every dollar wagered. That's powerful, positive
edge. But what if you only win one in five times - now you have zero edge and no
chance of ever getting ahead regardless of position size.

So rather than leverage, the real concepts to grasp are position size and edge.

If you are disciplined with how much you risk and you find some way to eke out
any kind of edge over the long haul, just maybe you've found your way to make
things work.

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twohitsix
twohitsix 2014/09/29

這是我給陸sir 的PM, 明知冇用, at least i tried.

陸sir

在巴士的留言被刪了, 不過沒關係. 可能編輯唔想有煽動性留言見解, 理解. 反正我只是想陸sir 您看到 689被勸退,政改稍為進一步(例如全民選提委會) 的"價值".

正如草兄所說, 亞爺係唔會輸的, 輸的只係香港人. 亞爺面子有價, 擺硬. 市民尊嚴也有價, 結果獻身馬路. 沒錯, 馬路不可能長期訓, 人一定會少, 清場一定更易. 但武力一升級, 只會激發更多人出來, 除非碧街事件再現, 但今次大家是有防範的.

我知道陸sir的位置一點也不容易, 也未必贊同我的看法. 但現實是, 香港人實在接受不了越維穩越不穩的689. 也接受不了爭取民主回歸三十年而未得的現實.

twohitsix
twohitsix 2014/07/11
陸羽仁
陸羽仁 2014/06/30

現今社會,都係職場曱甴阿Jack容易生存啲。

大笨袋鼠
大笨袋鼠 2014/06/28

『最後只要問: 我對得住自己對得住别人嗎?』

在你嘅行頭,會唔會好多人只係問上半部份(等於曹操名句)?