Archives of “January 5, 2019” day

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Predictions vs. Expectations

  
  Education
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There are two VERY DIFFERENT terms to consider when it comes to trading: 1) Prediction and 2) expectation (or confidence) surrounding the prediction. 

Placing a trade involves making a prediction. It is not possible to place a trade without making a prediction, and that is true even for trades that might or might not execute, such as those placed using a stop order or limit order, for example.

Every trader who places a trade does so because the trader believes there is some chance, greater than 0%, that the trade will be beneficial, perhaps based on historical probability (back testing) perhaps based on intuition (years of trading experience) perhaps based on hopes and prayers or possibly based on nothing more than a need to gamble. Whatever the basis, there must be SOME chance to benefit or else the trader would not entertain it. The trader predicts he or she will benefit, or else the trader does not enter a trade order.

No matter what the prediction may be, so long as the EXPECTATIONS for the prediction are based in reality, there is nothing inherently wrong with making a prediction. As long as a trader accepts a 30% win rate, for example, and makes allowances accordingly, there is nothing wrong with taking such a trade. The same is true for trades with 50/50 odds, as long as the trader properly predicts, expects, and is prepared for 50% failures; which is why it is possible to flip a coin and still be successful. 

Many successful traders may say they never predict, when what they may really mean is that they never EXPECT their prediction to come true. Thus they may say things like “I only react” when more accurately they are reacting… to a failed prediction. For, it is virtually impossible to trade without predicting. So, I say to all you new traders out there “Don’t be afraid to predict. Just know how likely it is that you’ll be wrong, and know what to do when your prediction fails!”

10 Lessons That The Lok Sabha Polls Taught

  
  Education
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Here are the top 10 learnings that marketers can take away from the BJP’s impressive electoral campaign.
1. Be clear in your positioning
The BJP could have picked from a million problems affecting the Indian voters – poverty, women’s empowerment, social justice, equal pay for equal work, secularism and so on. However, they picked two clear pillars for their marketing campaign – good governance and economic growth – and stuck to those two ideas throughout their year-long canvassing.
Lesson: Every brand needs clear positioning and a clear statement that tells you what it stands for. Pick your brand position and hammer it home, so that your users won’t forget it.
2. Don’t let bad karma haunt you
The BJP has been ruling Gujarat since 2001. However, the communal clashes in 2002 that killed over a thousand people from the minority community became the biggest blot on Narendra Modi and his election bid. In spite of being exonerated by the Supreme Court, the national and the global media pinned the blame for not controlling (and instead, encouraging) the rioters on the state government, led by the then Chief Minister Modi. (more…)

Quotes from The Little Book of Trading

  
  Education
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The Little book of trading is a must read for trend followers. Michael Covel brings down to all of us what is needed in order to succeed in trend following:

Some of the quotes need to be internalized by investors of trend following strategies..

David Druz

Trend traders are trying to capture risk premium from the hedgers. […]
Hedgers hope to minimize their exposure to unwanted risk. Speculators (i.e. trend followers assume risk for hedgers. […]
Hedgers are net losers in futures markets over the long run, and Druz’s trend trading approach is based on capturing this risk premium.

The more robust a system, the more volatile it tends to be!
There are whole families of trend trading ideas that seem to work forever on any market. The down side is they are very volatile because they are not curve-fitted.

Larry Hite

Hite has two basic rules about trading and life:
1) If you don’t bet, you can’t win.
2) If you lose all your chips, you can’t bet

Justin Vandergrift

While entry and exit is an overwhelming focus for new traders, it is only a small part of the recipe for winning in the trend follower’s cookbook. Money management is far more imperative to your success than worrying about a perfect entry.

Vandergrift, like many of the trend following traders, found through intense research that the only systems that really worked over time were long term trend following in nature. However, his real Aha! moment came when he put money managementinto his trading system equation. […] If you have a portfolio of markets, […] you want t risk an equal amount on every trade.

Michael Clarke

You want to look for trend following models that remain robust over long time periods and you want to include models that have flat to negative performance for periods of up to two years. The principles that allow a good model to work successfully may fall out of favour and stop working for a period of time, but if the model has validity, the long-term principles will reassert themselves over time. Don’t jump the gun in throwing away your models.

In order for a model to be accepted, you want it to trade all markets using the same rules and parameters. Your results should yield good performance across 90-plus percent of all markets tested. Also, no model should be accepted unless it shows stability of performance during tests involved with shifting parameters and altering rules. This is the definition of robust.

David Harding

Don’t get caught up constantly trying to lower your risks. Think of yourself as running a risk targeting business where you go find risk. No risk, no reward!

I think the efficient market hypothesis is quite useful too. One prediction it makes is that it is difficult to beat the markets. It’s just saying that the markets know better than you do. So the assumption that the markets know better than you do is quite a sensible and useful assumption. It certainly would lead you to approach [beating the markets] with humility and modesty.

Determination is the same as having wings. If at first you don’t succeed, try, try, and try again. Madonna always says, ‘I’m like a cockroach.’

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