Archives of “February 9, 2019” day

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Checklist for Day Traders

  
  Education
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Here’s a list I came up with for the forgotten man, the hundreds of thousands of traders in stocks, futures and options.

Before the Trade

1. Do you know the name and numbers of all your counterparts, especially if your equipment breaks down?

2. When does your market close, especially on holidays?

3. Do you have all the equipment you’ll need to make the trade, including pens, computers, notebooks, order slips, in the normal course and in the event of a breakdown?

4. Did you write down your trade and check it to see for example that you didn’t enter 400 contracts instead of the four that you meant to trade?

5. Why did you get into the trade?

6. Did you do a workout?

7. Was it statistically significant taking into account multiple comparisons and lookbacks?

8. Is there a prospective relation between statistical significance and predictivity?

9. Did you consider everchanging cycles?

10. And if you deigned to do a workout the way all turf handicappers do, did you take into account the within-day variability of prices, especially how this might affect your margin and being stopped out by your broker? (more…)

12 Things Traders Should Not Do at all

  
  Education
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  1. A big ego that wants to prove they are right by stubbornly staying with a position that is wrong becasue they want to be right eventually so bad.12-Number
  2. A trader that want to prove he is a hot shot by trading big position sizes especially in options or futures.
  3. Not wanting to take a stop loss and instead just hope the trade comes back.
  4. Trading with emotions instead of a trading plan can get very expensive very fast.
  5. Being a bear in a bull market.
  6. Being a bull in a bear market.
  7. Being overly eager to start trading with real money before fully testing out a trading system.
  8. Trading without doing adequate homework on how to win.
  9. Dollar cost averaging down in a trade is many time expensive to fight that trend.
  10. Ignoring the charts and just trading your opinion.
  11. Ignoring the probability of the risk of ruin based on your current position sizing.
  12. Not really understanding the true danger of  ‘Black Swan’ and ‘Fat Tail’ events.

Images for options traders

  
  Education
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I had just started reading David L. Caplan’s book The New Option Secret: Volatility. But today I merely want to share two powerful images from the book that might make it easier for beginning option traders to understand the impact of time on their position. More experienced traders can empathize.

Let me quote Caplan.

“The short premium trader thinks like a troubled adolescent who cannot wait for the time to pass, and move on to the next stage of life. . . . Each day presents the possibility of a major tragedy. The adolescent thinks, ‘When will it be over?’

“The long premium trader worries like an old man who has not yet left his mark on life, but is still trying to. He knows his days are numbered. . . . He says to himself, ‘If I only had more time.’”

Skin in the Game – Nassim Nicholas Taleb

  
Analysis, Education
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Summary

Skin in the Game is Nassim Nicholas Taleb’s (NNT) fifth book in what he calls the Incerto, and it’s the most digestible I’ve read thus far (having read all but Fooled by Randomness).  This one focuses more on asymmetry (and symmetry) in everyday life, particularly on the matters of career, ethics, and life in general.
What does that mean?  Basically, rules for how to detect if something is pseudo-science (scientism), rules for how you should endeavour to conduct yourself in your career in business, and mental models for thinking about risk in these categories and in life in general.
Having now read most of his books, part of the reason this was digestible was that I’m familiar with his general premises; I would recommend reading his other books first, but this one will tie them together.  Highly recommend.

Favourite Quotes

  • “…studying courage in textbooks doesn’t make you any more courageous than eating cow meat makes you bovine.”
  • “What matters isn’t what a person has or doesn’t have; it is what he or she is afraid of losing.”
  • “…action without talk supersedes talk without action.”
  • “Alfonso X of Spain, nicknamed El Sabio, “the wise”, had as a maxim: Burn old logs. Drink old wine. Read old books. Keep old friends.”
  • “Never pay for complexity of presentation when all you need is results.”
  • “If wealth is giving you fewer options instead of more (and more varied) options, you’re doing it wrong.”
  • “Finally, when young people who want to help mankind come to me asking, “What should I do? I want to reduce poverty, save the world”, and similar noble aspirations at the macro-level, my suggestion is:
    • 1) Never engage in virtue signaling;
    • 2) Never engage in rent-seeking;
    • 3) You must start a business. Put yourself on the line, start a business
  • Yes, take risk, and if you get rich (which is optional), spend your money generously on others. We need people to take (bounded) risks”
  • “Reading a history book, without putting its events in perspective, offers a similar bias to reading an account of life in New York seen from an emergency room at Bellevue Hospital.”
  • “Love without sacrifice is theft (Procrustes)”
  • “Courage is when you sacrifice your own well-being for the sake of the survival of a layer higher than yours.”

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