15 Trading Lessons from the The Big Short

  1. The Big ShortIt’s possible to be right about a market move, but your timing can be too early.
  2. If you trade too big, you can lose all your capital before you have the time to be proven right.
  3. AAA agency ratings are more to make their clients who sell bonds happy than to protect investors.
  4. In markets that are not liquid, you can get in trouble by being right but your assets not reflecting it with a big move.
  5. When there is no risk of ruin to bankers and mortgage brokers they will risk the ruin of their companies and the world economy in pursuit of quick and easy money.
  6. When there is little ‘skin in the game’ bankers and mortgage brokers take risks that they are not held accountable for.
  7. Macro traders have to be able to take a lot of heat and losses on their positions before they are right.
  8. Hedge fund investors want consistent returns on their money and not drawdowns. They are quick to pull their money out during a losing streak.
  9. You want to have a large risk/reward ratio on your trades. Betting $1 for a chance to make $20 is a good trade.
  10. There is a lot of fraud in the financial world.
  11. Financial fraud is almost never prosecuted in the banking world.
  12. The SEC has little oversight in the banking industry.
  13. Bailouts can cause you to lose on a trade you would have made money on.
  14. You have to take your profits off the table while they are available.
  15. “Whenever you find yourself on the side of the majority, it is time to pause and reflect.” – Mark Twain