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A Method to Measure Risk and Return

  
  Education
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Placing a trade with a predetermined stop-loss point can be compared to placing a bet: the more money risked, the larger the bet. Conservative betting produces conservative performance, while bold betting leads to spectacular ruin. A bold trader placing large bets feels pressure or heat from the volatility of the portfolio. A hot portfolio keeps more at risk than does a cold one. Portfolio heat seems to be associated with personality preference; bold traders prefer and are able to take more heat, while more conservative traders generally avoid the circumstances that give rise to heat. In portfolio management, we call the distributed bet size the heat of the portfolio. A diversified portfolio risking 2% on each of five instrument & has a total heat of 10%, as does a portfolio risking 5% on each of two instruments. Our studies of heat show several factors, which are: Trading systems have an inherent optimal heat. Setting the heat level is far and away more important than fiddling with trade timing parameters. Many traders are unaware of both these factors. COIN FLIPPING One way to understand portfolio heat is to imagine a series of coin flips. Heads, you win two; tails, you lose one is a fair model of good trading. The heat question is: what fixed fraction of your running total stake should you bet on a series of flips?

20 Rules for Traders (Must Read )

  
  Education
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1. Forget the news, remember the chart. You’re not smart enough to know how news will affect price. The chart already knows the news is coming.

2. Buy the first pullback from a new high. Sell the first pullback from a new low. There’s always a crowd that missed the first boat.

3. Buy at support, sell at resistance. Everyone sees the same thing and they’re all just waiting to jump in the pool.20-RULES

4. Short rallies not selloffs. When markets drop, shorts finally turn a profit and get ready to cover.

5. Don’t buy up into a major moving average or sell down into one. See #3.

6. Don’t chase momentum if you can’t find the exit. Assume the market will reverse the minute you get in. If it’s a long way to the door, you’re in big trouble.

7. Exhaustion gaps get filled. Breakaway and continuation gaps don’t. The old trader’s wisdom is a lie. Trade in the direction of gap support whenever you can. (more…)

The war against ‘insider trading 2.0’

  
Analysis, Education
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MUST READ

In India u can fight for Poverty or can try to stop Corruption…….But u can’t stop INSIDER TRADING-It’s our Challenge

Insider trading is a fluid concept. Until 1980, the practice was not illegal in the UK. Prior to then, tipping off favoured clients about market-sensitive company information was a stockbroker’s job description, rather than an illegal activity. Times have changed and so has the pace of financial markets.

In 2009, Samantha Bee, one of the cast members on The Daily Show, the satirical US television programme, said that “if I know about a stock’s activity the day before, it’s called insider trading. But if I know about a stock’s activity one second before, it’s called high-frequency trading.”

Now, however, Eric Schneiderman, the New York attorney-general, is waging war on what he calls “insider trading 2.0”. He is taking aim at the precise time sensitive information is delivered electronically.

Mr Schneiderman’s office is currently investigating the market data industry. In July, under pressure from Mr Schneiderman, Thomson Reuters suspended its practice of releasing consumer survey data from the University of Michigan (UoM) two seconds earlier to high-frequency trading clients who paid an additional fee. Clients paying for Thomson Reuters’ financial information terminals will continue to receive the data five minutes ahead of the general public, who have to make do with a press release. (more…)

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