Every successful person has two beliefs
Latest Posts
rssWhat U Can Learn From Occam’s Razor About TRADING
I have seen too many traders that randomly add condition after condition to their trading strategy, hoping that it will increase their hitrate. What they are trying to do is to add assumption after assumption to their hypothesis, until their hypothesis (“price will move in to this or that direction for this or that amount”) is hopefully correct more often than not.
Going this way usually ends in paralysis through analysis or in total chaos because there are so many conditions when entering a trade that it is impossible for a human brain to follow the system, thus inducing mistakes.
Enter: Occam’s Razor
Occam was one of those scholastic philosophers, living around 1300 A.D. He developed a principle called Occam’s Razor which states that “among competing hypotheses that predict equally well, the one with the fewest assumptions should be selected. Other, more complicated solutions may ultimately prove to provide better predictions, but—in the absence of differences in predictive ability—the fewer assumptions that are made, the better.” But Occam was not the first, even Aristotle, who was living a mere 2000 years ago, theorized about this concept.
Now the thing is that of course when you add or remove certain conditions to your trading strategy, the predictive ability of your strategy will vary thus rendering Occam’s Razor seemingly invalid. Seemingly. Because trading is a game of incomplete information, we can never exactly know the predictive ability of a model.
Even after testing thoroughly, we will always only get an estimate (our winrate). Because of this fact you should base your trading strategy on as few assumptions as possible. (more…)
India's GDP growth to crawl at 4.7% in second quarter: ZyFin
Barely over a week ahead of release of the official GDP data, research and analytical firm ZyFin today estimated India’s economy to expand by 4.7% in the second quarter of the current financial year. The methodology used by ZyFin is distinct and it claimed that it uses variables which are lead indicators to the official data. If GDP indeed grows by this rate, the Finance Ministry’s hopes of GDP growth between 5-5.5% in 2013-14 may be dashed.
In the first quarter of the current financial year, the GDP expanded at a four-year bottom of 4.4%. At that time, ZyFin had estimated a growth of 4.5%.
“We still believe that the economy is in a crisis mode and much below what the economy used to grow at a pace of around 8%”, Debopam Chaudhuri, Vice President of Research and Development at Zyfin told Business Standard.
However, even if the economy grows at this pace, it would be at a year high — both according to official and ZyFin estimates. In the second quarter of 2012-13, the economic growth was higher at 5.2% as per official estimates and by ZyFin’s calculations it was 5.1%.
“While the estimates indicate a sluggish recovery, high inflation, weak consumer sentiment and a slowing services sector will constrain any sustained recovery”, said the firm. (more…)
George Soros discusses his life and the General Theory of Reflexivity -Video
Bulls and Bears -Dances on our Tunes
– Trading is all about making decisions.
– Making good decisions comes with experience.
– Experience comes from making bad decisions.
Refresh Your Memory :
On 12th Janaury ,I had written to buy Fertilizer Stocks (Nag.Fert was boldly recommended to buy @ 36.
Chambal Fert/FACT /MADRAS FERT/NFL :All stocks on fire in last 6 days.
Apart from Fertilizer stocks ,We recommended PSU stocks to our Subscribers i.e Andrew Yule @ 62 on 7th Jan ,Yesterday it was 79.And many other stocks ,All blasted in last 10 sessions.
On 12th Jan recommended to Sell Sugar Stocks
I don’t want to write anything…just check price level of Sugar stocks on 12th and of Yesterday……and think is it power of chart or Magic ?
Apart from all these recommendations ,you all might have seen Nifty Future was not able to cross 5280-5313 level and Yesterday crashed.Writing since last 1 week avoid long in Sensex Stocks.Every 2nd stock is looking weak and tired.
Just read shortly about Messages I had sent Yesterday to our Subscribers.
Updated at 7:51/20th Jan/Baroda
The Difference Between Skill and Luck
Basketball comes closest to chess in terms of being the game with the most skill involved. In comparison, hockey looks more like the lottery (and don’t even ask about trading).
The bottom line is that the law of smaller numbers allows for more variance in individual player and game outcomes in a sport like baseball or hockey – in baseball the most skilled hitter only gets up to bat a few times per game and in hockey the star players aren’t on the ice much more than a period or two out of three. Less plate appearances or ice time can mean that it is more likely that a fluke of some sort, good or bad luck, can make an impact. This is in contrast to basketball where there are only five players at any time and the stars typically play most of the game – more playing time means a bigger sample, by extension this means less variance.
What’s Wrong with Capitalism? Too Much “i”
The reality is fear and greed are part of the human condition. There are however times when it appears that the greed factor is dominating — I have not yet figured out if this is a cyclical phenomena or something more insidious.
Regardless, I found this amusing:
Why Traders Lose Money ?
One of the most frustrating things a trader can experience is being dead on right about a trade, taking it, BUT.. still losing money! How can this be? This can happen in five different ways, each of the first four contain a lesson for better planning the fifth way to lose money in this list is just part of the game.
- You enter your trade correctly and it goes in your favor, BUT… you do not have the right exit strategy to capture your profits and they evaporate due to not having a trailing stop or waiting to long to exit to bank those profits. Sometimes winners even turn into big losers win not managed correctly. You have to have a plan to take profits while they are there.
- You enter the right trade BUT… at the wrong time, you either exit not allowing your trade enough time to work or you are stopped out but do not have a plan to get yourself back in the trade with the right set up. The right trade with the wrong timing pays nothing.
- You have the right entry and it goes in your favor BUT.. you pick the wrong stock option to express your trade. If you pick an option with a high implied volatility your trade has to overcome that vega priced into the option, after an expected earnings event that vega value will be priced out and you need the move in intrinsic value to make up that difference. With a far out in time stock option you need the price to move enough in the underlying in the time period of the option to make up the theta cost of time embedded in the option. It is crucial to understand the option pricing model to make the right option trades to express your time period and expected move. Sometimes options also do not have the liquidity in some stocks,or far out time frames, or far out of the money strikes. Getting in and out of an illiquid option trade can be very expensive. (more…)
Breaking down LIBOR into its components (an estimate) –
Long Call Option profitability chart
