Archives of “Management” tag

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12 ways the world could end

  
Analysis, Education
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Since the dawn of civilisation people have speculated about apocalyptic bangs and whimpers that could wipe us out. Now a team from Oxford university’s Future of Humanity Institute and the Global Challenges Foundation has come up with the first serious scientific assessment of the gravest risks we face.

Although civilisation has ended many times in popular fiction, the issue has been almost entirely ignored by governments. “We were surprised to find that no one else had compiled a list of global risks with impacts that, for all practical purposes, can be called infinite,” says co-author Dennis Pamlin of the Global Challenges Foundation. “We don’t want to be accused of scaremongering but we want to get policy makers talking.”

The report itself says: “This is a scientific assessment about the possibility of oblivion, certainly, but even more it is a call for action based on the assumption that humanity is able to rise to challenges and turn them into opportunities. We are confronted with possibly the greatest challenge ever and our response needs to match this through global collaboration in new and innovative ways.”

There is, of course, room for debate about risks that are included or left out of the list. I would have added an intense blast of radiation from space, either a super-eruption from the sun or a gamma-ray burst from an exploding star in our region of the galaxy. And I would have included a sci-fi-style threat from an alien civilisation either invading or, more likely, sending a catastrophically destabilising message from an extrasolar planet. Both are, I suspect, more probable than a supervolcano.

But the 12 risks in the report are enough to be getting on with. A few of the existential threats are “exogenic”, arising from events beyond our control, such as asteroid impact. Most emerge from human economic and technological development. Three (synthetic biology, nanotechnology and artificial intelligence) result from dual-use technologies, which promise great benefits for society, including reducing other risks such as climate change and pandemics — but could go horribly wrong.

Assessing the risks is very complex because of the interconnections between them and the probabilities given in the report are very conservative. For instance, extreme global warming could trigger ecological collapse and a failure of global governance.

The authors do not attempt to pull their 12 together and come up with an overall probability of civilisation ending within the next 100 years but Stuart Armstrong of Oxford’s Future of Humanity Institute says: “Putting the risk of extinction below 5 per cent would be wildly overconfident.” (more…)

5 Basic Tasks Necessary To Become A Winning Trader

  
  Education
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  1. Develop a competent analytical methodology.
  2. Extract a reasonable trading plan from this methodology.
  3. Formulate rules for this plan that incorporate money management techniques.
  4. Back-test the plan over a sufficiently long period.
  5. Exercise self-management so that you adhere to the plan. The best plan in the world cannot work if you don’t act on it.

10 Trading Pitfalls

  
  Education
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  • All market behavior is multifaceted, uncertain, and ever changing.
  • “I am employing a robust, positive expectancy trading model and am appropriately managing risk on each and every trade.  Losses are an inevitable and unavoidable aspect of executing all models.  Consequently, I will confidently continue trading.”
  • Denial of loss and uncertainty is extremely destructive because it prevents us from thinking in terms of probabilities, planning for the possibility of loss, and consequently from the necessity of consistently managing risk.
  • If we view markets as adversarial we cut ourselves off from emotionally tempered, objective solutions to speculation (opportunities to profit)
  • Blind faith is no substitute for research, methodical planning, stringent risk management, playing the probabilities, and unwavering discipline
  • Depression is a suboptimal emotional state because it allows past losses or missed opportunities to limit our ability to perceive information about the markets in the present
  • We are not our trades; they are merely an activity in which we are engaged
  • Greed is linked to fear of regret, which is the greatest force impeding a trader’s performance outside of fear of loss
  • Market offers limitless opportunities for abundance
  • Trading biases prevent us from objectively perceiving reality, thereby limiting our ability to capitalize on various opportunities in the markets.

Probability and reward-to Risk Assessment -Traders Must Read

  
  Education
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  • Never open a position without knowing the initial risk.
  • Define your profits and losses as a multiple of your initial risk (R-multiples).
  • Limit your losses to 1R or less.
  • Make sure your profits on the average are bigger than 1R.
  • Never take a trade unless the reward-to-risk ratio of that trade is at least 2:1 and perhaps even 3:1.
  • Your trading system is a distribution of R-multiples.
  • When you understand #6, you should be able to hear/see a description of a system and know the kind of R-multiple distribution it would generate.
  • The mean of that distribution is the expectancy, and it tells you what you’ll make on the average trade. It should be a positive number.
  • The mean, standard deviation, and number of trades determine the SQN score for your system.
  • Your SQN score tells you how easy it will be to meet your objectives using position sizing strategies. Other than that, your system has nothing to do with meeting your objectives.
  • Systems are usually named after their setups, which are usually based on some attempt to predict future prices. Prediction has nothing to do with trading well.
  • System performance has to do with controlling risk and managing the position through your exits.

Every Trader Must Read These 10 Points -Take Print Out

  
  Education
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  1. An entry does not determine profitability it only determines potential profit the exit is where the win or loss occurs, focus on that.
  2. A robust trading system means nothing unless you can follow it with discipline and self control.
  3. Charts don’t care about any one persons opinions why should you?
  4. Good trading will make you some money but only good risk management will allow you to keep the money.
  5. Good traders search for the right entries, great traders search for the right systems.
  6. Bad traders have an opinion, good traders have a plan.
  7. In the markets money flows continually from those you do not really know how to trade to those who do.
  8. Eventually those with the best risk management and trading method end up with the money from those who only have a good  trading method.
  9. Bad traders tend to be stressed and emotional, good traders tend to be more quiet and at ease.
  10. Show me a trader overly focused on just one trade and I will show you the 90% that are unprofitable, show me a trader focused on the whole process of trading with little concern over any one trade and I will show you a member of the 10% that are profitable.

Good risk management combines several elements

  
Analysis, Education
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1. Clarifying trading and risk management systems until they can translate to computer code.

2. Inclusion of diversification and instrument selection into the back-testing process.

3. Back-testing and stress-testing to determine trading parameter sensitivity and optimal values.

4. Clear agreement of all parties on expectation of volatility and return.

5. Maintenance of supportive relationships between investors and managers.

6. Above all, stick to the system.

7. See #6, above.

The “Greek Issue”-Fascinating flowchart

  
Analysis, Education
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It is wrong to think that contagion stems only from Grexit. An excessive compromise with Greece could result in moral hazard, particularly in relation to structural reforms. This could undermine the medium-term stability of the euro area. The tail risk is that Greek politicians try to leverage too much the fear of Grexit “contagion risk”. We complete our analysis by looking at the vulnerability of other euro peripherals and the ex-post tools to limit contagion.

7 Basic Truths of Trading

  
  Education
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  1. Well-defined objectives. Are you trying to beat a certain return hurdle, like inflation or an index? Are you trying to generate 5% or 50% returns per year? You have to understand what you are trying to do and then bend your investment process around it. The other way around isn’t possible.
  2. An understanding of the markets that you will be operating in. Stick to what you know. Narrow your focus so as to make the most of your efforts. You need to know everything about the markets where you’re taking positions.
  3.  A clearly defined methodology for getting into and out of positions. This includes which indicators, news items, fundamental data points you look at and when you take action. This is your checklist—you should have it so well defined that you can be sure of the exact steps along the way. You need a game plan so that you stay consistent and disciplined and don’t get flustered under pressure. It should become automatic and engrained.
  4. This methodology must utilize your strengths and skills and suit your personality. A cerebral, research-driven economist should put that to work, instead of becoming a swing trader based on technical analysis. An adrenaline-fueled athlete should be an intraday trader, not be a long-term trend follower. Remember, every successful trader has a methodology of their own which plays to their strengths and their personality.
  5. This methodology has a positive statistical expectancy– the gains from winners more than outweigh the losses on losing trades. Use your own statistics and the Kelly Formula for a rough guide as to whether or not you have positive statistical expectancy.  On average you want to expect to win on an individual trade, meaning that your expected wins outweigh your prospective losses. That doesn’t guarantee that you will actually profit on each trade, it just means that over a sufficiently large quantity of trades, you will come out ahead.
  6. A well-stated risk management policy for when you get out of losing positions and how you manage risk overall. Cut losers. Let winners ride.  Many people have tried to overthink this rule and ended up losing as a result. Furthermore, you never want to put yourself in a position where you can blow up, so you need to be thinking how you can avoid taking excessive risk in the first place. Just remember Warren Buffett’s Two Rules:A framework for sizing positions. This is related to risk management— obviously, you don’t want to take a position that’s over a certain size, ever. But you may also want to size positions according to certain specific critieria, such as your conviction in the position or volatility in the market. Or they could all be the same size. Nonetheless, your methodology has to be able to address it and come up with a well-reasoned answer.
    1. Never Lose Money.
    2. Never Forget Rule #1.
    1. A framework for sizing positions. This is related to risk management— obviously, you don’t want to take a position that’s over a certain size, ever. But you may also want to size positions according to certain specific critieria, such as your conviction in the position or volatility in the market. Or they could all be the same size. Nonetheless, your methodology has to be able to address it and come up with a well-reasoned answer.

List of Common Characteristics of Great Traders -10 Points

  
  Education
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1. They all have a tested, positive expectancy system that’s proved to make money for the market type for which it was designed.

2. They all have systems that fit them and their beliefs. They understand that they make money with their systems because their systems fit them.

3. They totally understand the concepts they are trading and how those concepts generate low-risk ideas

. 4. They all understand that when they get into a trade, they must have some idea of when they are wrong and will bail out

. 5. They all evaluate the ratio of reward to risk in each trade they take. For mechanical traders, this is part of their system. For discretionary traders, this is part of their evaluation before they take the trade.

6. They all have a business plan to guide their trading. You must treat your trading like any other business

7. They all use position sizing. They have clear objectives written out, something that most traders/investors do not have. They also understand that position sizing is the key to meeting those objectives and have worked out a position sizing algorithm to meet those objectives.

8. They all understand that performance is a function of personal psychology and spend a lot of time working on themselves. You must become an efficient rather than inefficient decision maker.

9. They take total responsibility for the results they get. They don’t blame someone else or something else. They don’t justify their results. They don’t feel guilty or ashamed about their results. They simply assume that they created them and that they can create better results by eliminating mistakes.

10. They understand that not following their system and business plan rules is a mistake. If you make even one mistake per month, you can turn a profitable system into a disaster. Thus, the key to becoming efficient is to eliminate such mistakes.

What elements from the above list do you need to work on more than any other? Yes, take a moment to think about this today. As you set your top priorities for this new second quarter, I recommend focusing on just one of these elements by outlining specific steps you need to take this quarter to improve. For some, this will require further study. For others, it only requires just some minor behavior modification, refocus and attitude adjustment. Many times the difference between being great and mediocre

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