Founder of Pershing Square, hedge fund manager Bill Ackman speaking on Tuesday at the Financial Times’ Dealmakers conference
- markets once again have become too complacent about the coronavirus.
- is hedging his equity exposure with insurance against corporate defaults
- “We’re in a treacherous time generally and what’s fascinating is the same bet we put on eight months ago is available on the same terms as if there had never been a fire and on the probability that the world is going to be fine.”
(Ackman referring to his similar trade earlier in the year that paid off big time).
(This pic for a while back)
The shift in Wisconsin is changing the narrative
Smarkets have now pared Trump’s odds of winning to even i.e. 50%, after having it around 71% from about an hour ago. Elsewhere, Betfair is now seeing odds of a Biden win at 8/11 after having Trump as favourite at 2/5 earlier.
Meanwhile, the market is still keeping more choppy with European stocks having pared opening losses earlier to post modest gains, only to give that all away again now.
S&P 500 futures are still up by 0.3% for the time being but risk appetite is fragile.
Update (1032 GMT): Smarkets now give Biden a 55% chance of winning.
1) What goes up must come down and vice versa.
That’s Newton’s law, not the law of trading. And even if the market does eventully self-correct, you have no idea when it will happen. In short, there’s no point blowing up your account fighthing the tape.
2) You have to be smart to make money.
No, what you have to be is disciplined. If you want to be smart, write a book or teach at a university. If you want to make money, listen to what the market is telling you and trade to make money — not to be “right.”
3) Making money is hard.
Nope. Sorry. Making money is actually easy. Statistically, you’re going to do it about half the time. Keeping it, now that’s the hard part.
4) I have to have a high winning percentage to be profitable.
Not true. How often you are right on a trade is only half of the equation. The other half is how much do you make when you’re right and how much you lose when you’re wrong. You can remember that with this formula:
Probability (odds of it going up or down) x Magnitude (how much it goes up or down) = Profitability
5) To be successful, I have to trade without emotions.
That is both wrong and impossible. You are human so you have emotions. Emotions can be a powerful motivator to your trading.
When you feel angry or scared in trading, take that emotion and translate it into something more productive. For example, if you’re feeling angry because you just got run over by the market, view that anger as a reason to be more focused and disciplined in your entry and exit levels on the next trade.
When it comes to market timing, you’ve got to UNLEARN responses that you’ve spent your whole life learning. Market timing isn’t about you. It is just a strategy that works over time. In other fields, probability plays little if any role. You put in effort, make sure you meet the expectations of the people who pay you, and you’re a success. In the traditional workplace, it makes sense to put a little ego and pride into your work. Your effort and talent often have a direct payoff. But with market timing, the odds can go against you, no matter how much work you put in. The perfect trade can go wrong. That’s hard to accept for most people because it means that being a successful (profitable) market timer or trader, to some extent, is just a matter of the odds randomly working in your favor. But there is good logic behind this randomness. And a successful timing or trading strategy uses this logic to profit. A successful timing strategy will exit losses quickly. It will not stay with a bullish or bearish position to sooth the ego of the strategy’s designer. It will also stay with a successful trade and not exit quickly to lock in a profit. That may feel good for a day, but if the profitable trend lasts two, three, five times longer, you have lost out on a huge profit. Recognizing that odds are part of trading takes some of the glory out of it. But on the other hand, understanding odds helps you cope with inevitable drawdowns.
1) Trading is a probability game. You can’t be a perfectionist and expect to be a great trader. Your losses (that you hope will return to breakeven) will kill you.
2) Jumping in too soon or getting in too late. These mistakes come from traders not having a well-defined plan of how they will enter the market. This positions the trader as a reactive trader instead of a proactive trader, which increase the level of emotion the trader will feel in reacting to market movements. A written plan helps make a trader more systematic and objective, and reduces the risk that emotions will cause the trader to deviate from his plan.
3) Not taking profits on winners and letting winners turn to losers. Again this is a function of not having a properly thought-out plan. Entries are easy but exits are hard. You must have a plan for how you will exit the market, both on your winners and your losers. Then your job as a trader becomes to execute your plan precisely.
4) Great traders don’t place their own expectations on to the market’s behavior. Poor traders expect the market to give them something. When conditions change, a smart trader will recognize that, and take what the market gives.
5) Emotional pain comes from expectations not being realized. When you expect something, and it doesn’t deliver as expected, what occurs? Disappointment. By not having expectations of the market, you are not setting yourself up for this inner turmoil. Douglas states that the market doesn’t generate pain or pleasure inherently; the market only generates upticks and downticks. It is how we perceive and respond to these upticks and downticks that determine how we feel. This perception and feeling is a function of our beliefs. If you’re still feeling pain when taking a loss according to your plan, you are still experiencing a belief that your loss is somehow a negative reflection on you personally.
6) The Four Major Fears – fear of losing money, being wrong, missing out, leaving money on the table. All of these fears result from thinking you know what will happen next. Your trading plan must approach trading as a probabilities game, where you know in advance you will win some and lose some, but that the odds will be in your favor over time. If you approach trading thinking that you can’t take a loss, then take three losses in a row (which is to be expected in most trading methods), you will be emotionally devastated and will give up on your plan.
Common sense can be brutally honest sometimes. As traders we get so focused on the little inconsequential detaisl sometimes that we miss the world around us. I have had this discussion with too many people over the last two months that told me they were bearish on the market and were taking a beating on the “high probability” that the market would reverse. Who sets those odds by the way? Are trends more likely to reverse than persist? If so, why the hell are we studying technical analysis?
Take a look over these trading rules I stumbled across last year and see if there are any realities that surface from them. Each time I look these over it reminds me of the realities of what we do here.
1. No matter what you read about trading, until you use an approach and test it with your money on the line you will never learn how to trade. Paper Trading is NOT Trading!
2. If it were really possible to “Buy Low Sell High” or “Cut your Losses and Let your Winners Run”, then almost everyone would be making money rather than losing it.
3. Remember that there is ALWAYS someone on the other side of your trade who is using a trading technique exactly the opposite of yours who hopes to make money with his system.
4. If 90% of all traders lose money, they must be following generally accepted trading rules. The 10% who win do not!
5. You trade your beliefs and your beliefs about your system. If you have a problem with yourself, fix yourself first.
6. Impatience, Fear and Greed will make you poor. Any need to trade is rooted in greed and impatience.
7. If you really understand the markets then YOU KNOW that there is the same opportunity on every time frame, in every market, every single day.
8. Waiting for the perfect trade is “chickening out”, and caused by your lack of faith in yourself or your system.
9. Any hardwired, automated trading system sold that truly works 70 or 80 or 90 percent of the time in every market would be worth hundreds of millions of dollars and would not be for sale at any price. (more…)
The 5 Fundamental Truths of Trading:
1. Anything can happen.
2. You don’t need to know what is going to happen next to make money.
3. There is a random distribution between wins and losses for any given set of
variables that define an edge.
4. An edge is nothing more than an indication of a higher probability of one thing
happening over another.
5. Every moment in the market is unique.
The 7 Principles of Consistency:
1. I objectively identify my edges.
2. I predefine the risk of every trade.
3. I completely accept the risk or I am willing to let go of the trade.
4. I act on my edges without reservation or hesitation.
5. I pay myself as the market makes money available to me.
6. I continually monitor my susceptibility for making errors.
7. I understand the absolute necessity of these principles of consistent success
and, therefore, I never violate them.