Archives of “volatility” tag

rss

Favorite Quotes from “The Big Short”

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Here are some of my favorite passages in the book:

On bank stocks’ book value:

He concluded that there was effectively no way for an accountant assigned to audit a giant Wall Street firm to figure out whether it was making money or losing money. They were giant black boxes, whose hidden gears were in constant motion.

Regarding the value added by sell-side analysts:

You can be positive and wrong on the sell side. But if you are negative and wrong, you get fired

On Manipulation of the masses:

How do you make poor people feel wealthy when wages are stagnant? You give them cheap loans

On Recognizing when a credit driven bubble is about to burst: (more…)

Nuggets

  
  Education
#  #  #  #  #  #  #  #  #  #

Price — The Truth, The Light, The Way

  • Work to understand price
  • Price does not move in a straight line
  • Big moves take time
  • Volatility is your friend and helps to compress time
  • Although volatility is your pal, it can cut both ways
  • If a stock moves 30% a day, then you can’t trade with a 5% stop
  • Don’t expect a volatile stock to stop behaving as it has been and only move in your favor just because you’re now in it. Unless you’re Bill Clinton, what is, IS.

Random Thoughts:

  • Observe but be slow to shift gears — we are trend followers, not predictors
  • It’s the market’s “job” to shake you out
    • The market will do what it has to do to create the most pain (for the most people)
    • The market will often do the obvious in the most un-obvious manner
  • Err on the side of the longer-term trend
    • DO wait for entries
    • DO use protective stops
    • DO trail and scale as offered

Are Great Traders Born or Bred?

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

In a recent speech to a class at Harvard Business School Mark Sellers, founder of Chicago-based hedge fund Sellers Capital, argues that great traders are born and not bred. He believes that there are seven “structural assets” that cannot be taught, adding, ” They have to do with psychology. You can’t do much about that.”

The traits:

1) The ability to buy when others are panicking, and vice versa

2) An obsession with the trading game

3) A willingness to learn from past mistakes

4) An inherent sense of risk based on common sense

5) A confidence in your convictions and a willingness to stick with them

6) An ability to have “both sides of your brain working” (i.e. to go beyond the math)

7) The ability to live through volatility without changing your investment thought process

I  think that some of the concepts discussed here are spot on (and I spend a great deal of time hammering home the importance of #7) , but I disagree with the overall idea that great traders are born, not made. I believe success in trading is not about a specific style, but rather about understanding your personality traits and then developing a trading style (and which product – i.e. stocks, commodities, fx) that fits you best.

We are who we are. That does not change throughout our life, but we can learn to wait for times when the market is paying our personality type and then generate successful returns when that window of opportunity appears.

Patience, Preparation and Performance

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #

Everything is difficult before it becomes easy.

With the current volatility of the financial markets, it is extremely important that each of us resolve to be patient in our decisions and not make snap judgments. These can create future disaster.

The most successful individuals around the world have a foundation of processes that they utilize consistently, no matter whether the markets are trending with clear direction or being extremely volatile.

Each of us needs to be patient and allow the trading plans that we use to provide points of execution for trades. We need to be prepared for any and all movements in the market, yet stay committed to our plan and then perform with a self-confidence that ensures that we do not stray away from the steps of our plan.

Patience, preparation and performance surrounded by a solid trading plan along with money and risk management will produce the highest probability for profitable success.

Preparation combined with Opportunity creates a new word I would like to give to you — Prepartunity. Every day provides new opportunities for us. If we are prepared then we will receive the highest results possible.

10 Things that each Trader Must Master

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

THE THREE M’s: Mind (psychology), Method (a trading edge) and Money (risk or money management).
But what does each of those things mean? Many of these answers came from other great traders sharing their wisdom in books and my own successful trading through all types of markets with bigger and bigger accounts that created a need for me to up my game and get better and better.
Mind (psychology) You must have the right winning mind set to make it in trading.
Discipline to follow your trading plan.
Perseverance to keep going through the losing periods.
Faith that your trading method works. (more…)

7 Lessons for Traders

  
  Education
#  #  #  #  #  #  #  #  #

1. You always have to have cash, especially when no one else has it. (John Burbank of Passport Capital has said the same: “Cash is most valuable when others don’t have it.”)
2. No free lunch- it’s not free, or it’s not lunch.
3. You can’t change people! You can change yourself, but not others.
4. You only see reality under extreme stress- you want to get to know someone, you need to see them under extreme stress. 
5. Volatility is not risk!
6. Always assume you will have bad luck.
7. Few variables to win. Once you have to think about more than 3 variables, your odds of winning are low.

Volatile vs. Smooth

  
  Education
#  #  #  #  #  #

“Conventional economic reasoning says that if two stocks have similar expected future cash flows and similar dependence on the market, we prefer the one that is less volatile. But might we not see some advantage to stock in volatile company A, which has survived many crises, over stock in safe, untested company B? Perhaps A’s stresses have allowed evolution of the characteristics that will succeed in the future, whereas B is narrowly positioned for the conditions of the past. In the future, perhaps A’s volatility will allow it to move faster into opportunities and away from dead ends, and to evolve as conditions change.”

– Aaron Brown, Red-Blooded Risk

Why does academia assume lower volatility is better?
How many real world instances have you seen confirming that more volatile = more robust, while smooth = over managed, artificial, and possibly brittle?
What are some of the advantages of embracing volatility — managing it versus shunning it?

King of Turtle Traders

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

I’m currently rereading “Complete Turtle Traders“ and if you’re not familiar with the story, I highly recommend this book. There aren’t many books that I reference often and this is one of them due to the psychological insight of trading and it’s impact on your performance. And what you’re going to read below is just a snippet from the first 27 pages of the book.

Richard Dennis is fast becoming one of my trading icons as I learn more about his attitude and methodology on trading and life. Here are a few quotes from the book that will offer some insight into what type of person and trader he was at that time:

His emotional attachment to dollars and cents appeared nonexistent.

He thought in terms of leverage.

You’re much better off going into the market on a shoestring, feeling that you can’t afford to lose.

Reacting to opportunities that others never saw was how he marched through life.

….you had to be able to accept losses both psychologically and physiologically.

I’m an empiricist through and through.

….the majority is wrong a lot of the time. The vast majority is wrong even more of the time.

He was an anti-establishment guy making a fortune leveraging the establishment.

Dennis read Psychology Today to keep his emotions in check and to remind him of how overrated intuition was in trading.

I think it’s far more important to know what Freud thinks about death wishes than what
Milton Friedman thinks about deficit spending.

You have to have mentally gone through the process of failure.

He has the ability under tremendous pressure to stand there with his own money and pull the trigger when other people wilted.

When he was wrong, he could turn on a dime.

One man’s volatility is another man’s profit.

SUBJECT: What makes a frustrating market?

I wanted to end with a quote from one of the most famous Turtle Traders of all, Curtis Faith, that very much resonates with my methodology of zentrading. This comes from “Inside the Mind of the Turtles”which is another book I recommend. Do not buy his second book “Way of the Turtle”. It was absolutely horrible and very poorly written. I’m still reading his new book (very promising) and I’ll let you know how that one goes. Anyhow…here’s the quote and pay special attention to the phase in italics and if you found this post especially useful please retweet and share with your networks. I look forward to reading your comments and any particular insight you may have.

Winning traders think in the present and avoid thinking too much in the future. They look at the future as unknowable in specifics, but foreseeable in character. To win you need to free yourself and your thinking of outcome bias. It does not matter what happens with any particular trade.

10 losing trades + sticking to your plan = bad luck.

Best eBook s of 2011

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

All of these titles can be found on Traderslibrary.com or Amazon Kindle, each only $9.99.

  1. Trend Trading Indicators: Secrets to Predicting Market Direction–John Person
  2. Simple Profits from Swing Trading: The Underground Trader Swing Trading System Explained–Jea Yu
  3. The Three Secrets to Trading Momentum Indicators–David Penn
  4. Volatility Indicators: Techniques for Profiting from the Market’s Moves–Jean Folger & Lee Leibfarth
  5. The Modern Trader: Wall Street Traders Reveal Their Formula for Success–T3 Live
  6. Iron Condor: Neutral Strategy for Uncommon Profit–Ernier Zerenner & Michael Phillips
  7. 21 Candlesticks Every Trader Should Know–Melvin Pasternak
  8. Simple Steps to Trading Discipline: Increasing Profits with Habits You Already Have–Toni Hansen
  9. Traders’ Guide to Increasing Retirement Income with Options–Ernie Zerenner
  10. Winning Methods of the Market Wizards–Jack Schwager

Sun Tzu Art of Trading

  
  Education
#  #  #  #  #  #  #

suntzu“Now the general who wins a battle makes many calculations in his temple ere the battle is fought. The general who loses a battle makes but few calculations beforehand. Thus do many calculations lead to victory, and few calculations to defeat: how much more no calculation at all! It is by attention to this point that I can foresee who is likely to win or lose.”

“Ponder and deliberate before you make a move”

Think deeply and have a rational plan before you trade. Don’t act impulsively or recklessly.

—

“It is the rule in war, if our forces are ten to the enemy’s one, to surround him; if five to one, to attack him; if twice as numerous, to divide our army into two. If equally matched, we can offer battle; if slightly inferior in numbers, we can avoid the enemy; if quite unequal in every way, we can flee from him.” (more…)

Go to top