18 entries tagged "trading"

Stock Market Crash? Don’t Panic, Get Rich Instead

[US market historical downturn patterns include: 1) pullbacks of 5–10% every year, 2) corrections of 10–20% every 1–2 years, 3) bear markets of 20–40% every 5–6 years, and 4) crashes of 40% or more every 10–20 years.]

The first thing to understand is that there are probabilities at work. A trader with 55% winning days will average two or three 5day losing streaks per year and probably one 6day losing streak. A 6 day losing streak is enough to make the best trader feel like a complete moron. But he isn't. It's just probability

[Markets with bearish sentiment without many positions is primed to fall as new entries reflect their perspective, whereas with many positions is more st risk of reversal as there may be no one left to sell.]

['Buy the rumour, sell the fact' refers to markets pricing in an event ahead of time and then reversing when it takes place. Often the moment of a news release is the apex of this sentiment and you may notice counterintuitively that good news getting priced in over time ends up reversing on its announcement]

Instead of gyrating back and forth for a while before finding equilibrium, the market now finds equilibrium very quickly after the release of economic data. Hedge funds and banks use regression analysis before the data release to estimate how far each asset should move on various outcomes and they execute trades via algorithm at the moment of release. They will buy or sell until all asset classes are approximately in line with where history suggests they should be and this will happen in microseconds. There is nothing left on the table for the human traders because all the liquidity in the market is hoovered by the bots in the first few microseconds.

[P&L targets remind you of the point where your job is done and so to book profits rather than increase leverage.]

[If the average moves on two instruments are respectively 1.2% and 0.6%, you wouldn't want the same position size in both.]

[The market only cares about how economic data releases compare to expectations; so not in relation to last month or year but rather the median awaited by economists and traders.]

[When markets react to old or random news, focus more on what's happening rather than whether it makes sense.]

[If you backtest and find an optimal moving average that worked in the past, that doesn't guarantee success in the future. Better to pick what fits your timeline granularity.]

Trading is a serious intellectual pursuit that is also incredibly fun. The joy of attempting to solve an unsolvable puzzle. A nearly impossible daily test of discipline and selfcontrol. An endless emotional rollercoaster of instant feedback, frequent disappointment, sudden euphoria, and nearly unbearable periods of crushing selfdoubt.

1. [Identify edges objectively.]
2. [Calculate risk for every trade.]
3. [Accept the risk or reject the trade.]
4. [Act on edges without hesitation.]
5. [Take money off the table when it's available.]
6. [Monitor susceptibility for errors.]

[Partial take profit reduces risk on the stop by that same proportion.]

[One hierarchy of stages for taking profit can be 1. initial moves in your favour; 2. support or resistance on a larger timeframe (with a move of your stop to the entry point); and 3. significant high or low on a larger timeframe.]

[Variables used to deal with market dynamics can go in and out of effectiveness as market participants and their interactions change.]

[Regardless of their belief, everyone wants to be believed because it feels good, and being disbelieved can easily feel harsh, like an attack.]

1. Beliefs seem to take on a life of their own and, therefore, resist any force that would alter their present form.
2. All active beliefs demand expression.
3. [Beliefs keep working whether or not we are aware of them.]

[If you woke up one day and everyone acted as if you didn't exist, you'd probably try to shake someone out of it. Beliefs will act the same way if purposefully ignored and force their presence to be acknowledged.]

Thinking outside of the boundaries of our beliefs is commonly referred to as creative thinking.

[The pattern-making sensibilities of our mind are tricked into confounding a unique now as potentially not unique when it seems to share similar properties with another occasion.]

We can "know" exactly what an edge looks, sounds, or feels like, and we can "know" exactly how much we need to risk to find out if that edge is going to work. We can "know" that we have a specific plan as to how we are going to take profits if a trade works. But that's it! If what we think we know starts expanding to what the market is going to do, we're in trouble.

[The objective is not making money, but consistency. The skills involve having an objective state of mind less easily blinded by pain-avoidance mechanisms; to let things unfold and be capable to take advantage when there's an opportunity.]

[Market info is only threatening if you expect it to do something for you; otherwise, you have no reason to fear being wrong.]

[Your edge is only an indication of one thing more likely to happen than another; the only evidence needed is whether the variables used to define the edge are present. Other information is noise and makes as much sense as trying to prove the next coin flip will be heads after ten flips came up tails: the odds are still 50/50 regardless of what you find.]

[If you believe you called the market once, you'll probably try to do it again, thereby setting yourself up for a trap; things are never the same again.]

when the positive or negative energy from our memories or experiences become linked to a set of words we call a concept, the concept becomes energized and, as a result, is transformed into a belief about the nature of reality. If you consider that concepts are structured by the framework of a language and energized by our experiences, it becomes clear why I refer to beliefs as "structured energy."

Since we can't expect something we don't know about, we could also say that an expectation is what we know projected into some future moment.

Events that have probable outcomes can produce consistent results, if you can get the odds in your favor and there is a large enough sample size.

[If casinos have a 4.5% edge on their customers, it translates to netting 4.5% on all money wagered there with that probability.]

[Technical analysis is mathematical, whereas mental analysis is psychological and uses technical indicators as a proxy for collective behaviour patterns.]

Each trade contributes to the market's position at any given moment, which means that each trader, acting on a belief about what is high and what is low, contributes to the collective behavior pattern that is displayed at that moment.

At the moment he puts a trade on, and for as long as he chooses to stay in that trade, other traders will be participating in that market. They will be acting on their beliefs about what is high and what is low. At any given moment, some percentage of other traders will contribute to an outcome favorable to our trader’s edge, and the participation of some percentage of traders will negate his edge. There’s no way to know in advance how everyone else is going to behave and how their behavior will affect his trade, so the outcome of the trade is uncertain. The fact is, the outcome of every (legal) trade that anyone decides to make is affected in some way by the subsequent behavior of other traders participating in that market, making the outcome of all trades uncertain.

Since all trades have an uncertain outcome, then like gambling, each trade has to be statistically independent of the next trade, the last trade, or any trades in the future, even though the trader may use the same set of known variables to identify his edge for each trade. Furthermore, if the outcome of each individual trade is statistically independent of every other trade, there must also be a random distribution between wins and losses in any given string or set of trades, even though the odds of success for each individual trade may be in the trader’s favor.

[Casinos don't need to predict the future to create consistent results: as long as the odds are in their favour, a large enough sample size will give their edge a chance to work.]

[For any pattern to be "exactly" the same as in a previous moment, exactly the same traders would need to be present with the equivalent mental state; therefore virtually impossible. So every market moment is unique even though it may rhyme with a previous occurrence.]

[Being aware of uncertainty and probabilities doesn't automatically translate to profiting from it.]

When you've trained your mind to think in probabilities, it means you have fully accepted all the possibilities (with no internal resistance or conflict) and you always do something to take the unknown forces into account. Thinking this way is virtually impossible unless you've done the mental work necessary to "let go" of the need to know what is going to happen next or the need to be right on each trade. In fact, the degree by which you think you know, assume you know, or in any way need to know what is going to happen next, is equal to the degree to which you will fail as a trader.

Traders who have learned to think in probabilities are confident of their overall success, because they commit themselves to taking every trade that conforms to their definition of an edge. They don't attempt to pick and choose the edges they think, assume, or believe are going to work and act on those; nor do they avoid the edges that for whatever reason they think, assume, or believe aren't going to work. If they did either of those things, they would be contradicting their belief that the "now" moment situation is always unique, creating a random distribution between wins and losses on any given string of edges. They have learned, usually quite painfully, that they don't know in advance which edges are going to work and which ones aren't. They have stopped trying to predict outcomes. They have found that by taking every edge, they correspondingly increase their sample size of trades, which in turn gives whatever edge they use ample opportunity to play itself out in their favor, just like the casinos.

[Typical traders avoid predefining risk because "it isn't necessary", which implies they believe that they can and do know what will happen, as well as that they're correct.]

When you're convincing yourself that you're right, what you're saying to yourself is, "I know who's about to come into this market. I know what they believe about what is high or what is low. Furthermore, I know each individual's capacity to act on those beliefs (the degree of clarity or relative lack of inner conflict), and with this knowledge, I am able to determine how the actions of each of these individuals will affect price movement in its collective form a second, a minute, an hour, a day, or a week from now."

[Watching a market with no intention to trade is frustration-free because nothing is at stake.]

[The Japanese may often speak vaguely because of historical norms where people were beheaded when not replying as expected.]

[There's often much activity in the final minutes of a trading session as computerized signals activate based on closing prices.]

[The open is a rudder for the day and provides a first clue about direction.]

[The more anxious, the earlier they want to trade.]

[Large orders at the open or close with the intention of affecting prices are called "morning attacks" and "night attacks"]

A trend reversal signal implies that the prior trend is likely to change, but not necessarily reversing. [A car's brake lights indicate an incoming slow or stop, but not whether it will continue or reverse afterwards.]

['hammer' in Japanese is takuri, which means "gauging water's depth by feeling for the bottom"]

[harami is an old Japanese word for pregnant and used to indicate a market 'losing breath'.]

['Belt-hold' comes from sumo wrestlings yorikiri, meaning 'to push the opponent out of the ring while holding onto their belt.']

Week 4: A respite from winter

[narrative analysis] is often about nailing down the one, most important story the market wants to trade and then tracking the evolution of that story.

It is very difficult for markets to hold two competing themes in its collective hivemind at once, and so the focus oscillates back and forth instead of going in two directions at once.

Just because a narrative is well-known, that does not mean it’s exhausted.

Trade 3: Short DOCS

Part of the reason a level might hold is that everyone believes it will hold—and so everyone puts their bids there. If you are using PhD quantum physics and homological mirror symmetry to find your tech levels, and nobody else in the known universe is, the levels you find just might not mean much in the market.

Volume spikes at a price extreme are super useful indicators that huge volume has gone through and the move was rejected or accepted by the market.

Trade 2: Short oil

People yelling “CORRELATION IS NOT CAUSATION!” in all caps are technically right but practically not very helpful. There often is no causation, but there is a ton of information contained in the correlation between assets.

If corn doubles in price, those who can switch to soy will do so, pushing the price of soy futures higher. If Doordash rips higher and now looks overvalued, investors looking for food delivery apps to invest in might buy GrubHub instead.

When a Canadian crude oil producer sells their crude, they receive USD. They need CAD to pay their employees and shareholders so after they sell their crude, they need to sell USDCAD to convert the proceeds. If the price of crude doubles, the crude producer will have twice as many USD to sell and this will weigh on USDCAD.

Trade 1: Short XAUEUR

If real rates [(yield minus inflation)] are falling and negative, that generally means that central banks are enacting extremely loose policy.

[Increasing US rates and real rates is generally bad for gold.]

Positioning	Bull Market	Bear Market
Long and increasing	Very Bullish
Long and stable	Bullish
Long but falling	BEARISH
Short and stable		Bearish
Short and getting more short		Very bearish
Short but buying back		BULLISH

When the market anticipates an upcoming event, it will tend to position in the direction of least regret.

[If XAUEUR isn't available on your platform sell XAUUSD and buy EURUSD.]

[If I make this 1% better each time, it will be 1.62x better after 49 times].

[A good rule of thumb for new traders is to set the stop loss an average day range away from the entry. If I know nothing else about a security, I do this. Anything smaller risks to be stopped out by noise.]

[Add 3 pips to stop loss for slippage.]

[Position size is the output, not input.]

There's nothing worse than being right and everyone agreeing with you. There's no way to make any cash.

For the interview with Goldman I turned up in my hoodie and trainers and I told them that I definitely didn't want the job. They put me through to the second round after that.

Stocks never go down. Stocks only go up. When the economy is good stocks go up, and when the economy is shit, they print so much money stocks go up even more. Same with fucking houses. Everything goes up. The asset holders never lose.

[The economy is people and their ability to live, not numbers. We didn't need to make conversations with our cleaners to understand the lives of everyday people.]

[In the best trades, you use your nose to smell stupidity.]

This is another general rule of trading: you don't necessarily make money by being right, but by being right when others are wrong.