Archive for November, 2011
Trading is a stochastic process; i.e, the outcome of each trade is not deterministic and has a distinctly random bias. Sometimes you win, sometimes you lose. Sometimes you win big, sometimes you take it in the pants. Often your winning or losing trades will cluster together in a row; Other times, they’ll alternate in a more noisy fashion.
This poor guy opened a large futures position into the weekend which gapped down like 650 points against him when it reopened, taking with it nearly his entire account. Ouch!
"The system wasn't designed so that most people could beat it."
When I first started trading nearly 100% of my focus was on the percentage of my trades that were winners (win probability). After all, winning feels good and I wanted to maximize that much as possible. But over time I learned that the win probability of a system is largely irrelevant (regardless of how good it makes you feel); Instead of worrying so much about winning I really should have been focusing on my system’s expectation.
The S&P futures trading pit audio feed during the May 2010 Flash Crash.
“According to reports from some who saw MF Global’s trading records and balance sheet before the company filed for bankruptcy on October 31, the firm’s books had incomplete transactions, and numbers that just didn’t seem to add up.”
(Click the post title for the full story)
Interesting paper on detecting Black Swans (click post title for a PDF). Here’s the abstract:
Seasoned Dapper Willy-Loman-Aspiring $400,000/year Wall Street Stiff Flying First Class Thinking He’s Comfortable!