Trade Confidently and Safely
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Trading presents us with a unique paradox in that we have to be confident enough to attempt to undertake it but not so confident that we blow ourselves up. Unfortunately, most new traders fall into the category of how hard could it be. The majority of new traders have what I would call a here hold my beer and watch this moment.
Such behaviour is quite common in males after all only males will be sitting watching a highly skilled event at the Olympics such as the gymnastics and then boldly state that given six weeks they could be performing on the rings. Putting aside the obvious difficultly most of them have in getting their fat arses off the couch, hanging from a set of rings some 2.75 metres off the ground is completely out of the question.
We have a constant battle between expectation and reality. New traders believe that trading is akin to winning tattslotto. You do it for little bit and them fly to France on your recently acquired private jet. Old hands (grown ups) realise that this is a pipe dream because trading involves long hours of grind, a fair degree of frustration and a wonderful ability to point out every weakness you have.
As an example I got an email a while ago from someone wanting a trading system that had very specific requirements. These requirements were as follows.
The issue that was most intriguing was that this individual could not accept that this was totally unrealistic. So I did a few dodgy numbers based upon the trading float he had and presented these. Based upon his float and 20% per month return at the end of five years he would have $3,944,326,004.72. After 10 years he would have $222,252,966,164,622.62 in the bank. The fact that he didn’t even want to monitor the system didn’t even warrant mentioning
He could not accept that such an outcome was profoundly unlikely. He considered it normal that he should have sufficient funds to buy every listed company in the world.
I will cede the point that this is an unusual case but how often have you looked an instrument and thought to yourself if this goes to x price then I will be able to do or buy whatever. We are once again caught in the battle between expectation and reality. The reality is that most trades are a bust. The majority are either losers or breakeven trades with the smattering of winners and every so often a spectacular winner. The problem is adjusting expectations so that your psyche survives long enough to for you to be around when the big winner appears. The majority of traders quit simply because expectations and reality are out of alignment. For that majority trading is tattslotto, for the grown ups it is a job.
With the Nasdaq moving to challenge its all time high the question being asked is whether this bull run and move to new highs is a bubble. From my perspective the question is pointless since whether a market could be defined as being in a bubble or not is a function of whatever narrative you apply to it and as I have written before narratives are simply a collection of perceptions and biases. Your narrative reflects both your opinion and your world view and as such they are idiosyncratic to you. You may try and hide your bias within complex analysis and valuation metrics but it is still your bias and it remains a bias because it leads to an opinion of where the market should or should not be.
It is impossible to convince the market of the validity of your narrative (bias) since the market is completely unaware of you or your opinion. it does not matter how tightly you cling to your conviction the market will go in whatever direction it wants to go. And it will go in that direction long after your conviction has crumbled in the face of the reality. Markets will go further, for longer than you could ever imagine.
My view is that there are only two things you can say about the NASDAQ, it has been trending up and it is challenging its old highs. Anything else is guesswork.
On or about June 12, 2009, SARAO sent an email to a representative of his FCM in which he explained that he “need[ed] to get in touch with a  technician [at the company that provided his trading software (“Trading Software Company #1″)] that will be able to programme for me extra features on [the software],” namely, “a cancel if close function, so that an order is canceled if the market gets close.”
Sarao was trading E-mini S&P 500 futures contracts, but he wanted a more convenient way to not trade them, so he e-mailed his FCM (futures commission merchant, i.e. broker) for help automating that. The idea is that he would put in a big order to sell a whole bunch of futures at a price a few ticks higher than the best offer. So probably he wouldn’t sell any futures, since he wasn’t offering the best price. But he had to keep constantly updating his orders to keep them a few ticks higher than the best offer, to make sure that he didn’t accidentally sell any futures as the market moved. And that’s a bit of a pain, so he programmed an algorithm to do it for him. Though he also seems to have done similar things manually, to support the algorithm’s efforts, or to stave off boredom while the algorithm did its thing.
More here – BloombergView
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