Quote Of The Day – GMan

“The word on the street is that intraday traders are frustrated. The rules of the game have changed. Most high probability chart setups in between important levels are being manipulated by the high frequency algorithms. If you are an active intraday trader reading this, I guarantee you have been a victim to what I call the screw job program. Let me explain.

“The highest probability trade for a well capitalized algorithm is the trade where it is guaranteed emotional order flow. By emotional I’m referring to the order flow that comes out of positions where traders just want out – our stop orders.”

Gman, Head Trader at SMB Capital. Read the article here.

What You Do In Daily Life, You Do In Trading

I think it was Gandhi who said that a person cannot be different from himself in different areas of his life. He meant that a person really cannot be someone at work and a entire different person at home, with his friends, etc.

The personality is a whole – you can’t have a mask for different occasions. What you do in private life echoes in your business life, and vice-versa. What you do in the different areas of your life (private, professional, friendship, religion, spirituality, fun) echoes in every other part.

If you are a fighter in your work, one cannot expect you to be a daisy flower at home – you will treat your family with the same authority and discipline. If you are kind, you will be kind whether at home or at office. One cannot really perform different roles separately. The person is an unity.

That means if you are lazy, undisciplined, late, in your behavior, it will reflect in your trading.

Have you ever thought your trading problems may not be trading related?

If you find yourself…

1. Unprepared
2. Getting late
3. Not aware of details
4. Leaving office or desk at crucial times
5. Answering phone calls at trading time
6. Talking aloud  as if your office was a party
7. Not taking care of your trading journal…

Can you honestly say that the problem is with the MARKET???

 

 

 

A Note On Trading – “Fun”

” Trading is fun.”, I hear once in a while.

It’s a “cachacinha” (“Cachaça” is a brazilian alcohol beverage made from sugar cane).

You mean, trading is addictive.

From “fun” to “addiction” it takes only a small step.

I was once addicted to trading. My account suffered. It took a LOOOOOONNNNNGGGG way to free myself from the addictive power of the markets.

Now I’m making money, for me and for my clients. Guess what? The fun is gone.

The fun is completely gone, for I’m using a method to improve profitability and reduce overtrading (overtrading leads to poorer performance), and, as a side effect – and what effect! – the emotions of trading are gone.

Whoever you talk about trading, they will tell you amazing epic stories about great bravery, suffering and battle. They are all emotions: fear, greed, joy, pain, etc.

Few, very few people will tell you that trading is boring, such as factory work.

Guess what? The emotional traders are not making money. The boredom traders are taking money from them!

What is boring about trading?

To be honest, to quantify is boring. It takes time. It takes effort. It takes more time. And it takes more effort.

So it is to parameterize.

To test is boring.

To avoid spurious correlations is boring.

To avoid anedoctal evidence is boring.

To do the same trades over and over and over is boring.

To not deviate from the plan is boring – specially when your gut feeling makes an extraordinary call about the markets.

All that is boring. Boring. Boring. Boring. Boring.

BUT….

It makes you money.

Trading is such an interesting field that one cannot get FUN and MONEY at the same time.

IF YOU WANT THE FUN, FORGET ABOUT THE MONEY.

IF YOU WANT THE MONEY, FORGET ABOUT THE FUN.

Air – Left Bank

I was yesterday with a friend at this nice café (Press, at Hilário Ribeiro Street) in my home town Porto Alegre. This song was playing and I didn’t have a clue about who they were. My friend Rodrigo Merino took his iPhone and SHAZAM!, there it was the name and the band.

I like it so much to the point of adding them to my “favorite bands”. Does anyone know them?

The Five W’s and One H

In journalism, the Five W’s (or Five W’s and one H) are:

1. WHO?
2. WHAT?
3. WHEN?
4. WHERE?
5. WHY?
6. HOW?

It seems those are the very questions a trader must answer in order to be profitable. “WHO?” is about the asset class or trading vehicle. “WHAT” is about the move. “WHEN” is about timing. “WHERE?” is, quite obvious, about the exchange  - but can be less obvious if you mean exchange access (desk order, home broker or DMA?). “WHY?” is the source of the move, the reason behind it. And, finally, “HOW?” is the way it play itself (volatile or not? sudden or not?, etc).

It’s clear to me that the work of a trader is very related to the work of a journalist. Only the trader has to answer the above questions BEFORE the events take place.

Quote Of The Day – Larry Williams

“I would estimate that 80% of the people trading commodities trade   without a clear, systematic or mechanical approach. They just sense something will happen and trade accordingly. They think the price of Gold will go up because of the deficit and the political situation. Or, it will go down because of the deficit and the political situation. In some fashion they observe news and market actitivy, and take a position in the market.  That’s not the way I trade because of a fundamental flaw in that approach  to the market.

“The flaw is there is no way to quantify or qualify what type of investment  success they will have in the future. Just because you guessed correctly in  the past or have done your homework for the current trade does not mean  your next trade will be correct. You don’t know what the probability of the trade being correct are, your don’t know what percent of the time you are right and wrong. You don’t know what your average profit is, nor your average loss. You have no idea how often you’ll be trading the market. After all, your judgment can change on a daily or even an hourly basis.

“For this reason I long ago decided to systematically and mechanically define commodity trading. Even a rough system was a better way to trade logically than my whims and guesses.”

Williams, Larry. In: “The Definitive Guide To Futures Trading”.

La Media È Mobile! – (“The Average Is Movable”)

Victor nailed it, revealing why moving averages simply don’t work (although we already knew that, the “why” was yet to be answered).

I ask permition to quote him:

“Not to mention that it is extremely spurious and dangerous to your wallet to see cycles in moving averages.This is due to the Slutsky-Yule effect, a consequence of regression to the mean, creating false cycles.”

High Frequency Trading Impact On Markets

Take a look in this post about the impacts of High Frequency Trading in the markets, at SMB Capital blog.

Bernardo’s Update

Bernardo’s first interaction with technology and music (macbook and piano).

 

Slippage

Interesting post on slippage by Max Dama.

Go take a look!