Can a trader be a do gooder - best forex trading strategy videos

Can a trader be a do gooder ~ best forex trading strategy videos

It occurs to me that the only way in which a trader can become more than a completely selfish, self-enriching, narcissistic person is to trade well enough so that you can manage other peoples money and thus saving these investors from crooks and charlatans (provided you are convinced you are not a crook and charlatan yourself).

Other traders have advanced other arguments in favor of trading. But I am not convinced by them.

They say that we provide liquidity to other long-term investors who may need to liquidate their investments. But then, this applies only to mean-reversal strategies. Momentum strategies take away liquidity from the market, and in some cases exacerbating price bubbles. Certainly not something your grandma would approve.

Others argue that momentum strategies help disseminate information about companies through quick price movements. But cant we just watch Bloomberg or CNBC? Do we really need some devious insiders to convey that information to the rest of us through price movements?

No, I think that independent trading should serve only one purpose (besides short-term self-sustenance): as training and preparation to become a fund manager. Once you graduated from independent trading, you then enter into the grand contest among all fund managers to see who can best serve and protect investors assets, (and be rewarded according to your standing in this contest.)

I know, this is the idealistic way to look at things. Serving and protecting seem to be what policemen should be doing, not traders. But as in quantitative trading, I think it helps one becomes more successful in ones activities by having a simple guiding principle or model. And it doesnt hurt that in this case, the principle would also be conscience-nourishing!
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Psychological Mistake 1 The Need To Be Right - forex trading pro system free download

Psychological Mistake 1 The Need To Be Right ~ forex trading pro system free download

Ever since we started going to school, our educational systems have almost always measured our success based on how often we are right. In all the examinations, the number of right answers we give determines our grades. As such, we live in a culture that thrives on being right as often as possible. We have been taught to not make mistakes. Being right has almost become a necessity, because it seems to be closely tied to how we are being measured, and our egos seem to be at stake when we make major decisions and are judged based on how right or wrong these decisions turn out to be.

Such a psychological "need" becomes even more apparent when we make financial decisions. Perhaps this is because we live in a money-saturated culture that often measures our worth based on our financial status. When trading the Forex market, this psychological need is, very often, counter-productive to our trading success. This "need to be right" is rooted in the fact that humans are driven by instant gratification, i.e. we would like to experience the immediate joy of taking a small profit, and delay the pain of taking a loss.

Just imagine that you are given a choice between the following two scenarios. Which would you choose?

1. A sure loss of 20%, or
2. A 5% chance of no loss at all, plus a 95% chance of a 25% loss.

Most people will prefer the second option. This is because most people naturally refuse to "cut their losses short". Taking the second option (which is actually more risky) implies that people naturally hope that losses will stop and that the market will turn back in their favour. This causes people to hold on to losses even when the market does not turn back.

The psychological trap is such that the worse the loss becomes, the more unwilling we are to take it. Many traders are therefore ultimately being forced to take the loss when it becomes too painful. Instead of losing a mere 3% of their account balances, they end up losing 20%, 30% or even more. If the trader has been "discipline" enough to take that 3% loss based on a pre-defined exit point, he would have been able to catch profitable trades in the opposite direction when the price continued downwards.

Consider another similar scenario, where you are given a choice between two options as follows:

1. A sure gain of 20%, or
2. A 5% chance of no gain at all, plus a 95% chance of a 25% gain.

Which one would you go for?

If you are like most people who do not guard themselves against human psychological biases, you will choose the first option this time, i.e. you would prefer to take a sure gain, rather than to take a risky bet for a greater gain.

Once we have a sure gain in our hands, we tend to be afraid of seeing the profits disappearing away. We take the profits at any signs of reversals, even when our trading strategy has not given us an exit signal. By developing a habit of taking profits too soon, i.e. before the pre-defined profit target is reached, we end up short-changing ourselves in the long term.

So, what do the two scenarios illustrate?

The first scenario illustrates how we tend to be more risk-seeking in losing positions. While hoping that losses will turn to small profits or even just reach the break-even point, we are willing to see losses become bigger "for the time being". This behaviour is rooted in a psychological need, for it delays the immediate pain of taking a loss.

The second scenario illustrates how we tend to be more risk-averse in winning positions. We are afraid to see profits disappear, and are unwilling to "take the risk" to maximise our profits when strong trends are identified. This behaviour is rooted in our need to immediately experience the pleasure of taking a profit.

Think carefully about what happens when you repeatedly allow these two scenarios to happen in your trading journey. Inevitably, you will realise that your profits are not going to be enough to cover for your losses in the long run. This is why some traders can have very high success rates, and yet end up losing money!

These psychological responses to winning and losing positions are due to our distorted need to be right in every trade that we take. For most traders, being right naturally means not losing money in the trade. If we do not consciously overcome such dispositions, we find ourselves driven by a very short-sighted desire to force every trade to be a winner. This is why many Forex traders often operate in a "fire-fighting" state of mind, constantly watching their positions and attempting to "salvage" every trade by ensuring it does not become a loss.

We need to understand that being right does not simply mean not losing money. Some losing trades can indeed be valid ones, whereas some winning trades can be "wrong" in the sense that they are based on rash guesses and bad risk management. Being short-sighted and trying to make every trade a winner (even when the market has invalidated the trade by turning against us by a certain amount) will do more harm than good in the long term. When we learn to think in terms of probabilities, understanding that they work out over a large number of trades, we become far more comfortable about taking a small loss, and then moving on to the next trading opportunity.
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Implementing stock strategies using options - forex trading strategies tutorial

Implementing stock strategies using options ~ forex trading strategies tutorial

There are many stock trading strategies that are quite attractive in terms of Sharpe ratios, but not very attractive in terms of returns. (Pairs trading comes to mind. But in general, any market neutral strategy suffers from this problem.)  Certainly, one cannot feed a family with annualized returns in the single or low double digits, unless one already has millions of dollars of capital. One way to solve this dilemma is of course to join a proprietary trading group, where we would have access to perhaps x30 leverage. Another way is to implement a stock trading strategy using options instead, though there are a sizable number of issues to consider. (I recently brushed up on my options know-how by reading the popular "Options as a Strategic Investment".)

1. Using options will allow you to increase your leverage beyond the Reg T x2 leverage (or even the day trading x4 leverage) only if you buy options only, but not selling them. For example, to implement a pairs trading strategy on 2 different stocks, you would have to buy call options on the long side, and buy put options on the short side (but not sell call options). Otherwise the margin requirement for selling calls is as onerous as shorting the underlying stock itself.
2. The effective leverage is computed by multiplying the delta of the option by the underlying stock price divided by the option premium. If you buy an out-of-money (OTM) option, the delta will be small (smaller than 0.5), but the option premium is small also. Vice versa for an in-the-money (ITM) option. So you would have to find the optimal strike price so that the effective leverage is maximized. I personally choose to buy an at-the-money (ATM) call or slightly ITM call without actually computing the optimized strike, but perhaps you have reached a different conclusion?
3. Naturally, the shorter the time-to-expiration, the cheaper the option and higher the effective leverage. Additionally, for ITM options, their deltas increase as we get closer to expiration, which also contributes to higher effective leverage. However, the time-to-expiration must of course be longer than the expected holding period of your position, otherwise you would incur the transaction cost of rolling over to the further-month options.
4. The discussion of finding the right strike price based on its delta is moot if your brokerages API does not provide you with delta for your automated trading system. In theory, Interactive Brokerss API provide deltas for whole options chains, and quant2ibs MATLAB API will pass these on to your MATLAB exeuction program too. However, I have not been successful in retrieving deltas using quant2ibs API. If you have encountered a similar problem, and perhaps have found the reason/cure for this, please let me know. For now, I am reduced to assuming that all my near ATM calls for different stocks have the same delta, and I increase this common value from 0.5 to close to 1 as time passes.
5. Options dont have MOO, LOO, MOC or LOC order types. If one uses market orders to buy at the open or close, one would incur significant transaction costs due to the much wider bid-ask spread compared to stocks. I try to use limit orders on options orders as much as possible.

If you have used options to implement stock trading strategies, and have experiences with these or other issues, please do share them here.

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Reminder: my next pairs trading workshop will take place in New York on October 26-27th.
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Let Your Discipline Be Your Forex Trading Guide Not Your Emotions - forex trading system - introducing the $5374 a month

Let Your Discipline Be Your Forex Trading Guide Not Your Emotions ~ forex trading system - introducing the $5374 a month

As an investor, you know that there are two things which influence the decisions which people make on the market. These two prime motivators are greed and fear. These are two of the most primal human emotions. Fear can become panic and greed can lead one to make risky decisions. The most successful investors, including Forex traders are those who are not swayed by these emotions.

Managed Forex trading is utilized by profitable Forex traders, such as those methods based on mathematical algorithms as well as other resourceful Forex trading strategies. The automated Forex trading system and trading software are very useful. They may also use a Forex expert advisor for guidance in buying, selling, stop-loss decisions and setting their trading parameters.

Whatever their particular strategy, Forex traders who are successful are those who are not basing their investment strategies on their emotional responses to market movements. While they of course still have these emotional responses, they try to make their investment choices based on reason and of course, profit motive. They take losses and profits in stride and stay focused on the goal of making successful investments.

They ignore any type of feeling that may be influenced by various things such as the way their day is going, unfortunate financial news headlines and any internal voices telling them insistently to buy or sell on a trading platform beforehand, if these types of feeling may cause them to waver from their prepared Forex trading strategy.

Self-discipline is key to being successful in Forex trading. You risk losing a lot of potential profit by allowing your emotions to take hold and dictate the investments that you make. Fear may cause you to place a stop-loss when doing so will actually cost you money or take your profits and run when you could have made far more money by allowing your investment to run its course. By the same token, greed can lead to irrational exuberance and lead you to lose a lot of money by making unwise decisions about your trades.

So a Forex trading discipline has to be based upon tried and true trading principles and strategies that have been proven to work. It has to be based upon real history.

A successful trader actually makes a lot of their money at the expense of those who make their decisions on an emotional basis. The movements in the market which can cause many to panic or become overconfident can bring large profits to the savvy Forex trader.

Using automated software is one of the better ways of remaining true to your trading discipline. The mathematical patterns and possibilities of the market can be analyzed by the use of this software. You can avoid being lead by your emotions and staying true to your strategy when you use Forex trading software.

By Richard U. Olson
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Trader tax proposal will be the death knell for statistical arbitrage - forex trading system- laurentiu damir

Trader tax proposal will be the death knell for statistical arbitrage ~ forex trading system- laurentiu damir

U.S. Congressman Peter DeFazio, introduced H.R. 1068: “Let Wall Street Pay for Wall Streets Bailout Act of 2009”, which aims to impose a 0.25% transaction tax on the “sale and purchase of financial instruments such as stock, options, and futures.

Ladies and gentlemen, 0.25% is 50 basis points round-trip. Few if any statistical arbitrage strategies can survive this transaction tax.

And no, this is not "Wall Street paying for Wall Streets Bailout". This is small-time independent trader-entrepreneur like ourselves paying for Wall Streets Bailout.

Furthermore, this tax will drain the US market of liquidity, and ultimately will cost every investor, long or short term, a far greater transaction cost than 0.25%.

If you want to stop this insanity, please sign this online petition.
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Are flash orders to be blamed for Dows 1 000 points drop - forex trading methods that work

Are flash orders to be blamed for Dows 1 000 points drop ~ forex trading methods that work

Before the smoke is clear, fingers are already pointing at flash orders. See these two NYT pieces here and here. Our reader Madan has convinced me previously that flash orders can indeed be used to  front-run other traders, but until more evidence comes in, I am yet to be convinced that they are the main culprit. Couldnt old-fashioned automated momentum programs accomplished the same thing after an initial erroneous transaction price and/or quote was reported? Perhaps you know of discussions elsewhere on the blogosphere that bring more light to the issue?
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