Good luck with that perspective. May I suggest selling severely otm options. You’ll “win” most of your trades and you’ll be a “great” trader. Report back in a few years.
Isn’t this the PureAlpha strategy?
Xel
And every other novice trader on the planet. Taleb tried to share that calling direction without probability and scale is meaniless. Not actionable.
^ Couldn’t decline. Hey, Ghibli, can you PM me some material on your insane CO2 views? I’m genuinely curious and assume you aren’t just making this up but rather have some actual science here?
/\ Well, first I’m shocked. I figured you would have catalogued everything I ever posted and would have been waiting for my next contribution with bated breath. Given you are asking for CO2 related materials, you have not been as diligent as I would have expected. Start here: http://www.analystforum.com/forums/water-cooler/91349474 The guy’s life is interesting if nothing else. You can source everything he says with a few clicks of a mouse. You’ll run into a lot of crap on both sides, but it’s not hard to sort through. I really don’t have a dog in this fight, except that I’m not a big fan of corruption and I would like to see the planet thrive. I know my brain works better than most when it comes to math and science. Just a fact. I could easily get the highest grades in my class while enrolled in a top five engineering program. I definitely have met people much smarter than me, but I’m no fool most of the time. I have my moments. Yet the politics of the day, and people like Al Gore, are telling me I’m the idiot. Something doesn’t compute. Maybe I am clouded on this subject, but I’m not taking those odds just yet. Research the matter. Read things from all sides. Have an open mind. Let us know what you conclude. The earth has been storing solar energy in the form of hydrocarbons for years. Nothing wrong with putting it back where it came from when life really prospered. Might even be necessary for continued life millions of years from now. Notice how that doesn’t quite have the catch of the earth will fry tomorrow. Fear mongers are almost always wrong. That should cause suspicion at the very least. And sorry, I haven’t written a book yet complete with peer reviewed papers, I’ve read many, some are complete crap, but it might be coming.
^did you stop taking your meds?
I was hoping for a slow clap.
You never shared how those dick pills are working out. Are you measuring length and girth?
^you gotta go after these kids
http://www.iflscience.com/environment/youth-lawsuit-climate-negligence-allowed-proceed
It does come down to how you define a bad trade. If a bad trade is a trade that loses money, then yes, I guess you could say that initiating a trade that loses money might be a bad trade.
But perhaps it depends on your time horizon. The asset went down in the first week and I got scared and sold. Then it went up 2x in the next 12 months. Was it a bad trade when I initiated it? Or was it just a bad trade when I closed it? And would it still be a bad trade if I closed it 12 months later?
It seems to me that a bad trade is a trade that fails on one of two criteria: 1) a trade with a bad risk-adjusted expectation going in to it, or 2) a trade with bad risk control. Under this view, trades that lose money are not necessarily bad trades; they simply didn’t work out. It also means that trades that did make money can be bad trades, the same way that winning $10 on a round of Russian Roulette is a bad trade even if I walk away with $10.
So there are trades that work and those that don’t. And there are trades that are bad and those that aren’t. There is a statistical correlatoin that good trades are those which work on average, and bad trades are those which don’t (which makes sense), but it’s not going to be a perfect correlation, and if you argue that all trades that don’t work are by definition bad trades, then you are never going to have the risk appetite to make good trades.
i can sort of agree but it is a little complicated if you go past, “did the trade make money or not?”. for example, let’s say you bought a stock and it went up 100% in 6 months and you sold. this stock subsequently went up another 1000% over the two years following the sale. was this a bad trade? it’s hard to say it was a bad trade if it still outperformed the market by say 90%, yet at the same time, you left most of the profits on the table.
as a seasoned trader, obviously i understand that calling all losing trades bad trades, even ones with small losses, is excessive, as even the best trader has losing trades due to the nature of markets and incomplete information. that said, what’s wrong with the best trader experiencing bad trades?
i think we could all agree that perhaps the definition of a bad trade is rooted in behavioural finance. i would think that bad trades are losing trades that were a result of the trader exhibiting one of the many behavioural biases or lack of knowledge. if you make a trade and you lose because of bad luck or randomness, that’s one thing, but if you trade and lose because you ignored vital information or based on nothing it all, that’s distinctly a bad trade.
i simply prefer to call losing trades bad trades because they are bad for me and my bank account. there’s no disputing that.
The definition of a good trade or a bad trade is defined at the time the trade is made and is based on knowledge of variables at play, exposure, and risk squew. All action that takes place after the trade is placed is irrelevant. To use the results of the trade to define if it was good or bad is just hindsight bias. So yea… what bchad said. There are good and bad trades… and there are good and bad results. I think of them separately when in reflection of my own actions. I’ve had trades that lost even though they could have won, but looking back I classify them as doing the right thing with the information I had at the time.(Not bad trades) I have also had trades that turned out bad, and apon reflection, I see I was just an idiot. (Bad trade)
Bravo. Great point.
The topic of “what is a good trade” is of particular philosophical importance to me right now. I think judging the quality of a trade based on it’s results can actually be damaging to the performance of a trader. Individual trades don’t matter. The consistant application of quality principles is what matters. If a trade made with the application of solid principls ends up being a loser, it is still a GOOD TRADE. For example, take what I have seen as I back test the alogrithmic trading system I have been developing. Sometimes following the rules ends up in individual trades that look horrindous in result. Sometimes you end up stopping out a trade that in just a few hours would have given a solid profit! What I have come to find is that even though the result of that one trade was bad, the trade was a good trade because it means I kept with the system. In the trials I have run thus far, keeping with the system had yielded solid success. So again, results of individual trades don’t matter, sticking to intelligent principles is what makes “good trades”
i have to disagree here. you will never know whether you made a trade based enough information to determine whether it is a good trade prior to learning the result. there’s too much subjectivity involved in saying “i had enough information to make the right decision on this trade and i didn’t have enough information to make the right decision on that trade”. you’re just making yourself feel good and bad about whatever trade you please based on your demeanor at the moment at which you decide good or bad.
if you buy the best energy stock amidst an energy crash and lose 50% you can’t say, well i did do the best relative to other energy companies because my trading strategy is driven by relative performance. in my experience, how you exit a trade usually tells you more about whether the trade was good or bad than how you enter the trade. technically, when you buy and when you sell are of equal importance, so judging the trade based on the buy only is judging an imcomplete trade.
also, calling a trade a good trade because you stuck within your system is also incorrect. if your system is flawed, all of your trades could be bad. if my system is “buy high and sell low” and i succeed, it’s hard to say my trades were actually successful. i succeeded in following my plan but if the reason i’m trading is to make money, and i’m constantly losing money, i find it hard to say all of my trades were good when I utterly fail my primary objective.
That’s why I like to separate trades into whether they worked (are profitable) and whether they were good (were they based on sound reasoning and executed properly). Ultimately, it’s the statistical aggregate of trades that build your P&L, and if all your trades work, you’re either doing something illegal or you probably aren’t taking enough risk.
So if you are developing a trading or investing strategy, don’t want your evaluation to forget about good trades that didn’t work out, or assume that you shouldn’t have done those trades at the time you had to make a decision, even though with 20/20 hindsight you would have preferred not to do them.
Also, a bad trade can be bad for three reasons: 1) flawed reasoning on the investment case (a bad trade whether you won or lost on it), 2) overleveraging an otherwise good trade, and 3) bad risk controls on the exit side.
Items 1 and 2 are basically determined at entry time, so some bad trades are bad from the start. Others may have started out fine but are managed badly. Those are also bad trades, but they only become bad trades over time. A good trade has 1, 2, and 3 accomplished and so a trade really needs to be closed before it can be evaluated. Some would say even then, closing too soon neglects that maybe you could have made more by hanging on longer. Most good traders always leave a little money on the table, since the top tick and the bottom tick are extremely difficult to nail in your favor. The magic phrase in trading is often “that’s enough”. As others like to say: bulls get fed, bears get fed, pigs get slaughtered.
All of this analysis requires separating good and bad trades from the idea of trades that worked out or didn’t. That’s an important evaluation too, and easier to identify than whether a trade is good or bad.
Good traders generally keep a diary of all their trades. The rationale for them, the target profit, the risk control, buy and sell prices and dates, notes about their own psychology and perhaps that of the market. This allows them to get a sense of whether they are executing on plan and whether the plan is working or distorted or anything like that. It’s a little different with systems trading, and it’s also true that some prop traders place enough trades that keeping a journal is impractical. But this is a good system for evaluation whether you are making good grades on average or not.
i see where you’re coming from. the only issue i have with it is that you should identify as a bad trader is your P&L is negative over your lifetime, but based on your reasonable explanation of what makes a bad trade, it is possible that a bad trader could make mostly good trades while a good trader could make mostly bad trades. if you’re segmenting, i guess you could say that there are good/bad trades, good/bad strategy and good/bad traders. you could make good trades based on a bad strategy which makes you a bad trader for choosing that strategy.
It’s definitely true that a good trader can (using my language) make mostly trades that don’t work. If the risk control is right, there are strategies that take lots of losses but have enough big wins regularly enough to have an attractive equity curve. And vice versa: you can do the purealpha thing.
From a marketing point of view, people love the picking up pennies in front of a steamroller strategy up until the point where it blows up. Those guys make 98% of trades that work, but they are overleveraged when things change.
At some level, it’s not really possible to say for certainty if traders are skilled or just lucky, especially when track records are short. There are some ways to make guesses about skill, but they ar ultimately guesses or indicators, rather than proofs of skill. Life is just uncertain that way, and if it were certain, the. There probably wouldn’t be as much potential profit in markets.
Some traders may have a feel for their times and grasp the psychology of the market. But then something changes and it no longer works. Some people might say they were lucky, and there’s an argument for that, but it may simply be that they had a skill for a while but conditions changed such that their skill was no longer useful. Welcome to structural unemployment, eh??