Time Frame Arbitrage?

Went to a financial conference last night. It involved a series of prepared questions which were addressed to the six panelists representing various hedge funds and firms.

One of the panelists brought up time frame arbitrage. I do not think there is such a thing. I think I know what he was thinking about, but TFA does not really exist. It is in itself an oxymoron. Arbitrage must be settled immediately for an instant profit. A free lunch in a sense. But seldom does the market offer such opportunities (one instance was during the crash of 1987).

I think he was just referring to people overreacting. Lack of liquidity can cause panic, panic can cause rapid selling, rapid selling can cause extreme “mis-pricings”. The people that trade their assets in the market for cash are forgoing the benefit from the recovery of a sell-off (profit in a longer time frame) for immediate safety (shorter time frame). That is what our friend truly meant. I think.

Your 401k Sucks — Here’s Why

My father approached me the other day regarding the investments he has been making in his 401k. He asked me to take a look at the funds he is invested in and give him my opinion on what he should do. The account had done virtually nothing for the past 5 or 6 years, and I made a quick estimation, using excel, on what the account would be worth the day he plans to retire. I showed him the figures my analysis pumped out, and he was no doubt surprised. It was a lot lower then what he expected.

It does not take a ton of effort to plan for retirement, however most people are not versed with enough investing knowledge to make these life changing decisions on their own. Shockingly, neither are a large majority of the people who deem themselves “qualified”.

Read a few books and just get the basics down. It is a lot better if you self-direct your 401k, that is if you have the time and care about when/if you retire. Of course, consult any professional on their opinions as well, but you should at the very least educate yourself so you can keep up with the jargon and understand the process that is impacting a huge percentage of your life.

What Kind Of Trader Are You?

Most traders confuse themselves. They sit down at their desk with an idea. An idea that they hardly understand. You have to define what your trading goals are before you press buy or sell. Break down your strategy and figure out exactly what you are exploiting. Why does your strategy work? That is the question you must answer before you really begin to make money in the markets.

You can blow off this message as I did for the longest time. You will look at the MACD or maybe your trendlines and think that your trading strategy is bulletproof. How can you say something like that unless you have dug deep into the surface of your ideas and truly understand what you are doing when you push buy and sell.

Or you can embrace this message and take a step back. Go over your strategy and figure out the core concepts behind what you do. This will not only greatly enhance your faith in what you do (this is especially important when one experiences a string of losses), but it may also point out massive holes in your strategy that could have eventually cost you a lot of money.

Do yourself a favor and ponder these questions:

What kind of trader am I? Why do I make money in the market? Where is the logic in what I do?

If you can not answer those questions you are not ready to trade. I would say 98% of people trade without first being able to obtain the answers to the above quesitons… Which is an oddly familiar statistic…

I’m Back!

Hello Traders,

It has been quite some time since I have posted on this blog. My methods have drastically changed. But I still stand by 99% of everything I have posted on this site thus far. Learning to trade is a journey and everything I did led me to where I am today.

I urge those who are finding trading to be a less than profitable experience to continue learning and pushing toward success. It takes some people as long as 10 years to achieve such a goal, but all would agree that it is worth the hardships they faced. The very hardships you are currently facing.

 

Market Sense

When a methodology or system you are using to trade sends out a signal that there is an opportunity present, sometimes you need to have enough “market sense” and discipline to ignore it. The system itself can only be used as a guide, if you purely trade the system it will eventually fail. For example,  a system that relies on a moving average has to have inputted parameters. Those parameters do not change with the market. Markets are an ever changing entity. There is constantly an increase and decrease in volume/activity, and parameters are not built to adjust to such changing conditions, and therefore you need a countermeasure to make sure your method stays robust. That is where logic and market principals come into play. Trading is multi-dimensional, most traders fail to see this. Ask an average trader why their system works, and he wont be able to tell you, he doesn’t understand the logic behind his method, and is in turn doomed to failure.

The Road To Riches: Giving Up

How do you minimize your losses?

Give up.

The reason most traders “blow up” their accounts is by letting their losses get out of control. You have been trained and conditioned your whole life to think positively and never to give up or back down. That sort of thinking will reek havoc on an equity curve.

The trick is to enter every trade with the mindset that you are wrong. Being able to admit defeat is probably the most admirable trait a trader can have.

Do Not Buy The Lies

I have been seeing the same headlines recycled over the past few weeks. Like clockwork every time the market rallies the headlines read “Is this the market bottom” and “great stocks to buy”.  When the market begins to slump once again, all the doom and gloom economists make the front page with their predictions on the length and magnitude of this volatile decline.

Do not buy into the lies. Look at what the trend is telling you and never ignore the macro condition of the market. Be patient and your opportunity to buy will present itself soon enough.