What other bloggers are saying

There are many traps for traders. The first is that trading is not a gimmie.  For some reason that I have no idea how to explain, people think making money by trading is a cinch.

There are obstacles to overcome, and below are some recent blog excerpts on related topics.



From John Kay at johnkay.com

"Irrationality lies not in failing to conform to some
preconceived notion of how we should behave, but in persisting with a
course of action that does not work."

When it doesn't work, it doesn't work.  Accept that fact and move on.




There's some very good advice offered by David at CrosshairsTrader.

I suggest reading the original for all the details.

Here's one sample:

"Do the hardest work first. The greatest performers in
any field delay instant gratification in pursuit of their ultimate goal,
which is to be the best they can be while pushing through less than
comfortable situations.  For me, the hardest work is determining a loss
target.  I firmly believe that the very best traders determine where a
loss is to be taken before determining where money can be made.  It is
difficult to consider how much you are willing to lose before you
consider the instant gratification of adding to your bank account.  But
it has to be so.  Accept a loss and delay the gratification of instant
money for the reward of a lifetime of income."


Here is an example of simplified Mark Cuban advice, from his blog maverick. It's a repeat of what he has said before, but it's so important that I want to help spread the word. 

"Now that Madoff is in jail, no investment can offer returns with zero
risk. If you don’t fully understand the risks of an investment you are
contemplating, it’s ok to do nothing. In times of massive uncertainty like we are facing today, doing nothing is a valid and IMHO preferable investment strategy. Just put your money in the bank."


Carl, at behavior gap discussed Things You Can Control

"Overconfidence
is a huge problem when it comes to making investment decisions. In
fact, it’s a huge problem when we’re dealing with any issue that has an
unknown outcome. It’s clear that we’re very bad at dealing with unknown
outcomes, but the biggest problem is that we actually think we’re good
at it.

We think that we can control much more than we can, and we can
actually forecast the future. Often we point to what we view as clear
evidence and wonder how anyone who doesn’t see it the same way can be
so stupid. Focusing on the things that matter and the things we can
control will go a long way to avoiding investor overconfidence."

777


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8 Responses to What other bloggers are saying

  1. John 09/02/2010 at 5:43 PM #

    Do XEO WEEKLY options expire at the same time the OEX WEEKLY options do? I know the monthly’s expire a day before but cant find info on the weekly’s.

  2. Mark Wolfinger 09/02/2010 at 6:24 PM #

    John,
    See this page.
    Yes, XEO and OEX weeklys expire Friday afternoon.
    SPX and DJX Weeklys expire Fri morning.

  3. Gordon Johnson 09/03/2010 at 8:17 AM #

    Mark,
    Interesting thoughts by the bloggers. It got me to thinking about something that’s been rattling around in my head for a while.
    I agree, too many people view options trading as a nearly automatic way to make money. I think it’s because our modern society is more accustomed to assembly line thought processes than craftsmanship based thought processes. We’re trained to believe that if you master the process and replicate the steps, success is assured. That might work in some fields, but trading is more craft based. There are a multitude of variables in every trade and how you apply your skills to each unique situation will determine your success. There are no absolute formulas. It’s analogous to a leatherworker or a woodworker. Every hide or piece of wood is different. How you apply and adapt your skills to its uniqueness will in large measure determine the long-term success of your efforts.
    My two cents. Enjoy reading your blog. It’s always interesting.
    Gordon

  4. Mark Wolfinger 09/03/2010 at 10:18 AM #

    Hi Gordon,
    Your two cents is worth a whole lot more than that.
    Thanks for sharing.
    Yes, we expect too much for too little effort. Don’t know how that developed over the years, but people feel entitled. The ‘work hard’ effort has dissolved and I suppose the idea of working hard to earn money from investing has gone the same route.
    Regards,

  5. Kim 09/07/2010 at 12:07 PM #

    Mark,
    A service that one of my friends is following is promoting so called “Special situation” trades. The three criteria that all Special Situations have in common is where a temporary market imbalance creates a scenario where:
    A) It would be extremely improbable for us to lose money,
    B) The return on investment is unusually high, AND
    C) A credit spread is determined to be the best vehicle for the trade.
    Examples:
    1) FAZ has been trading in an up-and-down range from 13 to 18 for the past three and a half months. To get below 13.00 things have to be REALLY BULLISH in the financial sector. To take advantage of this imbalance, he is proposing FAZ Oct 13/12 put bull spread for about 40 cents or 68% potential profit.
    2) SDS has been reversing right around the 31.00 level for the past four months. The trade would be to sell SDS Oct 30/29 put bull spread for about 34 cents or 51% potential profit.
    3) VXX is likely to go up because it’s near a significant low and there’s a lot in coming months for the market to digest. The trade would be VXX Oct bull 19/18 put bull spread for 47 cents or 90% potential profit.
    4) TBT will go up because it’s at the low end of a range and interest rates just can’t go lower. The trade would be VXX Dec bull 30/29 put bull spread for 35 cents or 55% potential profit.
    What do you think about this strategy in general?

  6. Mark Wolfinger 09/07/2010 at 1:03 PM #

    Kim,
    In general, the strategies are fine. IF YOU WANT TO MAKE DIRECTIONAL PLAYS BASED ON THE INFORMATION PROVIDED. That’s the key. Do you have confidence in the market predictions implied by these trades?
    These are not risk free trades.
    I have more to say – tomorrow.
    Regards

  7. Kim 09/07/2010 at 2:26 PM #

    Thank you Mark,
    I agree that there is a lot of hype involved here. I’m really upset when I see statements like “It would be extremely improbable for us to lose money” and “The return on investment is unusually high” related to the same trade. This is oxymoron. I realize that those are pretty risky trades, otherwise you couldn’t get 40-70% returns in just few weeks.
    However, ignoring the hype, I find that the logic behind those trades is pretty solid. I mean, look at TBT – we know that interest rates cannot go to zero, and there is a floor for 20-years treasures – how much lower can they go?

  8. Mark Wolfinger 09/07/2010 at 3:38 PM #

    Kim,
    Salespeople must sell. However, when I see those unnecessary hyped-up words, I lose trust. Obviously they find it productive to use hype – they get enough customers to keep going.
    You have an advantage becasue you know someone using the service. You can discover how good it is. New customers cannot get such information.
    To me ‘extremely improbably’ means no more than one chance in 1,000. To them it may mean one in 10. Who knows?
    Yes, there is logic. But consider this: If there is so little chance for TBT to decline, who is taking the other side of your trade? Why is the bid so high?
    Disagreements and differing opinions is what makes markets. The rewards ara tempting. No doubt about that. Are you comfortable taking the risk to seek those rewards? That’s the question. If ‘yes’ – then sizing the trade is the next big decision.
    Hope this goes well – whatever you decide.