Fear of missing “the big one”

This is a discussion on Fear of missing “the big one” within the General Trading Chat forums, part of the Reception category; Originally Posted by Charlton If you miss a bus just get on the next one that is likely to go ...

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Old Nov 1, 2006, 12:01am   #22
 
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Quote:
Originally Posted by Charlton
If you miss a bus just get on the next one that is likely to go in your direction. If you get on the wrong bus, get off and take another one that's going in the right direction

Charlton
I might just add that if you're not sure where the bus is going (it might make a U-turn), then let it drive by!
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Old Nov 1, 2006, 7:07am   #23
 
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Originally Posted by firewalker99
I might just add that if you're not sure where the bus is going (it might make a U-turn), then let it drive by!
Indeed - in fact you never really know where it's going, but you watch for little signs - it shouldn't turn right here !



Charlton
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Old Nov 1, 2006, 11:06am   #24
 
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Originally Posted by rols
Perhaps you might follow up with a few examples?
How does one learn to think correctly? Define 'correctly' in terms of trading?
I presume you are NLP. I believe there may be a good demand for NLP trading mentors.
Hi rols,

I have replied to your first request by starting a new thread in the Psychology section - i think the discussion is more suited for that section.

http://www.trade2win.com/boards/show...490#post285490

Regards,
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Old Nov 1, 2006, 2:08pm   #25
Joined Jun 2004
The point here is it is NOT the magnitude of the move that is important, but the opportunity cost of missing it.

The opportunity cost is a function of:

1 ) the move size;
2 ) your position size for that move;

Your position size should be determined by your expected return vs risk.

Seeing as "the big one" is by definition unexpected, your position size will most probably be very small. Consequently your opportunity loss will be small. In other words, "the big one" is an illusion.

Looking at this another way, smaller moves will by definition be more likely, so levergae is more sensible. It will thus be possible to construct many situations with equal opportunity cost from leverage and noramal market moves. Your only obstacle to "big ones" every day is being right.

When you realise the market presents, with varrying degrees of position size and leverage, opportunities to make or lose fortunes everyday, the concept of "the big one" disappears.
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Thanks! The following members like this post: firewalker99
Old Nov 1, 2006, 6:17pm   #26
Joined Mar 2003
QUOTE: "Your position size should be determined by your expected return vs risk."

How does that work?

Surely your position size is determined by the amount of trading capital you have.

A trader should be aiming to build as big a position as possible in the moves that turn out to be big moves.

By only having a tiny position size on a move that turns out to be a huge move, a trader is not maximising on his or her biggest winners.


Thanks

Damian
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Old Nov 1, 2006, 8:30pm   #27
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Originally Posted by damianoakley
QUOTE: "Your position size should be determined by your expected return vs risk."

How does that work?

Surely your position size is determined by the amount of trading capital you have.

A trader should be aiming to build as big a position as possible in the moves that turn out to be big moves.

By only having a tiny position size on a move that turns out to be a huge move, a trader is not maximising on his or her biggest winners.


Thanks

Damian
And you ask me how what I said works!

For anyone who is interested, there is a correlation between risk and return. Boring dividend paying stocks are never going to reach for the stars, but they are also unlikely to go to zero. Multibaggers however are totally different. They come from industries that have either been out of fashion or are new and experimental. These stocks either make it big or go bust. Given this, it is ridiculous to put all your eggs into such vehicles. Yes it would be nice to invest heavily in such ventures, but would it be sensible? hell no!

Now your turn: how do you invest (present) heavily in something that turns out (future) to be a big winner? It might sound attractive, but wanting and achieving are totally different.
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Old Nov 1, 2006, 8:35pm   #28
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I have made a lot of successful trades in some of the so-called "boring dividend-paying stocks" - it all depends on how you trade them.

The way you trade (present) in something that turns out (future) to be a big winner is through pyramiding - that's how you make sure you have maximum involvement in your biggest winners.


Thanks

Damian
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