Questioning common beliefs

[Shakone]

And two more beliefs to question

If the news release is positive (negative) the stock/index/currency should go up (down)

and

The market is out to trick you, manipulated to send you the wrong way and your entry and stop matter to THEM and THEY will come for your stops.

This one is very common and upsetting for some :whistling (remember I'm questioning this belief, I don't believe the underlined).

 

[malaguti]

I've tried what you suggested, half position against the longer term trend, full with it. Seems viable, but didn't fit with me in practice: I'd go with the longer term trend, lose 10 pips, go against it and win 15 pips and end up down. I don't have anything logical against it, I just didn't like the asymmetry for some reason.

To be honest, I've gone one step further. I categorise my trades dependent on the higher timeframes as you have mentioned trumping. A turn of a 15minute from down to up is nothing more that a basing pattern on the hourly. So going full doesn't work as you say. the first up leg on the 15min is nothing but a swing high on hourly. Then it would come down again..this is now another swing low on your hourly. So I'm looking is that last swing low, lower and in which case am I forming a turn on the hourly..becoming a new up trend for that time frame..now you have 2 timeframes going in your favour so my trade size goes up now. I don't bother with 4 hourly and move straight to my daily timeframe..when I have all three in my favour that's when I have a full risk approach if that makes sense however still only for a short period, as I know the 15minute will begin to turn back down.
The best example I can give is a head and shoulders on an hourly. This has 3 periods where the 15minute is in line with the overall trend. Only on the third will it work well. Category A, B and then C.

I probably haven't explained it well, and you're line of least resistance sums it up perfectly, Ive probably become OCD on it in all honesty

 

[darktone]

Also from a logical perspective. Trader A sees a daily trend up and Trader B sees a 5 minute trend down (both have the same method of trend determination but different timeframes). Now if trend is your friend means over the next x minutes it's more likely to go one way or another, then Trader A and B can't both be right. So the resolution of this dilemma is...? I have seen it suggested that one should wait until both daily and 5 minute agree. But while that may resolve the dilemma on a personal level, it doesn't change the point, that most likely there will be some timeframe which is pointing the other direction and for which the trend is not your friend for someone.

Trend:
I see trend as being relevant to timeframe, with for me at least the larger timeframe being more important. Ive never had much success with the 'wait till all tfs lines up' approach though.

I like to use D1 as 'the' trend with 5min (aligned with D1 trend) for entry. Im not concerned with much else tbh. Its worth noting that for the most part, when i take a successful entry in the 5min, the 30min / 1hr is usually counter trend to D1 and 5min. I see this as a pullback in D1 trend.

Averaging down:
I think that averaging losers and scaling are different.
If you want to swing a total of 6 lots and enter 3 times with 2 lots. Thats scaling in.
Averaging losers to me means taking on more size than you planned, because your first entry is underwater and you dont want to take a loss. Thats a killer imo.
Personally i prefer all in all out.

Cool thread Shak

 

[Shakone]

To be honest, I've gone one step further. I categorise my trades dependent on the higher timeframes as you have mentioned trumping. A turn of a 15minute from down to up is nothing more that a basing pattern on the hourly. So going full doesn't work as you say. the first up leg on the 15min is nothing but a swing high on hourly. Then it would come down again..this is now another swing low on your hourly. So I'm looking is that last swing low, lower and in which case am I forming a turn on the hourly..becoming a new up trend for that time frame..now you have 2 timeframes going in your favour so my trade size goes up now. I don't bother with 4 hourly and move straight to my daily timeframe..when I have all three in my favour that's when I have a full risk approach if that makes sense however still only for a short period, as I know the 15minute will begin to turn back down.
The best example I can give is a head and shoulders on an hourly. This has 3 periods where the 15minute is in line with the overall trend. Only on the third will it work well. Category A, B and then C.

I probably haven't explained it well, and you're line of least resistance sums it up perfectly, Ive probably become OCD on it in all honesty

It does make sense and may be an excellent way to tackle it. So actually you've brought up another great thing to question:


You should always risk the same amount on every trade

It makes sense to risk the same amount if each trade has the same chance of winning, but do they? If you can spot a trade which has a better than usual chance, shouldn't you risk more?

 

[Shakone]

Options present a good opportunity for a new trader

I'm not sure where this idea comes from that a new trader should go into options. These combine all the factors that a new trader should avoid. Highly leveraged, high transaction costs, complicated beyond your average joe's understanding, possibly unlimited risk, dangerously tempting to take on a position that will blow your account, i.e. writing options and receiving premium.

What is it that makes people think they can go into options or are better off going into options? Is it the Black-Scholes formula, because I have to tell you, that won't help you. It may help option writers with big pockets hedge their risk, but it won't help you make money. Is it because if you buy an option your downside risk is fixed? The entire idea behind all this black-scholes pricing is that an option can be replicated by taking positions in the underlying. i.e. an option is in some sense equivalent to directional bets in the underlying. Think about this for a while.

Options have their uses (Risk control, hedging etc.), but they should have an 'experienced trader only' sticker on them. I would argue that any new trader should not even consider going into options. And as for Binary options with a dodgy broker in Cyprus, just give your money to a charity instead.

 

[hungcable]

Options present a good opportunity for a new trader

I'm not sure where this idea comes from that a new trader should go into options. These combine all the factors that a new trader should avoid. Highly leveraged, high transaction costs, complicated beyond your average joe's understanding, possibly unlimited risk, dangerously tempting to take on a position that will blow your account, i.e. writing options and receiving premium.

What is it that makes people think they can go into options or are better off going into options? Is it the Black-Scholes formula, because I have to tell you, that won't help you. It may help option writers with big pockets hedge their risk, but it won't help you make money. Is it because if you buy an option your downside risk is fixed? The entire idea behind all this black-scholes pricing is that an option can be replicated by taking positions in the underlying. i.e. an option is in some sense equivalent to direcitonal bets in the underlying. Think about this for a while.

Options have their uses (Risk control, hedging etc.), but they should have an 'experienced trader only' sticker on them. I would argue that any new trader should not even consider going into options. And as for Binary options with a dodgy broker in Cyprus, just give your money to a charity instead.

What is the underlying principle of speculation? Here's my number one tenet: To create preferable odds.

 

[Shakone]

What is the underlying principle of speculation? Here's my number one tenet: To create preferable odds.

That's a good tenet. Do you think options produce preferable odds? For the buyer or the writer?

 

[hungcable]

That's a good tenet. Do you think options produce preferable odds? For the buyer or the writer?

Personally, I can only the view the market as negative sum, 50/50 in general.

Options vs futures?

The options versatility factor outweighs that of futures.

 

[Shakone]

Personally, I can only the view the market as negative sum, 50/50 in general.

Options vs futures?

The options versatility factor outweighs that of futures.

It is negative sum yes. Can you explain the options versatility factor in a bit more detail (maybe some examples)?

 

[hungcable]

It is negative sum yes. Can you explain the options versatility factor in a bit more detail (maybe some examples)?

Before we go on, I need to ascertain your view.

Q. Which vehicle is the most versatile: Futures or Options?

 

[Shakone]

Before we go on, I need to ascertain your view.

Q. Which vehicle is the most versatile: Futures or Options?

You'll have to define versatility for me. Futures are pretty simple to understand, whereas options have all sorts of variations in terms of possible payoff structures. So in that sense, options appear more versatile, but if they are replicable by the underlying future that versatility is an illusion. So depends on the option and what you mean by versatility.

But go ahead and present the argument, I'm open to new ideas. I'm wrong, almost half the time Sometimes I'm wrong even more than that, but occasionally I'm really really right.

 

[Triggerfish]

Options present a good opportunity for a new trader.

I'm not sure where this idea comes from that a new trader should go into options. These combine all the factors that a new trader should avoid. Highly leveraged, high transaction costs, complicated beyond your average joe's understanding, possibly unlimited risk, dangerously tempting to take on a position that will blow your account, i.e. writing options and receiving premium.

Well, it was actually options that started me into trading, back in the old days when there were ceefax, that prices were updated 15 minutes intervals.
Everytime you want to trade, you had to call them to open a trade.

I entered options simply because the risk limit then, they call it american style options where your risk in limited to what you put in. You can't lose more than what you put in. Yet I was then trading between 1 to 4 contracts, which were £10-£40 per point then based on £10 per contract. But to answer your query directly, it was indeed a successful one.

 

[hungcable]

You'll have to define versatility for me. Futures are pretty simple to understand, whereas options have all sorts of variations in terms of possible payoff structures. So in that sense, options appear more versatile, but if they are replicable by the underlying future that versatility is an illusion. So depends on the option and what you mean by versatility.

But go ahead and present the argument, I'm open to new ideas. I'm wrong, almost half the time Sometimes I'm wrong even more than that, but occasionally I'm really really right.

Personally, I find you one of the more interesting posters on this site (smoke up backside)

You've answered my question, although slightly indirectly.


Regards.

 

[Shakone]

So no complaints about the manipulation of markets and stop hunting comment?

That's surprising.

Anyone got any others that you think are mistaken beliefs?

 

[wackypete2]

I know of prop guys who trade the ES who absolutely average in or 'add'. They tell me the 'trick' is to know when to average in and when not to. Not something that suits me I prefer all in / out.

That's only 1/2 of the trick. The other half is knowing when to get out ie: knowing when it's not working and exit all positions before bust. I see nothing wrong at all with a disciplined averaging down method. As I've said before, it's the trader that busts NOT the method.

Peter

 

[hungcable]

...but if they are replicable by the underlying future that versatility is an illusion...


Only if there is an understanding. Is that understanding commonly typical?

 

[Forexmospherian]

So no complaints about the manipulation of markets and stop hunting comment?

That's surprising.

Anyone got any others that you think are mistaken beliefs?

Hi Shakone

I think you have come up with so many interesting subject topics so far - I am way behind commenting on them

I will be doing one on forex market manipulation and stop hunting - as it is just so rife - but from what I can gather in some cases - is actually not illegal and does not contravene any real rules in this unregulated business ( that's strange in itself) ;-)

Might have time to comment a bit later - if not certainly in the next few days along with some of the other interesting topics you have raised.

Good stuff

Regards

F

 

[Purple Brain]

Writers of options are more profitable than buyers of options in the same way that writers of insurance premiums will make money out of those who buy insurance. They also tend to have greater (some?) market savvy and have significantly more financial resource than the muppets they sell to by dint of the requirements for writing rather than buying options.

The leverage provided by options compared with percentage gains on the underlying are enough to convince most newbies that it makes no sense to trade the far less leveraged underlying when double digit percentage gains are up for grabs from the slightest move in the underlying.

Such is the naivety of optimism among the new trading class that the reality of leverage being a double-edged sword is perceived as being only applicable in the negative sense to the 'other' 99% of which they are not a part.

 

[Shakone]

Hi Shakone

I think you have come up with so many interesting subject topics so far - I am way behind commenting on them

I will be doing one on forex market manipulation and stop hunting - as it is just so rife - but from what I can gather in some cases - is actually not illegal and does not contravene any real rules in this unregulated business ( that's strange in itself) ;-)

Might have time to comment a bit later - if not certainly in the next few days along with some of the other interesting topics you have raised.

Good stuff

Regards

F

Looking forward to your views on stop hunting and manipulation FX-mos.

 

[NVP]

The second common belief I would like to question is:

The trend is your friend


Well is it? Quite a strong statement to make, especially when we have to define trend. And your definition is probably different to mine and different to the one who invented the phrase. But even once you take your specific definition, is it better or worse to trade with the trend? Have you checked or assumed it's true?


Is the trend your friend on all timeframes, on all instruments? Is it ever a good idea to trade against it?


All thoughts welcome on this or the previous post, and indeed any other common beliefs that you think are worth questioning.

yep - the trend is simply a way of stopping people taking 50% of the dumnass trade signals they get .....nothing more ...nothing less

N