Steal ideas, not implementations

Imagine you’re a relatively small, independent trader trying to turn trading from a hobby into a serious business. If that’s you, then there are a few concepts that will help you pick the right trades to get after. This is important because picking the right trades is most of the game. First, the Market Gods …

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What P&L Swings Can I Expect as a Trader?

Many beginner traders don’t realize how variable the p&l of a high-performing trading strategy really is. Here’s an example… I simulated ten different 5 year GBM processes with expected annual returns of  20% and annualized volatility of 10%. (If you speak Sharpe Ratios, I’m simulating a strategy within known Sharpe 2 characteristics.) I plotted the …

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How do I know if I have an edge?

I’ve been helping a family friend with his trading. I’ve given him a simple systematic strategy to trade by hand. First, we set expectations We can plot the distribution of historic trade returns from past trading or a backtest as a histogram.   This is useful because it gives us a hint as to what …

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Tesla’s inclusion in the S&P 500 – Is there a trade?

The S&P index committee recently announced that Tesla, already one of the biggest stocks listed in the country, would be included in the S&P 500. Here’s the press release: Due to TSLA’s size, it was widely expected to have entered the S&P 500 index much earlier – but S&P has some discretionary criteria it applies …

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Where does FX sit in a Systematic Trading Portfolio?

You rarely meet a rich forex trader. I’ve met plenty of rich traders who trade quant factors or stat arb. Plenty of market makers, futures spreaders and volatility traders that do nicely. But I don’t think I’ve ever met a rich forex trader. Jeez man – what a downer! Don’t run away, we’re gonna turn …

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Some Things Just Go Up (If You Wait Long Enough)

  Here’s a chart of long-term asset performance…. The blue line shows returns from US stocks from 1900 to today. That’s a 48,000x increase in nominal value. The yellow line shows the returns from US bonds from 1900 to today. That’s a 300x increase in nominal value. If you look at this in isolation things …

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Trading the US Election – Profiting from “Known Unknowns”

You’ve probably noticed that there’s a US election on the horizon. This is an event of known uncertainty: a “known unknown” in the now immortal language of Donald Rumsfeld. In trading, we sometimes observe marginal pricing inefficiencies around these “known unknowns”. For example, ahead of  stock earnings announcements or significant economic or policy announcements, we tend …

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