A lot of my advice boils down to trading is hard, so go after the easiest stuff you can find first. Some call this defeatist. I call it realistic and practical. A big part of trading is not screwing up. So, at the start, learning skills, defining processes, and building confidence are important. A question …
Someone recently asked me about the difference between our approach and discretionary order flow trading and technical analysis. Order flow trading involves sitting in front of a screen and looking at orders and trades as they come in and trying to work out if more buying or selling is happening, where those trades are occurring, …
I notice that in conversations with traders, they often think about entries, exits, and discrete trades with some sort of life-cycle. But your P&L does not come from a trade. A trade doesn’t change your P&L much, except for the commission and spread costs that you incur. Your P&L comes from holding a risk position …
I work with many traders who aspire to turn their passion for the markets into a serious trading business. And I think this aspiration is entirely appropriate – it’s critical to approach the trading problem as seriously as you would any business venture. A question that always comes up is, “Where do I start?” In …
In this article, we’ll use simulation and simple visualisations to build intuition around how different variables drive the price of an option. Building this intuition is important because it helps you react quickly and make decisions without relying on complex pricing models. Let’s get to it. The value of a call option at expiration A …
This post assumes basic knowledge of Options and Mathematical Expectation. Most of the features that you observe about options are simply due to the fact that they are expiring bets. And the features we observe in option pricing are observed in any other expiring bet. The complicated maths and terminology that surround options can make it …
Financial options contracts are really just options. That is, they give us a choice or an option to do something. We’ll go through a simple example of why options are valuable. Let’s say I offer you the option to use my truck. What might the value of this option be to you? Is it Intrinsically Valuable? Maybe you need …
In much of life, success results from doing what other people expect you to be doing. You get top marks in an exam by answering the way the marker expects you to. Rising up the corporate ladder has as much to do with “being seen to do the right thing” as it has to do …
Industry veterans sometimes remark that successful gamblers tend to make good traders, and engineers tend to make lousy traders. This is a gross generalisation, of course, but one reason is that trading, at the most fundamental level, is a game of pricing uncertain outcomes. This requires probabilistic thinking, and engineers tend to be trained to …
The first thing you need as a trader is a clear edge. What do I mean by “edge?” Edge comes from a market inefficiency that means you can buy cheap and sell rich on average over the long run. Said differently, edge is positive expected value. Expected value is the return you expect to realise …
