An important concept to grasp when trading is to recognize when you have beaten the odds and it is time to cash out. This is where the market will resemble a casino. When you make an investment or trade you make a bet on a direction and magnitude, not unlike guessing the wind conditions. Instead of thinking of probabilities and distributions of asset prices and so forth, let’s take a step back. You made a guess (albeit an educated one) on the speed and direction of the wind. You got them both right. Or maybe you are close, you guessed North 5 knots and the wind is blowing Northwest 4.2 knots. Close enough. The point is that you are in a profitable trade. What do you do now? You have several options: Continue reading “Nobody Goes Broke Taking Profits”
US Employment Report – April 4, 2014 – A Historical Statistical Perspective
Are you ready for the US Employment report this month? By now the excuses of harsh weather are over with.
Continue reading “US Employment Report – April 4, 2014 – A Historical Statistical Perspective”
Game Theory and What the Google Split Means to You
April 3, 2014 is the first day of Google shares trading in two classes. One class, Google – A class, will trade under the ticker GOOGL. These shares will have voting rights just like most stock that you might purchase. Incidentally, these shares are the current stock that investors hold. So if you own Google stock you will retain your right to vote in their shareholder meetings. You will be switched to the new ticker and given an equal amount of shares in the new (but old ticker) GOOG class C shares. These C class shares do not have any voting rights.
Charts Courtesy of Yahoo Finance
Continue reading “Game Theory and What the Google Split Means to You”
You Asked For It – Gold
The results of our online survey are in and the most requested topic was gold. Gold is a very interesting commodity to study. It has a long history. A wide variety of investors and speculators have counted on its large changes in prices and very little utility value. This topic deserves a lot of attention.
Continue reading “You Asked For It – Gold”
Ready For the Monthly US Employment Report – February 2014?
The US Non-Farm Payroll report is a popular day for professional traders. The day usually brings a sharp move the moment the report is released on the first Friday of the month at 8:30 AM (EST). Traders usually like to take advantage of the sharp move and close out a position seconds, minutes, or hours later. However, if you hold on for too long, you might be disappointed, as the moves may come back to earth. Be prepared with some statistics for the ETFs that track the S&P 500 (SPY), Gold, (GLD), and US Ten Year Treasury Rates (IEF). The numbers below represent, in absolute value, the size of the moves of the given category. For example, the overnight move (Day Before Close to Open on NFP) for SPY (S&P500) is on average $1.78 up or down. So if you are making a directional trade or a volatility play, understand the size of the move you can expect.
| Ticker | Spot Price | Open to Close on NFP Day | Day Before Close to Open on NFP Day | Day Before Close to Close on NFP Day | Typical 1 Standard Deviation 1 Day |
| SPY | $177.04 | $1.30 | $1.78 | $1.35 | $2.15 |
| GLD | $121.20 | $0.80 | $1.60 | $1.25 | $1.59 |
| IEF | $101.75 | $0.24 | $0.35 | $0.26 | $0.46 |
Don’t let trades outlive their usefulness.
Good luck and trade rationally.
Have Your Game Plan Ready
Don’t even think of buying or selling without having realistic expectations of what can go wrong and just as importantly, what can go right. Here is another intersection of game theory and trading. Without a proper exit strategy you can let the two of the worst game altering forces enter the equation; Greed and Fear. These two forces will alter your probabilities of success. Game theory counts on rational participants. You need to remain a rational participant. Once greed and fear enter the picture most hope of remaining rational goes out the window. Set your targets and respect them.
So You Want to Trade Actively – Things to Consider
You may have many reasons for wanting to take control of your investments and be your own trader. Maybe you have had some success picking stocks, maybe you’ve had some catastrophes and want to turn it around, perhaps you would feel like you can supplement your current income, invest for retirement, or even trade as a career. There are many reasons why you should become actively involved in investment markets. There are also a number of reasons why you should stay away. It is important that you recognize that you need to have an idea about what is happening with your money and why. Even if you only have a 401k or other retirement account, you have money at risk. Do not let anyone tell you otherwise. It is important to understand the how and how much of this risk. It is almost never zero.
Consider this a brief overview. This will serve as a primer that should get you thinking about what you need to do and how to prioritize your efforts to be able to start actively managing your investments and begin trading on your own, or not. Continue reading “So You Want to Trade Actively – Things to Consider”