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November 18, 2015

Misses Mean Reversion 2015 Runner Ups

A few years back I wrote a post [1] in which I profiled one of the main deadly sins of retail trader ignominy – the ubiquitous and often almost fanatic anticipation of mean reversion. I am not going to regurgitate my point; if you are a culprit (and you know you are) then I strongly recommend you read my old post and perhaps also one of my more recent ones [2]. If you’re a noob here then you may also want to point your browser toward our all time favorites page [3]. The holidays are nigh and tis the season to debug your brain and start the new year fresh.

However book knowledge is one thing – seeing things play out in reality is quite another. Let me [...]

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September 3, 2012

How To Develop A Trading System – Part 1

In recent weeks I have been quite prolific regarding the current state of affairs on the equity front. There really is not much to add and if you have been following my work then you should be well prepared and ready to pull the trigger with confidence once equities decide to pick a direction later this week. Thus instead of regurgitating my long term charts I have decided to use this Labor Day as an opportunity to indulge your recent requests for some perspectives on basic trading related concepts.

As I am a big fan of the ‘jumping in feet first’ method this series will cover how one may develop a complete automated trading system. This will not only allow me to [...]

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August 12, 2012

Seven More Reasons Not To Be Long

Let me precede this post with a warning: I am not saying that it’s impossible for equities to push any higher. Quite on the contrary – there are signs that indicate that we soon may run into a little short squeeze. If that outlook sounds contradictory to you then you may want to go back and read Volar’s excellent excerpt on platykurtotic vs. leptokurtotic markets which he posted almost a year ago. Simply put – it all depends – August is a good month for trend traders and if you are betting on mean reversion you may get burned.

Now as stainless steel rats we are sworn to trade by our rules (whatever they are) and to only take setups which strongly [...]

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May 18, 2012

How To Trade Vega At Market Bottoms

As I was perusing the comment thread this morning I saw a few musings on how to best get positioned near a potential market bottom. The option strategies that were suggested are definitely reasonable (i.e. regular credit spreads) but IMNSHO non-optimal during times of rapid volatility spikes.

In order to set the stage observe that IV as expressed by the VIX has jumped by 30% in the past month. Thus I decided to put a together a quick and dirty write up on an exotic beast called a ‘reverse calendar spread’ – a.k.a. ‘reverse diagonal spread’.

Let me however precede the following with a caveat – I am not suggesting that a market [...]

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Cognitive Bias Carousel
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    When equities turns volatile each added gyration serves to stir the collective emotional cesspool of market participants. An unfortunate cognitive bias we as human beings all share is … more
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