TheBramble
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As an antidote to endless circularity, infinite stupidity and in the way of providing a backdrop against which at least one trader on these boards will soon savour their own personal experience of what it feels like to you lose your balance on the edge of the Abyss.
Taleb actually trades Black Swans. His entire methodology is predicated on winning big when the feathers fly and during the long periods of relative calm he’s quite happy to sit through endless numbers of small losses. As are his investors.
He’s basically insuring himself FOR a Black Swan event – not against it.
It’s not my trading style. But the Black Swan event is not something to be feared, hidden from or ignored. It needs to be recognised, assessed and your trading methodology needs to factor in strategies for handling it. The simplest being not to be in too big when it occurs of course.
I’ll start with a few rules from Taleb. I particularly like #8.
Trader Risk Management Lore : Major Rules of Thumb
________________________________________
Rule 1 - Do not venture in markets and products you do not understand. You will be a sitting duck.
Rule 2 - The large hit you will take next will not resemble the one you took last. Do not listen to the consensus as to where the risks are (i.e. risks shown by VAR). What will hurt you is what you expect the least.
Rule 3 - Believe half of what you read, none of what you hear. Never study a theory before doing your own prior observation and thinking. Read every piece of theoretical research you can - but stay a trader. An unguarded study of lower quantitative methods will rob you of your insight.
Rule 4 - Beware of the trader who makes a steady income. Those tend to blow up. Traders with very frequent losses might hurt you, but they are not likely to blow you up. Long volatility traders lose money most days of the week.
Rule 5 - The markets will follow the path to hurt the highest number of hedgers. The best hedges are those you are the only one to put on.
Rule 6 - Never let a day go by without studying the changes in the prices of all available trading instruments. You will build an instinctive inference that is more powerful than conventional statistics.
Rule 7 - The greatest inferential mistake: this event never happens in my market. Most of what never happened before in one market has happened in another. The fact that someone never died before does not make him immortal. (Learned name: Hume's problem of induction).
Rule 8 - Never cross a river because it is on average 4 feet deep.
Rule 9 - Read every book by traders to study where they lost money. You will learn nothing relevant from their profits (the markets adjust). You will learn from their losses.
Taleb actually trades Black Swans. His entire methodology is predicated on winning big when the feathers fly and during the long periods of relative calm he’s quite happy to sit through endless numbers of small losses. As are his investors.
He’s basically insuring himself FOR a Black Swan event – not against it.
It’s not my trading style. But the Black Swan event is not something to be feared, hidden from or ignored. It needs to be recognised, assessed and your trading methodology needs to factor in strategies for handling it. The simplest being not to be in too big when it occurs of course.
I’ll start with a few rules from Taleb. I particularly like #8.
Trader Risk Management Lore : Major Rules of Thumb
________________________________________
Rule 1 - Do not venture in markets and products you do not understand. You will be a sitting duck.
Rule 2 - The large hit you will take next will not resemble the one you took last. Do not listen to the consensus as to where the risks are (i.e. risks shown by VAR). What will hurt you is what you expect the least.
Rule 3 - Believe half of what you read, none of what you hear. Never study a theory before doing your own prior observation and thinking. Read every piece of theoretical research you can - but stay a trader. An unguarded study of lower quantitative methods will rob you of your insight.
Rule 4 - Beware of the trader who makes a steady income. Those tend to blow up. Traders with very frequent losses might hurt you, but they are not likely to blow you up. Long volatility traders lose money most days of the week.
Rule 5 - The markets will follow the path to hurt the highest number of hedgers. The best hedges are those you are the only one to put on.
Rule 6 - Never let a day go by without studying the changes in the prices of all available trading instruments. You will build an instinctive inference that is more powerful than conventional statistics.
Rule 7 - The greatest inferential mistake: this event never happens in my market. Most of what never happened before in one market has happened in another. The fact that someone never died before does not make him immortal. (Learned name: Hume's problem of induction).
Rule 8 - Never cross a river because it is on average 4 feet deep.
Rule 9 - Read every book by traders to study where they lost money. You will learn nothing relevant from their profits (the markets adjust). You will learn from their losses.
Rule 9 - Read every book by traders to study where they lost money. You will learn nothing relevant from their profits (the markets adjust). You will learn from their losses.
