Apr

20

 1. "There is no such thing as easy money"

2. Events that you think are affected by cardinal announcements like the employment numbers at 8:30 am on Friday are often known to many participants before the announcement

[An example supplied on April 18 by Mr. Rogan: "The Reason For Geithner's Weekend Media Whirlwind Tour: White House Learned About S&P Downgrade On Friday" (zerohedge )]

3. It's bad to try to make money the same way several days in a row

4. Markets that have little liquidity are almost impossible to profit from.

5. When the stock market is way down, policy makers take notice and do what they can to remedy the situation.

6. The market puts infinitely more emphasis on ephemeral announcements that it should.

7. It is good to go against the trend followers after they have become committed.

8. The one constant, is that the less you pay in commissions, and bid asked spread, the more money you'll end up with at end of day. Too often, a trader makes a fortune on the prices showing when he makes a trade, and ends up losing everything in the rake and grind above.

9. It is good to take out the canes and hobble down to wall street at the close of days when there is a panic.

10. A meme about the relation between today's events and those of x years ago is totally random but it is best not to stand in the way of it until it is realized by the majorit of susceptibles

11. All higher forms of math and statistics are useless in uncovering regularities.

Mark Schuetz comments: 

A point about # 2: This one might be fun to try to rigorously measure and test, looking at price movements in the time leading up to and including certain announcements (knowing this type of thing has been shown by list members before, but usually it's more descriptive instead of measured). Is it possible to show which types of announcements are more often known by participants beforehand as opposed to other types? Also, if certain participants are informed ahead of time, how far ahead of time do they know and in which way will they "front-run" the announcement (there can sometimes be many different ways to make a position on one economic statistic) ?

Victor Niederhoffer replies:

Certain participants know it and they react to it, and you can figure out which announcements are go with and go against——-but but but. The pre and the post regularities are always changing vis a vis the flexions and cronies and their nephews.

Ralph Vince writes:

What a great post. Thanks Vic. I certainly must second points 1 and 11, the bookends….and they have me thinking…

1. There is no such thing as easy money

This is so true, in the markets, in everything. Those who happen upon money where it DID come to them easily, it seems, as a witness, have had it very fleetingly. In my own case, although I am supremely confident in the profitabliity of what I am doing, in practically any market, in virtually any "regime," doesn't mean it's easy. It works like clockwork and is incredibly painful and distressing. It would be so much easier to simply sell buckets of blood."

11. All higher forms of math and statistics are useless in uncovering regularities.

Certainly in a post-'08 world, quants are out of favor, and for good reason. Most anyone I know who DOES make money in the markets, does so with very simple, robust techniques. Having considered going to quant school, and studied a good deal of it, I finally came to the conclusion that they are simply working with "models." Models of how the world behaves. unlike hard sciences like Physics and such where you can perform a test, come back a year from now, perform it again and get the same results, you don't have this in financial modeling. And I think this is where the quants have fallen short. Models are NOT reality, and they never got down to the bedrock, the reality of what his game is about. Of course it had to fail, and in a large way, at some point. A good rule of thumb is that if I need a computer, if it isn't simple enough to do in my head on the fly in the foxhole after I have been awake for over 100 hours, I can't use it. 

Jim Lackey writes: 

About point # 10: It takes no time at all for the information to spread. Yet how many times have we acted, lost a bit, recovered, then seemingly too much market time expires, and we close out a position. We say "awe everyone knows that it's priced in." The meme is then repeated for the 57th time and on a low pressure day, month, or year and then, kaboom!

Of course, I can think of the few times where we missed a huge score, being short YHOO in 2000 or selling some short in 2008. Yet there are hundreds of low magnitude fantastic long only ideas that we forget about. I look back 6 months later and say wow look at that beautiful rise, what happened? It went up very small, day after day, and only buy and hold would have worked.

Alston Mabry adds:

 12. One should not make one's analysis more precise than one's actual trading could ever possibly be.

13.
If the rational mind has not determined the parameters of a trade, then upon execution, the lizard brain will decide.

14. Never go on vacation with open trading positions.

Or, zooming in:
<click> home

<click><click> to lunch

<click><click><click> to the bathroom 

Paolo Pezzutti writes:

One could test how the stock market reacts to good (very good, wonderful) or bad (very bad, terrible)(a sort of matrix) news when the news is released and after some time. It might help build a strength indicator. Amazing how the earthquake in Japan and the unrest in Middle East, admittedly extremely bad news, were absorbed by the strong trending markets without any problem (so far). In other times, stock markets might have crashed confronting with the same news.

Alston Mabry comments:

Amazing how the earthquake in Japan and the unrest in Middle East, admittedly extremely bad news, were absorbed by the strong trending markets without any problem (so far). In other times, stock markets might have crashed confronting with the same news.

Chris Tucker adds: 

Stick to your guns, but realize when you are wrong. Easier said than done. Good ideas can lead to conviction, but only experience can strengthen ones resolve. Forget the last trade, look to the next. Try, try, try to learn from your mistakes, but also from your wins.

Anton Johnson writes:

15. When correlations among many typically disparate markets become high, one should reassess leverage and seek novel opportunity.

Jeff Rollert writes:

17. Sell side liquidity is an inverse function of cell signal strength and micros0ft patch frequency, especially at lunch time.

Rocky Humbert writes:

The First Law of Rocky – In every "macro market" (indices, bonds, commodities), all prices WILL be seen at least twice. The only unknowns are: (1) how long it takes and (2) how far prices go, before the price is re-visited. This Law is true 99.999999999% of the time.

The Second Law of Rocky – Rocky always keeps his calculator precision set to two decimal places. Any trade that requires more precision than the hundreth decimal place, is a trade that Rocky leaves for smarter participants

Jeff Sasmor writes:

About Jeff R's # 16:

16a. Never go to the doctor when you have a profitable position as it will reach its maximum profit and reverse exactly at the time that you enter the doctor's office.

Happened to me yesterday…

Ralph Vince comments:

With regards to the First Law of Rocky…."Unless it is a new high, that price has already been seen before."

Victor Niederhoffer adds:

Beware of using hard stops as it's bad enough that the floor can always know your physical hard stops.

Jay Pasch comments:

No wonder over-leveraged daytraders always lose as they are required to deposit a hard stop with their leverage, along with their hard earned money…

Ralph Vince adds: 

Despite numerous posts on this thread, it has not been opened up beyond Vic's original 11…

T.K Marks writes:

Aristotle felt the same way about drama, posited that it could be comprehensively reduced to 6 elements. And any additional analysis would by definition be but variations on those original half-dozen themes:

"…tragedy consists of six component parts, which are listed here in order from most important to least important: plot, character, thought, diction, melody, and spectacle…"

Jim Sogi writes:

Always be aware of and consider current market conditions and how they might affect or even negate your prior analysis.

Even the the weather forecast says sunny, if the clouds look dark and the wind is blowing, stay home or dress warm.

James Goldcamp writes:

One good anecdotal rule I've found that works for investing is that the market that causes you the most psychological pain, revulsion, and visceral response from prior bad investments, or overall perception, is probably currently the best opportunity since others may also have a similar overly pessimistic view (or over assign risk premium). This seems to be especially true for post calamity emerging markets, high yield bonds, and fallen growth stocks (tech). If for no other reason, this is why I think stocks like Citi and the West Virginian's company are good buys now (and perhaps government motors and Russian stocks).

Ralph Vince comments: 

 Thinking on this a great deal the past 24 hours, I think I would add one more, which is to me the most important of them all perhaps, or at least tied with #1 and #11. And that is that most people have no business being here. They don't know why they are here, and, if pressed, can only give a sloppy, struggling answer. "I'm here to make money." "I'm here to improve my risk-adjust return," or some other nonsense.

They are here for action– whether they know it or not, whether they acknowledge it or not. The market is a magnet for gamblers, a magnet for those who compulsively seek out the very action she puts out. People are here because they want to feel they have one-up on the masses, the system, or that they are not as inadequate as they suspect. The very proof of that is their utter inability to instantly articulate their criteria in specific terms. Absent that– they're in a bad place.

They're looking for girls in the wrong dark alley.

It makes no difference how well-capitalized the individual is. The world is full of guys with $10,000 accounts who will lose it all and then some, and full of guys with very fat checkbooks who will lose all of it equally as quickly, in similar fashion.

They still think it is about what you buy, when you buy it and when you get out, facets that have nothing to do with what is going on here (which is specifically why mathematics, simple or higher-order, fails in this endeavor; people are applying to aspects they mistakenly think this thing is about.)

If you examine institutions, they may be equally as clueless as to what this thing is about, but they have one big up on the individuals– they have a specific, well-defined criteria in most cases about what they are in this for, what they are willing to do to achieve something very specific.

Most individuals– of all gradations of wealth– can't, and that's the red flag that they here for all the wrong reasons.

Jeff Rollert adds: 

Amen. If it doesn't hurt a little, you're wrong.


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