Seeker

There is a lot of misinformation that the Black Scholes formula determines the price. Throw that out, because it's not true. The market determines the price, not the formula. Banks know the true value of Black-Scholes, and it's not the price it gives. Banks don't use Black-Scholes to price options. And you'll see why below. So let me at least back up what I'm saying. Suppose you do believe the Black-Scholes price is the correct price. Then looking at the formula you will see that you need some parameters, to calculate that price, the spot, the maturity etc, but the key one for this discussion is the volatility. So what are you going to choose for this key parameter? You may think that you can calculate some standard deviation for the stock and use that? If so, you'll lose money to the banks. Because you'd be using the wrong volatility. And worse, the banks and the market makers won't even need to take risk to make money from you. They will chew you up, because they know what you don't, there's a way to eliminate your risk on an option position, and there's only one volatility that matters here, and that's the implied volatility. In other words the volatility that is implied by the market price. So then what is the point of Black-Scholes if it doesn't give the price? Well the key thing that Black-Scholes does is that it tells you the implied volatility and it tells you how to delta-hedge the option to eliminate your risk. Good luck with your learning dominover. but be wary of snippets online like the one I quoted in this post. It's wrong and will lead you astray.

Follow your own path Niko. Mine was longer than necessary and I'm nobody to follow. You have all the tools and info you need.

There's not one way to do things. DB has kindly given a structure for a plan. Why not make it your own. On the chart you posted, you can take a short at A, but then there's a higher low not long after, so you could take that long on the break of the 8:35 bar (I think that's the time(. Or you could decide you're in a triangle, and wait for a break out from there, 8:37 bar closes clear out. Could take it immediately, could wait for a break of that bar, could wait for the first retracement. DB has given some rules to keep one out of trouble, but that doesn't mean it's the only way of playing it. If you took the short at A, you have a small loss. If you took the higher low, you probably have a large win. The close above the triangle/hinge, a good win, the first retracement after at B, a good win. C you could take short if you want, although you're going against quite a strong up move (DB once posted about if it can't even retrace 50% of the previous swing it might not be worth taking, although that's not set in stone, just an idea). In any case you have drawn a supply line downwards on 3 down bars. There's no lower high as such, or is there? You decide what a swing point is for your plan. For me there's no swing so I wouldn't draw the line, nor would I draw that next demand line, there's not two swing lows to connect, so I wouldn't take D. I'd still be in short from C (if I took it) and see plenty of reasons to not let that trade turn into a loss. The three attempts which couldn't go lower for example. One could even take a long there, or wait for the break from the SL, or wait for the first retracement afterwards, which may be at E, or may be some bars later again depending on how you define swing/retracement. So maybe you take E and maybe a small loss, or maybe you think that the E trade is basically at a new high, and you prefer to trade long near a relative low extreme. Again, choices, so many of them. Then maybe that low near D, you fan the line out when the new high is made for the day. Perhaps when price moves below this DL, you get a shorting opportunity near the top and earlier than F...or maybe not. If F is a swing, then why isn't the SL tighter? If it is, then you have a possible exit for small profit and a possible long 5 or 6 bars later. Or again, maybe since it hasn't retraced more than 50% of that downswing, you decide not to take the long. Maybe you only take trades like this in the direction of the daily trend, or hourly trend or whatever. Maybe just one trade a day. Or maybe you don't just have these straight lines, you also denote horizontal ranges, like the one near the top, or you have a higher timeframe view about where support and resistance might come in. It's your choice, your trade plan. Why do you need DB to tell you, he's already given the idea, test it yourself. Pick a consistent way of doing it, then grab pen and paper (or a spreadsheet) and see how that way does. Try it with market replay if you can.

Well you may well be right. It's hard to give advice, and know for sure what will work for someone else. I can only refer to my own history. And that was that I felt a lot of fear when I had uncertainty of what to do in my system (in fact initially I didn't have a system fully worked out). Then later when I did, I still had some fear, because I hasn't proved that the system worked in demo for long enough. I went in circles. So many circles it is dizzying thinking about it now, so much time wasted fooling myself that I was working on it, when really I was avoiding the hard work. Eventually I got down to writing the system, testing it, improving, test, practice and that was a far more productive circle to be in. I was an idiot and lazy for a long time.

Very good thanks. I hope you're doing well too. Good to read your insights as always. I disagree with some though. I think he may benefit from scaling out. Looking over a lot of Niko's trades, he often (imo) exits too soon and/or usually on a swing against him, e.g. price moves just below the SL and he's out. His scratched trades are quite small losses, so he could, imo, take partial profits. It might give him the confidence to hang on for the remainder of the position or exit it with less emotion, and turn his scratch losses into a scratch breakeven or thereabouts. A decent % of his entries travel several times his typical scratch. He may not feel comfortable with that, but it's at least something he could investigate. As always, I think we should test ways to improve our trading. I think the SLA is a great approach. Although I don't take entries exactly as described in SLA and have my own way of going about it, for me SLA has been invaluable and I wish I'd known it several years ago. Would have saved a lot of pain. I don't see the point in trading real money while still developing a method. I've done it before, so I'm no better, but it didn't help me. All I learned was that it was something I shouldn't do. It's natural to be afraid if you're not sure what you're supposed to do - and if you have no method and are constantly changing it, then how can you be sure what to do? I'm willing Niko to do well, but as I said, I've found it frustrating, because there are a lot of comments about working on this or that, and I'm not sure what the result of that is. Only Niko knows. What does 'rethink my approach to trading' mean for example? The approach is SLA and AMT. What needs to be rethought? Why not just get down to the nitty gritty and write a clear method down? Then demo it. Then finetune, improve, then demo it etc. What is there to think about? Anyway, good luck with your future Niko, you can do it.

Well to me it seems he doesn't have a method that he understands and has demo traded. Therefore he doesn't have confidence in it. Therefore he experiences fear. But the cause of his troubles is not the fear imo. It's that he doesn't have a proven stable method. His entries are inconsistent. His management of trades is inconsistent (or needs revising). He keeps writing about things he'll work on, so it seems that he's still developing a method. No shame in that, and I hope he finds a good method. It has been a good thread, one I've enjoyed reading, despite being frustrated with it.

Sorry, my mistake, I misread your chart. Those little arrows made it seem like you were scratching nearly all your trades, even good ones. Makes more sense now, well done.

Not giving trades much of a chance there.

What are your sim results, say for a week or two?

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My opinion is that: If you understand the mathematics behind option pricing and how it relates to movements in the underlying then you'll know that for deep out of the money options, the underlying can move significantly further out of the money but the price of the option barely moves at all. That's normal and expected. As for why it is 2.45 which you believe to be high, well the first reason is that options have high transactional cost, and the second reason is that while there is a lot of time left there could still be an extreme event (a takeover for example). If someone is going to take on that risk then they want to be paid for it, and 2.45 is their price. As time gets closer to maturity, they may think the risk is less and reduce that price, or they may just leave that order in. As long as it's not arbitrageable (which it isn't) and there is nobody offering a better price, then they can just leave it there. Lastly, why does the price of this strike move while that one doesn't etc. Well it's a market, people can post orders as they wish. There's not much change because there's very little interest in trading these. If there is more interest (in a particular strike) and/or if the movement of the price is likely to affect the payoff (here it isn't) you may see a narrower spread and more changes,

Well, he's taking donations for his legal defence. One would hope that these donations will be returned if Amp has to pay all legal costs Seems like he's standing up to AMP, but I'm not sure that's wise given that it's seemingly a member with a grudge against AMP that has made comments that have got him in trouble (it appears that a member joined and with his first posts made negative comments about AMP because he worked for them and they didn't pay him). Reading the legal documents that were posted, it states that a large % of AMP clients are members of BigMike's site and so there is some damage to their company from disparaging comments that are alleged to be false. They're suing him for $50,000 and all comments removed etc. I feel it's always sad when people's comments on a forum end up in a court case, and in my opinion, reflects badly on those that have brought it about.

Can't help you with actual code because you haven't specified what software it is. But the problem is most likely that exit means exit the entire position - however much you have on. So instead you can replace exit with sell one unit.

6 in the main passage, and another one in the "How many F's" line, so 7. Then again it says count them again, so it will then be 14 if I count them all twice.

None of these have anything to do with the Binomial Pricing Model.

Prechter is my favourite tool, predicted the Dow to hit 4,000.

Some of these definitions for options are not very clear or wrong. In an asset or nothing call, you get the asset (the value of it) if at maturity the price is above the strike or you get nothing if it is below. The asset is not fixed.

Doesn't make much sense. If it's already priced in that means the announcement wouldn't really affect the price - because it's already priced in. Which means that rather than a down move in EURUSD, you'd expect it to stay the same level or move up.

10billion, spot on. What do I win?

What makes you say the bold part?

I think the most important thing for progress is to not argue with facts. Opinions abound and we all have plenty, but the facts are what count. If you're trading and losing, that's a fact. Your opinion that it is due to psychological issues is not a fact.

What matters is the bottom line over a large enough period of time. You're making money, or you're not. The market is dishing out the truth to you. It can't be argued with. So it is nonsense because it is an excuse. And an excuse doesn't turn the truth around and it doesn't help you grow and improve. Would you prefer I say that your friend (who is more objective than you on this) is naive? Would that make you feel better? Sorry if I sound harsh, but you did ask for opinion.

If you are a successful trader, then your time is worth money, perhaps lots of it. So why work for free? Unless that is, you have found someone worthy of mentoring (in the sense Siuya talks about), someone who is sharp and dedicated and has the right attitude. Then it is for free because it is enjoyable to help people help themselves. But the rest who want to complain? Well why not charge them. Idiots will give their money away one way or another.

I agree with him. It is nonsense. I don't agree with him that it can't be done, because I know that it can be, and is being done.

I don't believe so, mental must come first. Because unless the trader is trading the system, he will get results from another system, i.e. the system with a trading edge is actually not even relevant unless he can trade it. The system he gets results from will probably be a losing one. Now if he can trade the winning system as it should be traded then he already has the mental side sorted and the question is moot.