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Posts posted by Seeker

  1. Option traders generally rely on the Black Scholes formula to buy options that are priced under the Black Scholes formula calculated value, and sell options that are priced higher than the Black Scholes calculated value. This type of arbitrage trading quickly pushes option prices back towards the Black Scholes Model's calculated value. The Model generally works, but there are a few key instances where the Black Scholes model fails.


    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.

  2. Will follow your path :) . Will post back when done or if I have a question, whatever comes first.


    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.

  3. No worries, thanks for the reply. SLA is almost as mechanical as you can get... except of course if you think there is value in plotting moving averages and waiting for a crossover.. ;) (of course I know your answer to that though!)


    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.

  4. Doing just fine, but I have to disagree with your disagreement. When fear is paramount, trading multiple contracts just isn't appropriate, much less scaling in or out. Until one can follow the rules, adding another layer of complexity serves only to perpetuate and even increase anxiety. If one can get to the point where trading by the rules becomes automatic, he need no longer think much if at all about what to do. This creates about as relaxed a trading environment as possible. Today, for example, there were at least 27pts to be had with only one contract (by 1300), and all one had to do was follow the rules. Wanting more, and adding contracts in order to get more, would result only in winding up with less, probably much less, if one were able to pull the trigger at all.


    If one is focused on what to do about price action rather than on price action itself, he is far more likely to do the wrong thing -- such as repeatedly going short in an uptrend -- or nothing at all. But if following the rules is automatic, he need not think about what to do at all and can instead focus on price action, which is, after all, the objective.


    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.

  5. I disagree with most of what game said. The SLA is a simple, straightforward, highly risk-averse, self-correcting approach. Those who can't make it work don't or won't or can't follow the rules. This is not the fault of the approach.


    If one can't succeed with something this simple, adding more tactics and setups and fiddling with trading size and scaling in and out will likely only make things worse.


    If one is to succeed at trading, whether by this approach or any other, he must "know the game" perfectly and be competent at playing it. If one is more concerned about making money than he is about trading well, he will neither trade well nor make money. Based on the journals I've read here and at ET, I can't point out anyone who is interested in trading well.


    Hi, Seeker, how's it going?


    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.

  6. Some of my reflections on your live experiment.


    1. You say fear,eagerness and other emotions kept you from realizing your whole potential. While I can understand how these emotions would dominate someone who has no method, you do have one. Yet you had fear. And so do I. But this fear is just a symptom. So what is the cause? Possible causes:


    a. Lack of perspective on how the market's rhythm undergoes shifts. I know you said that you are going to characterize the market. But it may help to discuss this in more detail as it is vital. What exactly are you going to characterize. How will it help you in real time?


    b. Lack of a dynamic position sizing strategy. I am assuming you were sizing all trades at 3 lots. Do you think given that the market offers opportunities in chunks, this is a good idea? I know your plan has a max daily loss limit. Does it also guide you on how to size based on either P&L or market conditions?


    c. Reliance on just the retracement strategy. Yes it's theoretically possible to be patient and wait for a trending environment. But might having a fully fleshed out Reversal strategy actually increase overall patience because you are not bouncing between forcing one strategy all over the place and playing ultra defensive?


    All this applies to me as well. Just using your experience to reflect on things I have to work on.


    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.

  7. I am not sure I uderstand what you mean.


    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.

  8. Well, today I felt much better, I forgot about multiple exits and focused on Price action, still avoided REVs as I will need more practice before taking them.


    1. At the open the downward stride was broken and a HL was defined so a long was taken, but it failed rapidly just above the LSH so I decided to SCR the trade. This could have also been a good place to SAR but only in hindsight as at the moment my thinking was that sellers had tried already 2 times without much success below 90 so I better waited for that level to be broken and wait for the first ret. My entry was rapidly scratched and I made an operational mistake failing to trail the entry and entering 1 point below the entry level. But after my scratch buyers rapidly gave up and prices started to sell again, this formed another RET and an opportunity to enter.


    Around 10:00 there was a strong rejection that made me think about how I was reacting during the last week, and just following procedure I decided to sit in my hands, by then the worst that could happen was a BE day and the opportunities of a downtrend were good enough to allow Price some wiggle room.


    From this level we already had a "settled trend" to ride and my objective was to be able to reach 55.


    2.As the trend ended I took the entry at the close of the trade, but it rapidly failed triggering a SCR.


    3. Given that the new uptrend ended fast way below 50% and that I had some money still in the bank I decided to take the next short that appeared but it did not go anywhere and was rapidly SCR.


    Given that they tried up and failed and down and failed I decided to call it a day. (given the time of day)


    Not giving trades much of a chance there.

  9. Thanks, I will follow your advise. In sim I am already able to take the trades without hesitation, but I start having second thoughts when doing it live.


    I will trade 1 contract live next week, will follow rules strictly and will review at the end of the week. Will post results everyday with the respective review.


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

  10. 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,

  11. So whats the crack regarding the ongoing legal issues between Big Mike and AMP GLOBAL CLEARING ?


    Are AMP behaving like the typical cry baby brokerage company and trying to get negative reviews removed by throwing their weight about?


    Has "big mike" lived up to his name, and proved he's got a pair of brass balls and wont back down to threats ?


    I cant be arsed to sign up for an account over there, fill me in someone. Is this really a case of a forum owner with integrity ? whats the world coming too, they'll de discussing trading at the zoo next !


    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.

  12. anyone has a sample code for the following?


    buy whn stoch<30 and exit 5 bars from entry


    if next day stoch is <30 buy another unit and exit 5 bars from entry


    if next next day stoch is <30 buy another unit and exit 5 bars from entry


    try code them but the second and third entry all exit at the first exit altogether rather 5 bars from entry


    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.

  13. just watch markets and ask that question again when eurusd is dealing 1.3580/70 area and then say it was not related......not to mention usdjpy.............so a bit of patience please thank you




    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.

  14. moment of thruth here, with 14 votes on NO tapering today and 8 on a tapering, so it remains to be seen........


    I would say markets (at least currency markets that I trade) are positioned for a tapering today


    Good luck everyone.




    What makes you say the bold part?

  15. 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.

  16. 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.

  17. One of the primary reasons I brought this is up is because of a conversation I've been having recently with someone in my life who is of major influence. He has routinely made it clear that he believes "this trading thing can't be done." He knows of all of my trade executions, the price targets and the stops. At the end of the day though, he cares not about what those stocks did. He only cares about the bottom line and what my performance was.


    Not once has he said to himself, "Hmmm he seems to have a knack for target selection, so why is he still having troubles maximizing his system?" He proclaimed if I had a bonafied system then I wouldn't be having those issues. I felt that statement to completely naive. I tried to explain the nature of non-chart related influences that can wedge their way into the psyche of a trader. You know things like time opportunity costs (needing to hit the monthly nugget), adequate reserves, a previously conservative relationship with money, etc. etc.


    He simply thinks all that other stuff is nonsense.


    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.

  18. Theoretical question and wanted to get everyone's thoughts.


    Can we assume a system with a significant statistical trading edge will naturally bring out the "mental" edge required for trading?


    Or is that question too simplistic?


    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.

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