

Trading knowledge I accumulated over the last couple of years - nader
https://thinkery.me/nader/53172b621cb6025b0a0127c7

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throwaway13qf85
I don't think it's worth taking this very seriously (I am a full-time trader
at a hedge fund).

Most of it is technical analysis type stuff, with very little to nothing
backing it up. The decent bits of advice that I can filter out are

> _Concentrate on current investments, not past or future ones._

Good advice in general. A similar motto applies in poker - once your money is
in the pot, it's no different from anyone else's money. Don't get hung up on
sunk costs. However, you might occasionally give a thought to your future
investments, especially if your current ones are somewhat illiquid (free cash
is optionality).

> _Always keep some cash for short term opportunities._

Decent advice, though it's questionable how many short-term opportunities
you're going to spot if trading isn't your full-time occuptation.

> _You don’t need to trade every day! You don’t need to trade every day!_

In fact, if you're not a professional, the less you trade, the better.

> _If a company publishes earnings and the stock doesn’t move much it might be
> that most people already own the stock. It could go down._

Or, more likely, the earnings figure was already priced in and it is as likely
to go up as down.

> _Stay away from penny stocks._

Very good advice. Stay the hell away unless you have some privileged
information on the the company (and even then, stay away 90% of the time).

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bunderbunder
> if you're not a professional, the less you trade, the better

I once found some numbers that relate frequency of trading to earnings for
individuals, & was initially shocked by just how strong the inverse
correlation is.

Though on further reflection, I'm not sure it's really counter-intuitive. The
more money you spend on broker commissions, the more you have to profit just
to break even.

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superprime
At large enough size, commission/trading costs are not necessarily a
significant factor--individuals are just not great at stock picking and timing
the market.

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bunderbunder
Absolutely true. However, individuals don't necessarily have enough money in
their brokerage accounts to hit the point where trading costs become
insignificant, especially if they're trying to diversify.

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squigs25
I think there's way too much emphasis on volume here. Sure, if price swings
wildly, there will be a large volume associated with it, but if there's a
large spike in volume it doesn't necessarily mean a big change in price.

So ultimately volume is a measure of interest, but for every bought share
there was a sold share, so it's not a measure of performance. I would bet that
higher volumes might mean lower bid/ask spreads, meaning you're paying a
smaller penalty to get in/out of a position, but for most retail traders that
spread isn't going to make or break you anyway.

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rrggrr
A problem in his analysis is that 'smart money' has to look a step or two
ahead of his indicators at hyper-technical data that includes the velocity of
price movement, volatility and the probabilities that price trends will
continue, revert or propagate. It is all mostly inaccessible to the lay
investor. I don't think Warren Buffet has an ulterior motive an advocating the
average inventor focus on broad, low-cost index funds, like the S&P500, where
you dollar-cost average in over time. Not that I take that advice, or my own
for that matter.

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akirk
I always wonder where it is best to start getting into trading stock. Like a
place where you can play with a few shares but are not overwhelmed with lots
of fees for simple transactions. Any suggestions? Possibly in Europe?

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icu
I wouldn't trade stock per se, I would trade LEAPS or use a combination of
options and stock trading.

For example, enter the market by writing Puts, earn a premium and if executed
you then own shares at a discount. Then turnaround and write Covered Calls on
the stock for out of the money strike prices. Earn a premium on your stock,
and earn dividends, and capital gains. Protect your capital by using part of
your Call premium to purchase a protective put on your stock (in line with
your risk profile). If executed on the Call repeat by writing Puts.

Of course there is a lot you need to know, Google is your friend.

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sireat
Writing puts seems like a free money, if you think about it as possibly owning
your favorite stock at a discount in worst case scenario.

Problem with this is that sometimes the price might dip for irrational
reasons(let's call it technical reasons), which is the good scenario.

However, sometimes price might dip because of fundamental reasons(let's say
company announces that their CFO has misstated results for last 5 quarters).

Even worse is writing Covered Calls without any thought. There was that guy on
Reddit who sold Covered Calls on his McDonalds stock. It worked great for a
few months, collecting premiums while the stock stayed stagnant. Then the
stock dipped in such a way that writing Covered Calls at the original strike
price was not really worth it anymore, while writing at a lower price than
purchase price was even worse. The protective puts(which he did not have)
would not have been triggered either as the dip was not low enough.

So again, there is no free lunch.

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icu
Yes, what sireat is saying is somewhat true. However with options I believe
you have a greater flexibility and more opportunity to make gains when
compared to trading stock on its own.

With this strategy you have the chance to protect your capital (by buying
protective puts) while earning an income (write premium) and capital gains (in
the money Covered Call strikes and dividends). You can make money with this
strategy when the market is going straight up, somewhat up, and sideways. You
can protect your capital when the market goes somewhat down, but you will
loose money if the market crashes.

Frankly there is much I've not said when it comes to trading that is do or
die. Money management, position sizing, managing positions, emotional
management, fundamental/technical/sentimental analysis just to name a few
areas a successful trader should master or at the very least have a working
knowledge of.

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throwaway13qf85
The volatility skew on equities is generally downward sloping as a function of
strike (because investors are scared of crashes), meaning that the puts you
buy to protect your capital will be more expensive than the calls you are
selling to earn the premium - if you want the same amount of downside
protection as you have upside risk, you'll actually bleed cash with this
strategy. The only solution is to buy less downside protection that upside
risk, which leaves you vulnerable to a market crash, whilst at the same time
capping your upside - exactly the situation you don't want to be in!

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icu
Hi, you are forgetting about timing the purchase of protective puts or buying
back the options you have written at a profit.

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throwaway13qf85
If the price moves against you (down if you have written a put, up if you have
written a call) then you never get the chance to buy the options back at a
profit. You might get a bit of theta decay, but equally any large moves will
tend to kill you on the gamma and vega.

As I said in another comment, writing options covered or not is basically a
bet against volatility.

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xpose2000
I'm a novice trader, and agree with everything said. However, about penny
stocks..... I've dabbled in marijuana stocks for 2014 and its the only type of
penny stock I have or will ever touch.

The only thing I am risking at this point are my profits because that's how
little faith one should have in penny stocks.

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tim_sw
learning from only the last couple of years risks ingraining habits that might
be dangerous going forward, as the last couple of years have been a bull
market. Once you've been through an entire market cycle, there will be even
more perspective.

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bunderbunder
Obligatory Warren Buffett quote:

"A bull market is like sex. It feels best just before it ends."

