Trading Black Swans in Forex - page 4
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About the black swans and how often they occur.... A true black swan, like the recent mortgage crises, does only come along only about once every ten years, but with FX, with so much volatility, and so many pairs to trade, it would be easy to start looking for, shall we say, mini-black swans. I would define these as huge and rapid changes in price, even for FX. For example, a drop of 500 pips over the course of a half hour or less would certainly be a mini-black swan for a lot of players in the market, big and small, and the same forces that make the big black swans so profitable, will also be presnt there.
It is anything but trying to predict black swans, you say "... how often they occur..." I say don't know, the phrase "how often" implies regularity which is far from being the nature of the market (except for randomness that looks like a pattern or clouds that look like cartoon caracters).
And I don't have a concept of "mini-black swans", black swans don't have a given or limited, or a measurable size, all we know is that they carry massive consequences.
I don't care about particular black swans as much as I care about the market direction they make the market head to, and of course different events make market moves of different sizes.
Thanks for sharing your thoughts
engcomp
You told us two stories about loss, from an empiricist point of a view theses stories may carry more information than any success stories would.
There is a book called "What I Learned Losing a Million Dollars" by Jim Paul and Brendan Moynihan, it tells the type of experiences that show you facts, instead of success stories that get you drunk on rules that only have worked in the past, or dogmas and theories built over random events. Some authors tell you "How to become a millionaire", I always thought that if anyone had a list of secrets of success they would use them first, and most likely not tell them to anyone.
If you have so many loss stories I would suggest you gather them on a blog or in a book, that would be a great deed for the sake of knowledge.
engcomp
You told us two stories about loss, from an empiricist point of a view theses stories may carry more information than any success stories would.
There is a book called "What I Learned Losing a Million Dollars" by Jim Paul and Brendan Moynihan, it tells the type of experiences that show you facts, instead of success stories that get you drunk on rules that only have worked in the past, or dogmas and theories built over random events. Some authors tell you "How to become a millionaire", I always thought that if anyone had a list of secrets of success they would use them first, and most likely not tell them to anyone.
If you have so many loss stories I would suggest you gather them on a blog or in a book, that would be a great deed for the sake of knowledge.
Losses, what losses "I'm having the time of my life". Nothing could drive the notion of trading being a psychological enterprise more than the above examples. Someone could look at those and say the first guy made 150% in 2 months. And look at the second guy and say "ha.ha 50 cents to lose" playing with the big boys. Some people cannot handle success and thus find a need to give it all away. I however agree with you that those were losses and they would most likely use their secrets first. Humble Opinions Again ;) Cheers!!
Losses, what losses "I'm having the time of my life". Nothing could drive the notion of trading being a psychological enterprise more than the above examples. Someone could look at those and say the first guy made 150% in 2 months. And look at the second guy and say "ha.ha 50 cents to lose" playing with the big boys. Some people cannot handle success and thus find a need to give it all away. I however agree with you that those were losses and they would most likely use their secrets first. Humble Opinions Again ;) Cheers!!
Your introduction is a great way to make a point.
Anyway I don't see success and loss as relative concepts, the difference between different traders is time outlook, some people see further than others.
Best regards
engcomp
You told us two stories about loss, from an empiricist point of a view theses stories may carry more information than any success stories would.
There is a book called "What I Learned Losing a Million Dollars" by Jim Paul and Brendan Moynihan, it tells the type of experiences that show you facts, instead of success stories that get you drunk on rules that only have worked in the past, or dogmas and theories built over random events. Some authors tell you "How to become a millionaire", I always thought that if anyone had a list of secrets of success they would use them first, and most likely not tell them to anyone.
If you have so many loss stories I would suggest you gather them on a blog or in a book, that would be a great deed for the sake of knowledge.
Actually, they were success stories. The bank bills made 150% in two months, albeit via a heart-breaking detour.
And you missed the point of the Nickel guy - he cornered his trading opponent by selling him futures in a non-trading month and then insisting to deliver.
The guy didn't have the money to buy a warehouse full of Nickel and there was only one guy willing to buy his contracts - my client, who was a tough-as-nails negotiator.
Of course, for every winner there must be a loser, so in this sense, they were loss stories. But for my clients, they were win stories.
But I can tell you a loss story. Pray that your early days in trading are all losers, because if your first trade is a big winner, it can make you addicted.
This is what happened to one of my clients, another electrician. There must be something about electricians. He, too, knew nothing about futures.
My walk-in trading room was open 24 hours. My night clerk tells me the guy came in around 10 pm from some race meeting, trots or dogs, with ten thousand dollars in cash.
"What's the fasted contract?" he asked and was told "orange juice". He put the whole ten grand as a deposit to buy orange juice. Why is it that newbies always buy?
Within half an hour the news came over Reuters that California is having the biggest freeze in decades. The entire orange crop is lost.
By 1 am this guy sold his contracts for A$60,000 and went home, but he was back at the opening bell in the morning. He became a regular in the client room.
Brought his own charting desk. Played big positions and won some, but lost most of them. He was retired and seemed to have no trouble topping up his account.
Later I learned that he lost not only all the money he got when he sold his business, but he also lost his house. Amazingly, his wife stood by him the whole time.
Even came to the room with him to help him with his charting. He became quite proficient at trading and made a modest living from it until the crash of 1987.
engcomp: ...Pray that your early days in trading are all losers, because if your first trade is a big winner, it can make you addicted...
I wonder who have better Initial success to loss stories, gamblers or traders. I've got my very own Initial success to Loss Story. It was my last paycheck $700 from a temporary tech-support position I held. Still living at home I decide heck what's there to lose. I'd just learned a pseudo card counting system which worked well on yahoo double-deck game and my local casino had a double decker so I decided to give it a go. This game required $25 per hand and if the count was high as +8 I was table max at $200. As you can imagine the swings were horrendous. $700 to $2000 back down to $1000 back up to $3000. But I couldn't lose, I could always guarantee making a thousand dollars a day. See, I didn't want to hurt the casino too much. So a grand a day, humm about 365 thousand year... thats more than my president, fair enough.
I would leave the casino and go eat in expensive restaurants, visit my favorite dance clubs/bars, then, end up drunk in a gentleman's club. When I entered the place all the girls came running toward me...lol...those were the good old days. By 4am, I'm sleeping in the casino hotel as everything in the casino is free at this level. I was blowing half my grand a day on having fun. This went on everyday like this for about 3 months and at one point I had a total bankroll of 20K. Well everyone can see where this story is headed. Tables turned, couldn't handle it, stated over betting, blah blah blah .... fail.
Truth is, I was over-betting to begin with, the books warned me about that. The books however didn't warn me about over spending. However, I went back to the books and simulators. Now I've gone from pseudo counter to level 2, solid casino killer. But knowing the Variance & reality that comes with such double-deck game, I could play full-time for 6 months and still be at a loss. So I've resulted into playing games with less Variance, where the long-run means about 1-month with 99% confidence but this also means much less expectations. So, when do you think I was happiest, when I was delusional or now that I know all the angles?
ubzen: I would leave the casino and go eat in expensive restaurants, visit my favorite dance clubs/bars, then, end up drunk in a gentleman's club. When I entered the place all the girls came running toward me...lol...those were the good old days.
I heard about such a lifestyle, ubzen, but never experienced it. A bit like Mozart and his nemesis Antonio Salieri. Everything came easy to Mozart; Salieri couldn't get close no matter how hard he tried.
But talking about gamblers, I had a client who regularly came in with a bag of cash. At first I thought he must be a bookmaker because bookies always carry bags of cash with them.
But when he said "double or nothing" I realized he must be a gambler because bookmakers never gamble. The instruction was to close all positions when he had doubled his money.
I explained that I had to close positions to maintain margin if the trade went against him, which he understood. There were times when he doubled, and there were times when he lost the lot.
He was always cheerful. One day I chatted with a colleague over a beer after work. He also had a client like that. Turns out to be the same guy. We compared positions. He was long when I was short and vice versa.
The guy ran the cleanest money laundry until the Government passed laws that bankers and brokers had to report all cash transactions over A$10,000. Killed the goose that laid some commissions.
To-me it seems better being a Broker.
Tables turned, couldn't handle it, stated over betting, blah blah blah .... fail.
Probabilities say on the long term the house wins and you loose, it is somehow like the story of the turkey in NNT's book, the closer he got to thanksgiving the more confident he felt about that family, by the way the family was feeding him simply to eat him eventually.
I still don't understand why so many people expose themselves to Black Swans in a negative way ???
Anyway an important task of mine is to find practical ways of minimizing negative exposure and maximizing positive exposure. I dedicated a blog for that http://stock-swans.blogspot.com/ .
Best regards
Actually, they were success stories. The bank bills made 150% in two months, albeit via a heart-breaking detour.
And you missed the point of the Nickel guy - he cornered his trading opponent by selling him futures in a non-trading month and then insisting to deliver.
The guy didn't have the money to buy a warehouse full of Nickel and there was only one guy willing to buy his contracts - my client, who was a tough-as-nails negotiator.
Of course, for every winner there must be a loser, so in this sense, they were loss stories. But for my clients, they were win stories.
But I can tell you a loss story. Pray that your early days in trading are all losers, because if your first trade is a big winner, it can make you addicted.
This is what happened to one of my clients, another electrician. There must be something about electricians. He, too, knew nothing about futures.
My walk-in trading room was open 24 hours. My night clerk tells me the guy came in around 10 pm from some race meeting, trots or dogs, with ten thousand dollars in cash.
"What's the fasted contract?" he asked and was told "orange juice". He put the whole ten grand as a deposit to buy orange juice. Why is it that newbies always buy?
Within half an hour the news came over Reuters that California is having the biggest freeze in decades. The entire orange crop is lost.
By 1 am this guy sold his contracts for A$60,000 and went home, but he was back at the opening bell in the morning. He became a regular in the client room.
Brought his own charting desk. Played big positions and won some, but lost most of them. He was retired and seemed to have no trouble topping up his account.
Later I learned that he lost not only all the money he got when he sold his business, but he also lost his house. Amazingly, his wife stood by him the whole time.
Thanks for explaining the part that I've missed ; ) For me two months results hold more illusion than information. Isn't it common that most of traders stop trading only when they loose a lot ?
engcomp:
Even came to the room with him to help him with his charting. He became quite proficient at trading and made a modest living from it until the crash of 1987.
And many traders at the present time are waiting for the next crash to loose big.
I still think you may have a gold mine of useful stories (the ones about loss), if you start a blog about loss stories I promise I will link to it from my blog.
Best regards