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Hey, you need to quit that investment banking job pretty quick. Like, on Tuesday when you go back :) Good luck with your algorithms.

If you are an options trader per se, i.e. hedge delta and take vega positions only, then yes, it's difficult to understand what I'm saying. Suppose you just buy calls to bet on the market going up, puts to bet on it going down and straddles to bet on it going either way - which is what...

ALMOST as cheap and plentiful as traders :)

The summed up costs of all the stopped out trades in a trend following system is conceptually equivalent to option premium cost.

Yes, it's impossible to get an edge buy buying options - Mr Taleb's fund demonstrated that very well. Don't buy options, instead simulate owning them by trading the underlying. That's what trendfollowing is, roughly speaking.

Yes that's absolutely correct. I was only asked about 2008 and 2009, not any other years. We're only half way through 2009.. My system has performed staggeringly well over the last 30 years in backtesting. The point at which I started using it for real is pretty much irrelevant. It was...

Well, the only downside to being long vol is the cost of buying the options. Reduce that cost to the maximum extent and you then maybe have an edge from profiting from big moves.

Precisely. Stock market crashes happen once every few years but each time one occurs the newspapers holler that it's the end of the world as we know it. That's because stocks trending upward is what everyone thinks is "normal".

Hmm, I think the essence of Black Swandom is how generally *unexpected* the move was. I think that oil rally really shocked most people. The market had been rangebound for years before that, prompting a slew of academic papers explaining why the oil price must remain in that range :) My...

Good post. Actually I don't think it's a thread jack as system trading is system trading whether you are trying to catch 1 year or 100ms trends. Your system has to back test well over as much past data as you can get. And crucially, to back test well, you need low variance. Back testing a great...

Me fooled by randomness? Well, it's not impossible.. any system that is set up to profit from big moves could be susceptible to no such moves happening for a long time - possibly ever. The lack of black swans for longer than you expect could itself be a black swan. However, there is a...

Sometimes it's impossible to tell if someone trying to trade $500 into millions is a seriously deluded individual or just a wag trying to wind people up. If the former, then we have some duty to put him straight. Hitting the S&P after failing miserably at the roulette tables is not the way to go.

You prove my point exactly. You think I'm not ahead this year (ok let's forget 2008) because you think making money every quarter or month matters. The idea that -25% is a price you pay, or upfront investment, to make really big money later on hasn't occured to you. I really don't think you...

I was hoping not to be put on the spot like that, but if you insist, yes, I'm some way ahead. The problem at the heart of any investment bank is the compensation structure and Naseem Nicholas Taleb's by now (in)famous Black Swan principle - these guys want nice bonuses year in year out, and...

What do you think is easier to predict, what is going to happen in the 50 milliseconds or what is going to happen in the next 1 year?? They are both equally impossible to predict. The best traders don't try to predict anything - they follow their system. Tell you what though - I'd much...

So that Learjet 25 I was planning on leasing just won't cut the mustard? I'll have to hang my head in shame at the bath & racquets club.

Do you (fractionally) own, lease or charter?

I used to like Aston Martin before they decided premiership footballers were their target market. I used to have a TVR Chimaera until I realised it was just sitting there while I took taxis.. :) I can't however say that I used to own or lease a PJ. That's still an aspiration. It strikes me...

You could just give the $100K or so directly to a variety of, er, kittens. Wouldn't that be dealing direct? ;-)

Somewhat. What kind of account size would you need to trade 1 (say) S&P 500 contract? What would the worst drawdown be? What's the back tested expected return and standard deviation? What brokerage & slippage per trade have you assumed?