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bob bright
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Quote from TraderZero:
There is actually a tidbit of wisdom in what Don just wrote that is probably lost on a lot of traders.
Trade Management is as important as trade entry and good trade management can turn a poor entry into a winning trade more times than not. Consequently, poor trade management can turn the best trade entries into losers.
...well not to badmouth my boss and all his talent, but being very well-capitalized and having that time element gives you a lot more flexibility than the guy with the small account forced to lighten up a trade because his leverage is too high....obviously the screening of the position in the first place is critical.
Quote from Gabfly1:
That's all well and good. But I have a very unsophisticated understanding of the markets. Barring possible liquidity constraints, I just don't see how hedging an outright position that has gone bad is better than simply exiting it.
OK, say you buy stock and sell calls and the stock goes down more than the premium you made on the calls. Calls expire... now, do I just assume that that particular trade didn't work and sell the stock at a loss? Or, do I find the best possible calls to sell 3 months out (basically a "rollover") - trading can be very "fluid" and more lucrative long term when you have these variables involved.
FWIW,
Don
Quote from GGSAE:
...well not to badmouth my boss and all his talent, but being very well-capitalized and having that time element gives you a lot more flexibility than the guy with the small account forced to lighten up a trade because his leverage is too high....obviously the screening of the position in the first place is critical.
You are absolutely correct. As you know, we teach our traders to keep positions within their realm of control - so they can adjust as necessary - and, yes, at times it is better to "throw in the towel" to free up "dead money" when money is more limited. Don't bet the farm on any trade or portfolio.
Don
Quote from Gabfly1:
Could you please provide an example?
A couple come to mind. Buying Providian from about $9.00 down to about $2.00 - based on fundamentals etc. Always hedging with options, keeping losses to a minimum. Stock came back to around $15-17 or so and made a few million.
Another one was the MRK/LLY spread that he kept for a couple of years, adding a several levels (again based on fundys) - finally one day, he was visiting our LA office, LLY gapped down about $25 bucks or so -an viola, another well planned profit, LOL.
However, always do as he says, not as he does, LOL.
Don
Quote from GGSAE:
...well not to badmouth my boss and all his talent, but being very well-capitalized and having that time element gives you a lot more flexibility than the guy with the small account forced to lighten up a trade because his leverage is too high....obviously the screening of the position in the first place is critical.
Completely agree and should have added that trading within your means is an absolutely fundamental part of trade management. Averaging down in a trade in an attempt to turn a loser into a winner is IDIOTIC if it requires you going all-in and results in you being in a position to blow out your account if the action doesn't subsequently go in your favor.
Quote from TraderZero:
Completely agree and should have added that trading within your means is an absolutely fundamental part of trade management. Averaging down in a trade in an attempt to turn a loser into a winner is IDIOTIC if it requires you going all-in and results in you being in a position to blow out your account if the action doesn't subsequently go in your favor.
Right, "adding to a losing trade" without hedging with some time decay or similar is not wise.
Don
Quote from GGSAE:
...well not to badmouth my boss and all his talent, but being very well-capitalized and having that time element gives you a lot more flexibility than the guy with the small account forced to lighten up a trade because his leverage is too high....obviously the screening of the position in the first place is critical.
I have heard other traders describe the same condition as: "with size comes arrogance (of trades)".
size in your account, whether equities, futures, currencies, bonds, binaries, etc. allows for an arrogant level of trading where one can either wait out a failed trade, or hold through a reversal or hold until it proves them right.
smaller account face the realities of margin, trading limits, negative equity, and other associated negative realities of holding losses...
Quote from limitdown:
I have heard other traders describe the same condition as: "with size comes arrogance (of trades)".
size in your account, whether equities, futures, currencies, bonds, binaries, etc. allows for an arrogant level of trading where one can either wait out a failed trade, or hold through a reversal or hold until it proves them right.
smaller account face the realities of margin, trading limits, negative equity, and other associated negative realities of holding losses...
You're right - and I really worry when we get new people who have been successful in other businesses. They make a few $mill sellling widgets or whatever, and then lose all concept of risk controls. They say "it's ok Don, I'll put more money in" - I say "no, you won't, not here - not unless you learn some discipline."
Like good game players, we must play to win - whether chess or trading, IMO. ....and no matter for how much - dollars or thousands.
Don
Quote from Don Bright:
A couple come to mind. Buying Providian from about $9.00 down to about $2.00 - based on fundamentals etc. Always hedging with options, keeping losses to a minimum. Stock came back to around $15-17 or so and made a few million.
Another one was the MRK/LLY spread that he kept for a couple of years, adding a several levels (again based on fundys) - finally one day, he was visiting our LA office, LLY gapped down about $25 bucks or so -an viola, another well planned profit, LOL.
However, always do as he says, not as he does, LOL.
Don
When does the Bright Hedge fund open? 80% loss, 'minimized' with options, then you caught a buy out and made 'a few million'! Not like you to brag!
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