By the definition used in game theory, yes you are correct. You achieved your objective, a successful hedge, at an acceptable cost, and you have thus gained utility. You would also be rather happy in the same way we are happy paying for a satisfying meal.
Can Short Term Trading Be More Profitable Than Long Term
- Thread starter Fundlord
- Start date
It often seems so in trading forums. So many traders lead their trading lives according to what they've read or been told rather than on their experiences with the markets.
I can't disagree, other than to say sometimes the experiences are mistakenly viewed as the be all and end all of it.
I coined the expression the ET 'there's only one way to do it brigade'. There are too many here who think their experience is the sum total of all possibilities, hence if it didn't work for me, it can't possibly work, and conversely if I finally found something that works, then that is the only way to do it.
Reality is there are many ways to skin a cat.
We often forget that we trade not the market but our perceptions of it. If, for example, everyone saw a particular trading opportunity as an opportunity to short, there wouldn't be any trades. More often than not, the trader on the winning side is the one who (a) has a trading plan and (b) has done the necessary prep. The trader on the losing side doesn't and hasn't.
This discussion can be as complex or as simple as we want it to be, but I'd like to keep it simple because it really would be best discussed over a few beers (open invitation if ever you are in my neck of the woods).
If I buy a futures contract and then sell it at a lower price, I have suffered a monetary loss, there are no 2 ways about it. If I'm there for the thrills, I might be happy in the greater scheme of things because I got my adrenaline rush. As Ed Seykota said, everybody gets what they want from the markets. I have gained utility.
Sometimes people gain utility and are still unhappy. Many airlines hedged jet fuel at about $90/barrel, fearing it would go way over $100. They bought the right to jet fuel at $90/barrel, and now they are unhappy because they could buy it spot at $70 and change. They gained the utility they bought, and still perceive a realised loss because in hindsight, they could have realised a better deal.
We can define the market in strictly accounting terms, or in terms of perception, or a bit of both.
True. But your perception is what prompted you to see a trading opportunity for the long in the first place. The individual who sold it to you had a different perception.
And your point is?
That we, again, trade our perceptions of the market, not the market itself. Your loss on the long is not a matter of perception (though if you trade in order to lose then it wasn't a loss after all). But your reasons for taking the long in the first place had to do with perception and interpretation.
You seem to be keen to gain acceptance that it's subjective. Absent insider information it always is.
This is indeed true. I was lucky enough to be in a tradingdesk from a big broker for a few days. At that time I was trading USD/DEM and I was suprised to see that at the same time tens of millions of dollars were sold every hour, while at the same time tens of millions of dollars were bought too. This went on every day I was there. So constantly about half of the people thought dollar down while at the same moment about half of the people thought dollar up.
It was an unbelievable experience. For me it was an eyeopener.