Global Macro Trading Journal

Quote from Daal:

I was just using those numbers as example. I'd be willing to drawdown 100% under the right setups
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Lets say someone I know and trust offers me the chance to buy stock in his private company that I know is simply amazing. It has a strong moat and I believe is likely to return 100% a year for a number of years or to go bankrupt. I believe my chances of success are very high but the only catch is that the stake he needs is the size of my networth. Thus my bet is 100% or 0%. There is also very little chance I will see a deal like this again anytime soon

I'd probably go ahead and bet even though there is some chance of ruin. Not saying someone who is 60 and a multimilionarie should make this bet but for me I'd probably do it
 
Quote from Ghost of Cutten:

Agree, that's the premise behind 'trading price action', and why one should defer somewhat to price behaviour even if you have huge conviction.

Here are some challenges though:

1. Who has 'inside information' on what will happen in 2015, 2020? There is no such thing. The only edge in the real future is pure talent (with some modifier based on effort) i.e. the ability to forecast probabilities of future events more imaginatively and precisely than the competition. Think Keynes' "Economic Consequences of the Peace", or any great growth stock or secular boom investor.

2. What about when the insider gets it wrong, because some exogenous variable overrides the information he is relying on? Imagine someone looking to take over a bank in 2006, then getting wiped out by the GFC. Insiders are not infallible, and all major busts will tend to roger them spectacularly. In fact, because they *normally* have a huge information edge, they are far more vulnerable to outlier events. The humble information-non-privileged speculator will never ride a gargantuan position down to oblivion, because it happens to him every so often. An elite insider may be right 50 times in a row, so never learns the principles of fallibility, he just reads it with idle curiosity in a Soros or Taleb or Popper book (maybe Hume if he is smart, or the ancient Greeks if he is diligent too), and pays it little mind. Just like a boxer gets trained to absorb punches, a speculator gets trained to fold positions when they go really sour. An insider never really learns that skill, which is why you sometimes see truly rich people blow up in spectacular fashion.
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regarding point 2, I think it was Galleon that had inside info on Amdahl, still lost money on the trade I believe due to the credit crisis. Life is pretty unfair sometimes, LOL!:p
 
Quote from Daal:

Lets say someone I know and trust offers me the chance to buy stock in his private company that I know is simply amazing. It has a strong moat and I believe is likely to return 100% a year for a number of years or to go bankrupt. I believe my chances of success are very high but the only catch is that the stake he needs is the size of my networth. Thus my bet is 100% or 0%. There is also very little chance I will see a deal like this again anytime soon

I'd probably go ahead and bet even though there is some chance of ruin. Not saying someone who is 60 and a multimilionarie should make this bet but for me I'd probably do it
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You are basically describing a high conviction trade in the context of monetary utility function.

A simple way to break this down would be net worth / earnings ratio:

A net worth of $100,000 and ability to save $50K per year would be an NW/E of 2

A net worth of $500,000 and ability to save $50K per year would be an NW/E of 10

And so on.

The lower your net worth / earnings ratio, the more sense it makes to go "all in" on a fantastic opportunity, because the time frame to replenish your capital base is low.

The higher your nw/e, the greater concern the risk of ruin represents (along with marginal utility issues, wanting to stay rich rather than become rich, etc).
 
Quote from Ghost of Cutten:


What's also strange is that many of the 'insights' of behavioural finance e.g. loss aversion, uncle points, trading on emotion rather than rational expectation, were known to speculators for centuries due to hard-earned insights from speculating gargantuan sums of money against the best competition in the world; yet they were not taken seriously in academia and theory until some professors paid students and unemployed people a pittance to play games in college labs for meaningless stakes. Funny world.
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And you can take this further by applying behavioral theory to the actions of the economists themselves, i.e. inputs like career risk, certainty bias, physics envy, cultural lock-in, mediocrity self selection (plodders applauding other plodders), and political ladder-climbing acumen as powerful factors in determining which academic theories thrive and which do not, via human behavior and human institution quirks that have piss-all to do with actual validity.
 
Quote from darkhorse:

God I love this man:

"I am not well qualified to criticize the theory of rational expectations and the efficient market hypothesis because as a market participant I considered them so unrealistic that I never bothered to study them."

- George Soros

From this speech
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In keeping with reflexivity theory, participant bias, economics as a social science etc -- from Steven Pinker's "The Blank Slate: The Modern Denial of Human Nature:"

"One of the most dramatic demonstrations of the illusion of the unified self comes from the neuroscientists Michael Gazzaniga and Roger Sperry, who showed that when surgeons cut the corpus callosum joining the cerebral hemispheres, they literally cut the self in two, and each hemisphere can exercise free will without the other one's advice or consent. Even more disconcertingly, the left hemisphere constantly weaves a coherent but false account of the behavior chosen without its knowledge by the right. For example, if an experimenter flashes the command "WALK" to the right hemisphere (by keeping it in the part of the visual field that only the right hemisphere can see), the person will comply with the request and begin to walk out of the room. But when the person (specifically, the person's left hemisphere) is asked why he just got up, he will say, in all sincerity, "To get a Coke"--rather than "I don't really know" or "The urge just came over me" or "You've been testing me for years since I had the surgery, and sometimes you get me to do things but I don't know exactly what you asked me to do." Similarly, if the patient's left hemisphere is shown a chicken and his right hemisphere is shown a snowfall, and both hemispheres have to select a picture that goes with what they see (each using a different hand), the left hemisphere picks a claw (correctly) and the right picks a shovel (also correctly). But when the left hemisphere is asked why the whole person made those choices, it blithely says "Oh, that's simple. The chicken claw goes with the chicken, and you need a shovel to clean out the chicken shed." The spooky part is that we have no reason to think that the baloney-generator in the patient's left hemisphere is behaving any differently from ours as we make sense of the inclinations emanating from the rest of our brains. The conscious mind --the self or soul-- is a spin doctor, not the commander in chief."
 
EURCHF getting a pop as the finmin is about to hold a press conference. Don't think any bump in the floor will be announced, it's probably to talk about new rules for the SNB and their families.:)
 
Quote from Ghost of Cutten:

So, what's the play here with EURCHF, any thoughts?
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Long to the hilt. Small downside with the chance of waking up one morning to find you've just made 500-1000 pips.
 
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