Rich and Taleb agree.....

[oddiduro]

Quote from Thunderdog:

Evidently, judging by his propensity to blow up, neither does he.

I won't pretend to know how he trades, seeing as how he employs a fair amount of options in his trading and I never touch the stuff. However, I have read here on ET that much of what VN did was essentially sell huge amounts of puts in SP on an unhedged basis. That does suggest a directional bias, along with a flagrant disregard for downside risk. I read this in posts written by ET members whom I hold in fairly high regard. (Taleb's remark about fund managers who game the system seems particularly apt.)

I see. Simplistic as I am though, I would think that any directional strategy faces risk from mean reversion. I find it interesting that Vic did not take a reduction in returns in order to control and limit the risk of ruin.

That said, do think that the markets are largely accidental in nature?

Best Regards
Oddi

 

[Thunderdog]

Quote from oddiduro:

I see. Simplistic as I am though, I would think that any directional strategy faces risk from mean reversion. I find it interesting that Vic did not take a reduction in returns in order to control and limit the risk of ruin.

That said, do think that the markets are largely accidental in nature?

Best Regards
Oddi

If he had taken a reduction in returns by limiting risk then he would not be the "greatest speculator in history." (If I am not mistaken, that is how he regards himself.) Also, his near-term sharing of profits would have been reduced considerably. Better you should ask the folks who trade options and have a firmer grasp of VN's modus operandi about the specifics of his trading.

As for the markets being largely "accidental," I'm not sure I understand what you mean. However, I will say that some folks seem to be more accident prone than others when it comes life-altering collisions.

 

[marketsurfer]

Quote from Thunderdog:

If he had taken a reduction in returns by limiting risk then he would not be the "greatest speculator in history." (If I am not mistaken, that is how he regards himself.) Also, his near-term sharing of profits would have been reduced considerably. Better you should ask the folks who trade options and have a firmer grasp of VN's modus operandi about the specifics of his trading.

As for the markets being largely "accidental," I'm not sure I understand what you mean. However, I will say that some folks seem to be more accident prone than others when it comes life-altering collisions.

losses are part of the game, it's inherent for speculators. when operating on a high level, being forced to constantly improve with an exponentially growing capital base and due to "high water" mark requirements. being the biggest fish in the pond, where the pond is controlled by forces outside of the market, some with agendas due to past whatevers, being at the whim of fast money FOF's who sometimes make decisions that are contrary to facts, etc, etc, etc,,,,,,, are just some potential reasons....

surf

 

[Thunderdog]

Quote from marketsurfer:

losses are part of the game, it's inherent for speculators. when operating on a high level, being forced to constantly improve with an exponentially growing capital base and due to "high water" mark requirements. being the biggest fish in the pond, where the pond is controlled by forces outside of the market, some with agendas due to past whatevers, being at the whim of fast money FOF's who sometimes make decisions that are contrary to facts, etc, etc, etc,,,,,,, are just some potential reasons....

surf

And yet there are other traders, both larger and smaller, who manage not to blow up periodically.

 

[Hook N. Sinker]

Speaking of Victor Niederhoffer here is a link to a recent interview:

http://www.newyorker.com/reporting/2007/10/15/071015fa_fact_cassidy?currentPage=1

 

[PitchBlack]

Surf: Yes, the turtles apparently knew the truth, and traded accordingly. It is interesting that one of the most legendary trend traders would saythat trading is largely hit and miss. !


Oddiduro: Most people cannot handle being wrong most of the time. !
They will revenge trade, change their rules, freeze, blame the market, blame the platform, blame the fed, blame the NWO, and quit.


If this is true it means that most trades they do are losing trades. But as they are profitable they have to recuperate these losses and make an additional profit in the few profitable trades. This is the ultimate proof of trendfollowing. You have to make lots of money in just a few trades as you lose most of the time.

Example: 70% losing trades and 30 % profitable trades. To make money the profitable trades have to move on average more than 2.33 times the move of a loss to be break even without taking slippage and commissions in account. So in reality a trader needs to take winning moves of at least 3 to 4 times the size of the average loss. What he does is take big profitable moves and small losing moves. To me that’s trendfollowing.
A high rate of profitable trades means scalping or random trading; a low rate of profitable trades means trendfollowing.

 

[Thunderdog]

Quote from spike500:

...a low rate of profitable trades means trendfollowing.

I think it depends on how you play it but, generally speaking, I suspect you are correct.

 

[Trend Following]

Quote from spike500:

Surf: Yes, the turtles apparently knew the truth, and traded accordingly. It is interesting that one of the most legendary trend traders would say that trading is largely hit and miss. !

They all say it is hit and miss. To them the results of any one trade are a coin flip. Their key is how to manage that, where to find their edge, etc.

 

[jem]

If you make big bets and you blow up multiple times - and you consider yourself someone who understands statistics - how can you possibly conclude you have any skill at all.

If you were a true disciple of what you preached - you must turn your sites on his performance.

How could he VN deem himself anything but an accident of the randomness of the market.

VN and his followers should be concluding that VN is as lucky as any trend follower.

 

[Thunderdog]

Quote from Hook N. Sinker:

Speaking of Victor Niederhoffer here is a link to a recent interview:

http://www.newyorker.com/reporting/2007/10/15/071015fa_fact_cassidy?currentPage=1

From page 2 of the article:

...“Doc,” he said to Castaldo, “what does the market do when it opens down a lot three days in a row?” A few minutes later, Castaldo handed Niederhoffer a computer printout, which showed that since the start of 2003 there had been just ten occasions on which, for three consecutive days, the S. & P. 500 had fallen sharply in the first hour and a half of trading. On eight of those occasions, stocks had bounced back, with the average market rise by the end of the following trading day amounting to three tenths of one per cent.

From page 4 of the article:

...Niederhoffer turned to Castaldo. “This day is far from over,” he said. “Doc, what happens when the market is down twelve points at one o’clock and it has been down significantly the previous two days?” A few minutes later, Castaldo handed him another computer printout. “Most of the time, these computer analyses don’t work, but it gives you an anchor,” Niederhoffer said as he scanned the sheet. “My checkers teacher said even a bad system is better than no system at all.” The data showed that the last time trading seemed to follow the current pattern was between November, 2000, and September, 2002, when there had been eight such three-day periods. In most of these instances, the market had rebounded strongly during the subsequent seventy-two hours. Niederhoffer looked at Owen Wilson. “I’ll buy another fifty at eleven-fifty,” he said.

Is it just me, or is this kind of "analysis" comically naïve?

First, the price action preceding each of the historical instances may have been entirely different from one another apart from the similarities VN had chosen to identify. Did the past examples he was seeking occur in an otherwise up market, a down market or a sideways market? Therefore, there is the small matter of context in connection with his then current situation.

Second, 12 points? Same observation as my preceding one coupled with the observation that a 12-point move in the then current period may have been of an entirely different proportion to his identified "historical precedents." There is the small matter of relative volatility.

These excerpts from the article lead me to believe that VN was either playing a joke on his interviewer...or his investors.

As an aside, I find it interesting that marketsurfer defends every utterance from VN and, since his "association" with VN, has turned his nose up on technical analysis. However, from the above examples cited, it is clear that VN was engaging in nothing other than TA neatly packaged in a misguided use of statistics, PhDs nothwithstanding.