The ACD Method

DT3 said:
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I would ask traders these questions:

1. Are you currently bullish or bearish in any particular market right now? If they answer, I don't bother with the rest of the questions."

Mav, what's wrong with being bullish or bearish on a market? Anytime we place a trade we are taking a position if we think prices will go up we're bullish if we thing they will go down we're bearish. I think the key is not to allow the position you have alter your analysis of the market.
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I think good traders see prices in terms of value or in terms or relative value. They think multi-dimensionaly. When you use the terms bullish or bearish you see one dimension. So If I'm bullish on AAPL, what I'm really saying is I'm bullish on AAPL relative to the S&P. See the difference? Just being bullish or bearish limits your choices. It locks you into a single mindset. This tends to cause great harm when trading a market that is full of complexity and is multi-dimensional in nature.

I bought some index vol yesterday. Not because I was particularly bearish, but because I found some value there relative to other markets. Compare that to say shorting spoos because I'm bearish and I think this baby is going down! One of those statements is rooted in logic and quantitative design, the other is rooted in emotion and a sense of single mindedness.
 
DT3 said:
He's been saying this for about a year now. I'm sure he's short in his main fund already might just be trying to get more funds to add to his position.
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Correct, he always has these positions in his main fund but he tends to create special vehicle funds that allow him the ability to lever up. I think his main fund he focuses a lot more on containing losses and lowering volatility. These special vehicles he creates throw that aside and say, I have this idea and I'm going all in here. That's simply my interpretation.
 
Mav, is it time to short the market yet? lol. Is your timeframe for a selloff aligning with these other high profile shorters. Just curious as to what you think current conditions are like. We have Soros and Raoul Paul going massive short recently.

My NL has not confirmed negative for SPY yet (sitting at -6). The other high flyers like AMZN, NFLX, and TSLA are still hoovering around 0 line (which to me seems like this market still has strength considering high P/E stocks are trailing SPY when it comes to selloffs)
 
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koolaid said:
Mav, is it time to short the market yet? lol. Is your timeframe for a selloff aligning with these other high profile shorters. Just curious as to what you think current conditions are like. We have Soros and Raoul Paul going massive short recently.

My NL has not confirmed negative for SPY yet (sitting at -6). The other high flyers like AMZN, NFLX, and TSLA are still hoovering around 0 line (which to me seems like this market still has strength considering high P/E stocks are trailing SPY when it comes to selloffs)
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Again, I'm not short the market. I'm looking for value. I have no idea where the market is going to go. All I can do is look for areas of the market where I think the pricing is to my advantage. Try not to think in terms of "can I short the market here". Fisher would call those people the retail bus people. They want to know when they can get on the bus and when they can get off. Don't get on the bus! LOL.
 
Maverick74 said:
Again, I'm not short the market. I'm looking for value. I have no idea where the market is going to go. All I can do is look for areas of the market where I think the pricing is to my advantage. Try not to think in terms of "can I short the market here". Fisher would call those people the retail bus people. They want to know when they can get on the bus and when they can get off. Don't get on the bus! LOL.
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Damn...had my tickets ready and all. I'll uber there then.
 
Was just about to say nice trade :thumbsup:

You said long vol isn't the same as shorting the market but what is the dif. In order for vol to increase markets need to tank so I'm just wondering why you decided to get long vol instead of going short market.
 
DT3 said:
Was just about to say nice trade :thumbsup:

You said long vol isn't the same as shorting the market but what is the dif. In order for vol to increase markets need to tank so I'm just wondering why you decided to get long vol instead of going short market.
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The long vol trade had more value then shorting the market. Specifically the way I structured the option trade. It would not have lost much had we returned to the all time highs. It just an opportunity to get the downside exposure for little to nothing and give me the optionality to pile in some longs if that opportunity presented itself.
 
OK, so I guess no one else wants to take the quiz. LOL. Either that or everyone is gone. Anyone seen the King lately?

I'll answer one question at a time. Shit guys, I was hoping to do several of these quizzes but if it's going to take a month to get 2 people to do one then scratch that. LOL.

So number one is off the board. Number two below the answer I would offer is risk is almost always synonymous with variance or standard deviation. So to price risk, you put sigma (st. dev) in the denominator. This is essentially what a sharpe ratio does. It takes a given return (subtracts out the risk free rate...0) and divides it by sigma. What this does is converts your units of currency into units of risk. By purchasing sigmas in the market for risk, you can value things (the numerator) in units of risk. This allows one to make an apples to apples comparison of different markets, different trading strategies, different traders, it allows for normalization essentially. It's very important for traders to understand this. If they don't get this and it's not intuitive to them, there could be some issues. When you enter the market you have to realize that you are going to a kiosk basically and making an exchange where you give up dollars (where they can earn r) and you are purchasing sigmas. Those converted sigmas can now be used to buy risk. And your return on investment is no longer a return on dollars (meaningless measure) but rather a return on sigmas. Now your goal as an optimizer is to maximize your return given a constraint (the limited amount of sigmas you have available).


1. Are you currently bullish or bearish in any particular market right now? If they answer, I don't bother with the rest of the questions.

2. How do you price risk?

3. Define opportunity cost as it pertains to trading.

4. If a trader is right 100% of the time on his market calls, can he have 100% losing trades any why? What is the mathematical term that describes this phenomenon.

5. You are given a choice between buying two assets. Asset A you expect to return 7% over the next year (avg return of market). Asset B you expect to have a random return. Both assets are highly correlated to the sp 500. You have to hold both assets for one year. Asset B allows you the opportunity to time your sale. Which asset has the higher expected return mathematically? Which asset would you buy and why?
 
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