The Credit Crisis Financial Stocks Short Journal
- Thread starter Daal
- Start date
I think EUR/USD has some rally potential in the coming days / weeks. For example it was at 1.3097 on Monday 10th, yet fell to 1.2370 on Friday, a lazy 7 cent move in less than 1 week.
There is potential to move to 1.2520 (approximate low from Thursday 6 May) and
1.2740 (approximate level at 4pm on Friday 7th May), but I would be surprised to see it get above 1.3097 (approximate high from Monday 10th).
People keep listing the 'fundamentals' as a reason on why a rally cant be sustained, those folks dont trade thats why they say that. The 'fundamentals' can be interpreted many different ways, if people change their mood, than all the sudden bad news will be ignored. I'm not looking to start an EUR here, will wait and see
If it was a hedge then I agree it was a good position and I was wrong. But as an outright trade, shorting it in 2002 was a bad bet. Its return up to early 07 was -30% plus carrying costs. For directional bets, the time to short housing was 2006-07, maybe 2005 at the earliest. Not 2002 - it would have been far better to be *long* housing at that point.
My main point still stands - if any trader is making a pure directional bet, as opposed to hedging, then being 5 years early is wrong, regardless of how well they do in the rest of their portfolio.
Quote from ralph00:
Let's just say I disagree. I'm looking for a move of several hundred basis points. I'll have plenty of time to add to the position at favorable prices. This isn't an option trade. I can't just purchase a boatload of futures positions, put them in a drawer for a year, and see how everything looks 12 months from now. This will have to be actively managed. Read Kovner, Robertson, Soros, Drukenmiller - these guys establish a small position to start, but do not go for the jugular until they see things moving their way. I remember the description of Robertson buying C in 1990 - he put on a small position at 10. Once it hit 20, he bought everything in site, figuring that at 10, there was still a chance it could go to 0, but at 20 that risk had passed.
Your euro comparison isn't valid. I'm not talking about going all-in after a massive move in my direction.
Based on your criticism of Ackman's MBIA trade, one might conclude that you have a bit of a twisted view of the business.
Ok, let me ask you - is pyramiding *always* the best approach to trading a potential move? I.e. if you analyze moves from the past, and run backtests with various different approaches (e.g. go fully long immediately; go part long and add on rallies; go part long and add on dips), would the pyramiding option always perform best? It's obvious that pyramiding will only work best in some market conditions. And in others, it will not only fail to perform best, it will actually be the worst approach. Therefore, you cannot say that pyramiding is always the best option. It depends entirely on the nature of the forthcoming market move.
Knowing the best trading approach for a move requires assessing what the likely character of that move will be. Will it be a slow, grinding rally with small pullbacks, or a choppy, volatile move with lots of deep corrections? What are the chances of it first moving some way against you, versus going strongly in your favour early on? Your reply doesn't acknowledge any of that. Instead, you just use the argument from authority, which is a well-known logical fallacy.
Clearly it's best to have on the most size when the trade expectation is at its highest, and vice versa. Thus, pyramiding - which has on the least size early, and the most size later - works best when your initial trade expectation is moderate, but will improve later on e.g. as more data emerges and people start to recognise the move.
Is that the case with this trade? Maybe so - it's certainly not an obvious blunder to think that. But it *is* an oversight to dismiss the alternative possibility, which is that the current price, where the market is hardly anticipating any rate cut at all, is presenting a far superior risk/reward opportunity now at 94.60 than it will be at 95.5, 96 or 97. If that is the case, then it is better to be long size at 94.60, with 300, 400, even 500 basis points upside, and what - 100 basis points downside perhaps - than it is to be long from an average price of say 100bp higher, with twice the downside and 100 points less upside. The lowest risk, and the highest opportunity, come when the market is placing the lowest probability on a certain scenario occurring, rather than when it is already taking the possibility seriously. And if you are planning to pyramid much earlier, then one might reasonably ask what do you gain by buying 25 bps higher? It's not like that tells you anything about how likely the trade is to succeed - it just means you'll make 25bps per contract less if you are right, and lose 25 bps more if you're wrong.
I note that you didn't address my point that you still have "blowout" risk if you get fully long at a higher price by pyramiding, just as you do if you get fully long now. A 100 basis point correction can happen at any time during the trade - delaying your trade entry will not avoid that risk, in fact it may increase it because if the price moves significantly in your favour it will become a more crowded trade. It appears as though you might be thinking that pyramiding allows you to trade bigger without taking any more risk, but this is clearly wrong - there is no such thing as free risk reduction. Choosing pyramiding with trailing stops does not reduce risk, it simply changes your risk from one of getting run over by a single 100 basis point correction, to getting whipsawed by 3 or 4 smaller pullbacks which trigger your stops before reversing and continuing the main trend. The only robust risk-reducing solution is trade smaller or pay options premium to cap your downside. If you can't handle a 100 basis point correction and stay in - or add to - the trade, then you are trading outside your comfort zone.
Finally, it is much better to try and actually analyze why someone - even a great trader - recommends a certain method, than it is to just copy them without thinking it through, just because of their track record. If you use your own analysis to investigate a method, you'll get a proper understanding of its pros and cons. You'll know when to use it, and when to use an alternative approach - which is much better than slavishly employing it under both favourable and unfavourable conditions, just because "Bruce Kovner says so".
FOMC voter: "In my view, this outlook warrants exceptionally low levels of the federal funds rate for an extended period of time"
http://www.cnbc.com/id/37213775
The street is already changing their views, looks like the last people still believing the fed might hike this year is the Fed Futures market
http://www.cnbc.com/id/37213775
The street is already changing their views, looks like the last people still believing the fed might hike this year is the Fed Futures market
Ever have the feeling that everything is about to collapse? That's how I feel tonight. I don't know why, but the announcements out of Germany today really have me shaken up. Sounds like a completely desperate move. What if you have a lot of chips, but they stop the game?
Aussie 90 day bills are through the roof the past few sessions. I'll attribute about half the move to events in the West, and the other half to a less bubbly China. Wish I had a bigger position.
Aussie 90 day bills are through the roof the past few sessions. I'll attribute about half the move to events in the West, and the other half to a less bubbly China. Wish I had a bigger position.