Why some traders are bitching about the lack of volatility?

D

Daal

The ones bitching dont seem to realize you can counter the lack of volatility through increasing your leverage, the two situations are almost equivalent. The difference comes in that when you use leverage to compensate for smaller moves your commission costs as % of your edge makes your overall trading less profitable, also you are more exposed to black swan type events where your leverage might hurt you but I dont believe thats what the whiners are referring to when they say '2009 volatility sucked'. They almost always could increase profitability by increasing leverage

Most of the time they are just unconfortable using more leverage because it became a habit of them to risk a certain amount of money or size their positions a certain way and they dont want to change that, they should be whining about their cowardice. They are letting the market be their risk manager.

Now the ones that complain because edges have dimished since late 2008, I would agree but they are not complaning about the right thing, the problem is not the lack of volatility but the fact the hedge funds and other asset managers have come back to business after the 2008 disruptions(which included Stanley Druckenmiller pulling billions out of Goldman) and they have closed out a number of easy edges out there and guess what, unless the government lets the big financial institutions(like the big brokers) suffer complaining ain't going to do any good because those times are not coming back
 
why does every post on ET scream "I have never traded in my life" or "I failed miserably and lost my shirt so you cant trade either".
 
Quote from Daal:

The ones bitching dont seem to realize you can counter the lack of volatility through increasing your leverage, the two situations are almost equivalent. The difference comes in that when you use leverage to compensate for smaller moves your commission costs as % of your edge makes your overall trading less profitable, also you are more exposed to black swan type events where your leverage might hurt you but I dont believe thats what the whiners are referring to when they say '2009 volatility sucked'. They almost always could increase profitability by increasing leverage
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Not only does volatility create new edges, but it improves r/r on existing ones. Your theory is throwing bigger money at smaller edges, thereby increasing the risk side of the equation, but doing nothing for the reward side (you are trying to equalize your p/l, not increase). In trading you want to increase size as r/r is improving.

Is your theory based on proof in your own trading, or just an idea? I know that for my own trading, increasing size in todays market would not increase my p/l, at least not without taking on more risk than is comfortable.


edit:

"They are letting the market be their risk manager."

The market should be your risk manager. Are you saying to blindly increase leverage without taking the current state of the market into account?
 
Quote from Dustin:

Not only does volatility create new edges, but it improves r/r on existing ones. Your theory is throwing bigger money at smaller edges, thereby increasing the risk side of the equation, but doing nothing for the reward side (you are trying to equalize your p/l, not increase). In trading you want to increase size as r/r is growing, not shrinking.
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I disagree. If you have an edge the more money you throw at it the more money you will make(assuming you wont move the market while sizing it, if thats the case then I agree)

Lots of the whiners around here are like blackjack players who were counting cards betting the table limit(say $50 a hand) then the casino decided the stakes doubled for 1 hour, they started to make more per hr and went into euphoria. Then the casino ended the thing and they started to bitch about the decline in $hr, when all they had to do was head to the $100 limit table and get the same result

Again, the ones who think some edges disappeared, I agree with them. And thats not going to go away(it was like the casino decided to pay 2-1 for blackjacks for 1hr instead of 3-2, 2008 was a bonus, you cant complain about that because its an anomaly thats not coming back) unless the HF industry goes into big trouble(not likely), I also see plenty of examples of people who dont have the stomach to handle big positions, they are the same ones hiding behind the 'blame the volatility' game
 
Quote from Dustin:

Not only does volatility create new edges, but it improves r/r on existing ones. Your theory is throwing bigger money at smaller edges, thereby increasing the risk side of the equation, but doing nothing for the reward side (you are trying to equalize your p/l, not increase). In trading you want to increase size as r/r is improving.

Is your theory based on proof in your own trading, or just an idea? I know that for my own trading, increasing size in todays market would not increase my p/l, at least not without taking on more risk than is comfortable.


edit:

"They are letting the market be their risk manager."

The market should be your risk manager. Are you saying to blindly increase leverage without taking the current state of the market into account?
More...


Agreed, the OP has it backwards. What if the market completely flat lined? By his standards your risking enormous sums for a tick or 2. Doesn't make any sense.
 
Furthermore I dont see more leverage as any more riskier than the simple fact that one was trading in late 2008 where no one knew what was going to happen. You might have had a smaller position trading then but your stock could open at $0 or gap up/down huge(as it happened with numerous financials). There was a reason why the VIX reached 80, and that was because the world was a dangerous place back then so saying 'im not comfortable' is not a good reason not to lever up, 80 VIX and the financial system on the brink shouldn't make you comfortable either
 
Quote from Daal:

The ones bitching dont seem to realize you can counter the lack of volatility through increasing your leverage, the two situations are almost equivalent. The difference comes in that when you use leverage to compensate for smaller moves your commission costs as % of your edge makes your overall trading less profitable, also you are more exposed to black swan type events where your leverage might hurt you but I dont believe thats what the whiners are referring to when they say '2009 volatility sucked'. They almost always could increase profitability by increasing leverage

Most of the time they are just unconfortable using more leverage because it became a habit of them to risk a certain amount of money or size their positions a certain way and they dont want to change that, they should be whining about their cowardice. They are letting the market be their risk manager.

Now the ones that complain because edges have dimished since late 2008, I would agree but they are not complaning about the right thing, the problem is not the lack of volatility but the fact the hedge funds and other asset managers have come back to business after the 2008 disruptions(which included Stanley Druckenmiller pulling billions out of Goldman) and they have closed out a number of easy edges out there and guess what, unless the government lets the big financial institutions(like the big brokers) suffer complaining ain't going to do any good because those times are not coming back
More...

How would you adjust your leverage if volatility moves sharply higher?
 
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