4.14.2010

Bugs be gone!

The past few days have had me chasing down framework bugs. Since I've decided to expand a little on my brokers functionality in order to suite my trading style, I've introduced a bit of an issue. Normally, when you place a long order for lets say EUR/USD, any pre-existing short orders will be closed, up to the available units. For example, if I place a short order for 1000 units EUR/USD and then subsequently place a long order for 1200 units EUR/USD, my new position will be a long order of 200 units EUR/USD. This means that my short order has been closed by my long order.

Anyways, this obviously causes issues when attempting to trade multiple timeframes, strategies, or hedge in a single account. I've gotten around that by using sub accounts, and seamlessly tying them together. Now then, calculating an average position and price is easy when all the positions are in the same direction. It's not quite so easy when you want an average position of your portfolio of positions! My objective here is too avoid calculating the PL of the portfolio on every iteration. I posted about my work earlier. Getting the average position consists of adding up and dividing out the long and short positions to arrive at a net price, units and directions. The trouble comes in when you then try and utilize this "net" position to calculate your PL to exchange rate ratio. In other words, how much profit do I see with each pip? From there it would seem easy enough to predict your profit based on price movements. This is were the trouble seems to be occurring. Given enough positions this profit calculation seems to no longer work. If the math is right, blame the client! I guess my bug hunting will be focused on the client side now.

4.09.2010

Investing like Nassim Taleb

George @ OnlineInvestingAI recently finished Taleb's first book called Fooled by Randomness. I was once again reminded of Taleb's trading strategies, and reminded myself to continue my own contrarian bent. I'm going to assume you know who Nassim Taleb is, and instead are curious how one might invest given this new strategy.

First a quick note. You need to look at all of you liquid assets as investable. Meaning, ideally you will want to calculate the percentages below against your total net worth -- not just simply money you can afford to lose.

The basic idea is to take 10%-20% of funds and buy out of the money options for pennies, and reap big when crazy events happen. Since you don't know when (and no one does) "Black Swans" will happen, you will slowly bleed money to the sellers of these options. The other 80% of your money place into the safest investments you can think of. Don't be so naive as to think US government debt is the way to go here. I would recommend (as would Taleb) buying government debt from several large and "safe" countries of your own choosing. You could try and diversify here, but if you've read Taleb's book(s), you'd simply be fooling yourself. If the US defaulted on there debt, who or what would be left in good shape? Don't misread me here. A US default is only a black swan away from occurring :-) The key is to try and minimize the risk on most of your money, while maximizing the risk on the invested 10-20%. When (not if) a black swan strikes again, you'll profit very nicely.

4.02.2010

Trader Personalities

Are the best traders the ones that are independent? Perhaps they are those who can find and exploit an edge1? I suppose the typical answer for someone who makes a good trader is a middle or right brained person2 who is good at math, buries emotions, and doesn't get stressed. And odd combination to be sure.

1. An advantage; real, perceived or otherwise.
2. Someone who is entirely logically oriented will not find success in trading IMHO. They would seek to find an answer where there is none. People are unpredictable; tis the only predictable thing about them!

4.01.2010

We're all self-employed

I was reminded today of that simple little fact. Yes we are all self-employed. Before someone balks at this notion, I would say the majority of people trade there time (finite resource) for money (infinite resource) directly. If they ever cease trading there time, the money also ceases. This can be a real problem when you can no longer trade your time, but still require money. I evaluated this thought of exchanging my time for money, and in a true traders perspective, found it a poor return on assets. This blog was founded on the idea that there had to be a better way of providing for my needs than a direct exchange of my time for money1.I think anyone who has ever resold the same piece of “time”, aka work, would agree. Artists, writers, musicians, etc all understand the idea of reselling the same time block. The idea here is to create something that you can utilize for income, without having to spend the same amount of time as the initial outlay. Sounds a lot like passive income, and to a large extent it is. These folks are multiplying there monetary returns on there time by reselling that same time block again and again. Sometimes this resale requires no more time input, resulting in a truly passive income stream. Generally however, I would guess a small amount of time is required to continue to see the return. All said, we should seek to do the same as traders.

Whether your on an automated or manual setup, it's likely your seeing a better than 1 to 1 return on your time spent versus money earned. Trading in general requires upfront commitment, but the returns on that time spent allow you achieve a similar enhanced monetary return in exchange for your time. Unfortunately, even in this digital world I don't have the "dream" job of reselling my work again and again, a la a musician or writer. At least not yet. Happy trading.

1. Read steps 1, 2, and 3; especially step 2.