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It's not advice for a retail trader; it's advice not to be a retail trader.

MuffinFlavored 4y ago
It's advice for a retail trader on what they are up against, and it confuses me greatly on how retail traders can look at all of the evidence that they shouldn't, and they still do.
- ISL 4y ago
  I find that my perspective is generally recalibrated each time I observe a professional or professional organization in a field where I think I mostly understand how it works. It takes seeing how some of the second-order effects matter in order to get an inkling of just how much you don't know. As an approximate programming example, imagine the difference in productivity between a programmer coming out of high school and someone with a couple decades experience with access to version-control, profilers, documentation, a clear understanding of best-practices, who works on a team of five people who will all do the same job, and has access to $1M in AWS credits. Can the young programmer compete? In principle. Can they deliver on time, every time, for their clients without making a gaffe like the team of programmers can? Probably not.
- jeffreyrogers 4y ago
  Some small percentage probably can and it is easy to fool yourself that you are doing better than you are (especially prior to 2022 when most things with retail interest just went up for over a decade).
- NovemberWhiskey 4y ago
  It's a misunderstanding to think that retail traders are "up against" the trading desks of the big market makers: that implies that they're playing the same game, which is not the case. The goal of a market maker is to trade as much as possible, on either side of the book, with the widest possible spread that remains competitive, while keeping within risk limits. Most retail option strategies are based on beliefs about the behaviors of the underlying. Like, I think this stock is going to go up, so I'm going to trade a strategy that makes money when that happens (probably with some leverage, and hopefully with some downside protection). They're not thinking about smile and calibrating stochastic volatility models and looking at their cross gamma and trading OTC exotics to lay-off their risk. One strategy depends on discipline, scale, operational excellence, deep quantitative analysis and risk management. The other depends on clairvoyance.
  - MuffinFlavored 4y ago
    Is there any data that suggests retail options traders should not even attempt to be clairvoyant because "if this, then that" logic to the underlying instruments price and its movement is too naive to be successful, or does a lot of the "technical analysis" (support/resistance, moving average crossover, volume/volume weighted average price, etc.) become a self-fulfilling prophecy? there are other members that make up the market + its daily volume other than market makers. i agree, it isn't (or at least shouldn't be seen as) market makers vs retail traders. market makers don't care about direction from what i understand. it's the high frequency trading hedge funds/funds running algorithms against institutional "whale" investors versus... i'm not even sure i can pretend to understand all of the participants that trade shares (or options) daily/weekly/monthly/quarterly. there's a portion of psychology manipulation to it as well, right? "oh my gosh, this is going up but it might be a bull trap" aka... some people believe there are entities/an entity behind the scenes driving the price up to "suck people in", and vice versa (bear trap).
    - NovemberWhiskey 4y ago
      >Is there any data that suggests retail options traders should not even attempt to be clairvoyant The market makers and other participants are not playing the same game, but they are playing in the same market; and that is ultimately zero-sum. If the market makers are making money on your transaction costs, and they're profitable (which they are) then there's already some signal there, surely?
- mrguyorama 4y ago
  Everyone thinks they are special, have some special insight, or are otherwise more likely to be important than everyone else.

It's advice for a retail trader on what they are up against, and it confuses me greatly on how retail traders can look at all of the evidence that they shouldn't, and they still do.

ISL 4y ago
I find that my perspective is generally recalibrated each time I observe a professional or professional organization in a field where I think I mostly understand how it works. It takes seeing how some of the second-order effects matter in order to get an inkling of just how much you don't know. As an approximate programming example, imagine the difference in productivity between a programmer coming out of high school and someone with a couple decades experience with access to version-control, profilers, documentation, a clear understanding of best-practices, who works on a team of five people who will all do the same job, and has access to $1M in AWS credits. Can the young programmer compete? In principle. Can they deliver on time, every time, for their clients without making a gaffe like the team of programmers can? Probably not.
jeffreyrogers 4y ago
Some small percentage probably can and it is easy to fool yourself that you are doing better than you are (especially prior to 2022 when most things with retail interest just went up for over a decade).
NovemberWhiskey 4y ago
It's a misunderstanding to think that retail traders are "up against" the trading desks of the big market makers: that implies that they're playing the same game, which is not the case. The goal of a market maker is to trade as much as possible, on either side of the book, with the widest possible spread that remains competitive, while keeping within risk limits. Most retail option strategies are based on beliefs about the behaviors of the underlying. Like, I think this stock is going to go up, so I'm going to trade a strategy that makes money when that happens (probably with some leverage, and hopefully with some downside protection). They're not thinking about smile and calibrating stochastic volatility models and looking at their cross gamma and trading OTC exotics to lay-off their risk. One strategy depends on discipline, scale, operational excellence, deep quantitative analysis and risk management. The other depends on clairvoyance.
- MuffinFlavored 4y ago
  Is there any data that suggests retail options traders should not even attempt to be clairvoyant because "if this, then that" logic to the underlying instruments price and its movement is too naive to be successful, or does a lot of the "technical analysis" (support/resistance, moving average crossover, volume/volume weighted average price, etc.) become a self-fulfilling prophecy? there are other members that make up the market + its daily volume other than market makers. i agree, it isn't (or at least shouldn't be seen as) market makers vs retail traders. market makers don't care about direction from what i understand. it's the high frequency trading hedge funds/funds running algorithms against institutional "whale" investors versus... i'm not even sure i can pretend to understand all of the participants that trade shares (or options) daily/weekly/monthly/quarterly. there's a portion of psychology manipulation to it as well, right? "oh my gosh, this is going up but it might be a bull trap" aka... some people believe there are entities/an entity behind the scenes driving the price up to "suck people in", and vice versa (bear trap).
  - NovemberWhiskey 4y ago
    >Is there any data that suggests retail options traders should not even attempt to be clairvoyant The market makers and other participants are not playing the same game, but they are playing in the same market; and that is ultimately zero-sum. If the market makers are making money on your transaction costs, and they're profitable (which they are) then there's already some signal there, surely?
mrguyorama 4y ago
Everyone thinks they are special, have some special insight, or are otherwise more likely to be important than everyone else.