5 ms·

Trading knowledge I accumulated over the last couple of years

40 points by nader 13y ago

akirk 13y ago
I always wonder where it is best to start getting into trading stock. Like a place where you can play with a few shares but are not overwhelmed with lots of fees for simple transactions. Any suggestions? Possibly in Europe?
- nader 13y ago
  I would paper trade for a couple of months, i.e. don't use real money but write down buy/sell actions in your journal. then see if you made money or not. real trading is a lot different but through this you get used to the process. If you are in technology for ex., I would have a look at tech shares, you will then have a slight information advantage at least. Trading account: either just talk to your bank (most of them provide a trading account) or find a broker on comparison websites. ultimately the trading fee, if not exaggerated, is not that important if you only dabble once in a while.
- icu 13y ago
  I wouldn't trade stock per se, I would trade LEAPS or use a combination of options and stock trading. For example, enter the market by writing Puts, earn a premium and if executed you then own shares at a discount. Then turnaround and write Covered Calls on the stock for out of the money strike prices. Earn a premium on your stock, and earn dividends, and capital gains. Protect your capital by using part of your Call premium to purchase a protective put on your stock (in line with your risk profile). If executed on the Call repeat by writing Puts. Of course there is a lot you need to know, Google is your friend.
  - sireat 13y ago
    Writing puts seems like a free money, if you think about it as possibly owning your favorite stock at a discount in worst case scenario. Problem with this is that sometimes the price might dip for irrational reasons(let's call it technical reasons), which is the good scenario. However, sometimes price might dip because of fundamental reasons(let's say company announces that their CFO has misstated results for last 5 quarters). Even worse is writing Covered Calls without any thought. There was that guy on Reddit who sold Covered Calls on his McDonalds stock. It worked great for a few months, collecting premiums while the stock stayed stagnant. Then the stock dipped in such a way that writing Covered Calls at the original strike price was not really worth it anymore, while writing at a lower price than purchase price was even worse. The protective puts(which he did not have) would not have been triggered either as the dip was not low enough. So again, there is no free lunch.
    - icu 13y ago
      Yes, what sireat is saying is somewhat true. However with options I believe you have a greater flexibility and more opportunity to make gains when compared to trading stock on its own. With this strategy you have the chance to protect your capital (by buying protective puts) while earning an income (write premium) and capital gains (in the money Covered Call strikes and dividends). You can make money with this strategy when the market is going straight up, somewhat up, and sideways. You can protect your capital when the market goes somewhat down, but you will loose money if the market crashes. Frankly there is much I've not said when it comes to trading that is do or die. Money management, position sizing, managing positions, emotional management, fundamental/technical/sentimental analysis just to name a few areas a successful trader should master or at the very least have a working knowledge of.
      - throwaway13qf85 13y ago
        The volatility skew on equities is generally downward sloping as a function of strike (because investors are scared of crashes), meaning that the puts you buy to protect your capital will be more expensive than the calls you are selling to earn the premium - if you want the same amount of downside protection as you have upside risk, you'll actually bleed cash with this strategy. The only solution is to buy less downside protection that upside risk, which leaves you vulnerable to a market crash, whilst at the same time capping your upside - exactly the situation you don't want to be in!
        icu 13y ago
        Hi, you are forgetting about timing the purchase of protective puts or buying back the options you have written at a profit.
        throwaway13qf85 13y ago
        If the price moves against you (down if you have written a put, up if you have written a call) then you never get the chance to buy the options back at a profit. You might get a bit of theta decay, but equally any large moves will tend to kill you on the gamma and vega. As I said in another comment, writing options covered or not is basically a bet against volatility.
  - throwaway13qf85 13y ago
    What? If you write a put option, and it is executed, then you have to buy the stock for its strike price, which will be above its market price (that's why the put was executed in the first place). You end up buying the stock at a premium, not at a discount. Here's a concrete example. A stock is trading at $100 and you write a put on it struck at $90, earning a premium of (say) $5. Then the stock falls to $80 and the put is executed, so you buy the stock for $90. You now have something worth $80 and a $5 premium, but you paid $90, so you are $5 out of pocket. Now you write a covered call on the stock struck at $100, earning a $3 premium (because it's further out of the money the the put you wrote earlier). The stock goes to $110, so you sell it to the call owner for $100. That's nice, you've earned the $3 premium and you sold the stock for $10 more than you bought it for (a total of $13 up). But if you hadn't written the call, you could have sold the stock for $110, and been $20 up instead. If you also buy a protective put (say for $1) then that's an additional loss you bear in this scenario, since you can't execute the put. If you're writing options, you're basically betting against market volatility. You'll do alright in the short term, but you'll get absolutely creamed if there's a stock market crash or other crisis.
    - icu 13y ago
      For clarification you write puts at or out of the money. If executed, the premium earnt offsets the difference between strike price and spot price. No one is saying this guarantees against a market crashes but it acts as a cushion. You are still trading when you decide not to place a trade. To put it another way, you make money when you buy, not when you sell. Therefore your purchase price is a margin of safety if done right. I carefully select the companies I trade by building up a 'conservative' price target based on a company's tangible book value per share (TBVPS). I try to write puts that offer a good risk/reward profile relative to the TBVPS. Even if I was caught in a market crash I'm as close to book value as I can get. Having done my homework I'm sure this company will outlast the extreme market sentiment. When such events occur I add to my position on the strength of my fundamental analysis. The market always overshoots and creates a wealth transfer opportunity.
      - throwaway13qf85 13y ago
- j_s 13y ago
  HN discussed Quantopian a year ago mentioning a number of alternatives: https://news.ycombinator.com/item?id=5107045 https://news.ycombinator.com/item?id=5107045 Edit: specifically (in the UK?), http://www.timetotrade.eu http://www.timetotrade.eu About a week ago there was additional discussion of their support for live trading: https://news.ycombinator.com/item?id=7300291 https://news.ycombinator.com/item?id=7300291
squigs25 13y ago
I think there's way too much emphasis on volume here. Sure, if price swings wildly, there will be a large volume associated with it, but if there's a large spike in volume it doesn't necessarily mean a big change in price. So ultimately volume is a measure of interest, but for every bought share there was a sold share, so it's not a measure of performance. I would bet that higher volumes might mean lower bid/ask spreads, meaning you're paying a smaller penalty to get in/out of a position, but for most retail traders that spread isn't going to make or break you anyway.
throwaway13qf85 13y ago
I don't think it's worth taking this very seriously (I am a full-time trader at a hedge fund). Most of it is technical analysis type stuff, with very little to nothing backing it up. The decent bits of advice that I can filter out are > Concentrate on current investments, not past or future ones. Good advice in general. A similar motto applies in poker - once your money is in the pot, it's no different from anyone else's money. Don't get hung up on sunk costs. However, you might occasionally give a thought to your future investments, especially if your current ones are somewhat illiquid (free cash is optionality). > Always keep some cash for short term opportunities. Decent advice, though it's questionable how many short-term opportunities you're going to spot if trading isn't your full-time occuptation. > You don’t need to trade every day! You don’t need to trade every day! In fact, if you're not a professional, the less you trade, the better. > If a company publishes earnings and the stock doesn’t move much it might be that most people already own the stock. It could go down. Or, more likely, the earnings figure was already priced in and it is as likely to go up as down. > Stay away from penny stocks. Very good advice. Stay the hell away unless you have some privileged information on the the company (and even then, stay away 90% of the time).
- RockyMcNuts 13y ago
  true...wouldn't pass for particularly insightful advice on a day trading forum, never mind Hacker News. The very first thing, volume is the cause for price, is only true in 'normal' markets, until it isn't. When there's no bid, prices drop massively on no volume, see e.g. Russia this week. Go read Schwager, John Train, Buffett, Graham, Bernstein, Malkiel.
- bunderbunder 13y ago
  > if you're not a professional, the less you trade, the better I once found some numbers that relate frequency of trading to earnings for individuals, & was initially shocked by just how strong the inverse correlation is. Though on further reflection, I'm not sure it's really counter-intuitive. The more money you spend on broker commissions, the more you have to profit just to break even.
  - 13y ago
xpose2000 13y ago
I'm a novice trader, and agree with everything said. However, about penny stocks..... I've dabbled in marijuana stocks for 2014 and its the only type of penny stock I have or will ever touch. The only thing I am risking at this point are my profits because that's how little faith one should have in penny stocks.
rrggrr 13y ago
A problem in his analysis is that 'smart money' has to look a step or two ahead of his indicators at hyper-technical data that includes the velocity of price movement, volatility and the probabilities that price trends will continue, revert or propagate. It is all mostly inaccessible to the lay investor. I don't think Warren Buffet has an ulterior motive an advocating the average inventor focus on broad, low-cost index funds, like the S&P500, where you dollar-cost average in over time. Not that I take that advice, or my own for that matter.
tim_sw 13y ago
learning from only the last couple of years risks ingraining habits that might be dangerous going forward, as the last couple of years have been a bull market. Once you've been through an entire market cycle, there will be even more perspective.
- bunderbunder 13y ago
  Obligatory Warren Buffett quote: "A bull market is like sex. It feels best just before it ends."

40 points by nader 13y ago

akirk 13y ago

I always wonder where it is best to start getting into trading stock. Like a place where you can play with a few shares but are not overwhelmed with lots of fees for simple transactions. Any suggestions? Possibly in Europe?

nader 13y ago
I would paper trade for a couple of months, i.e. don't use real money but write down buy/sell actions in your journal. then see if you made money or not. real trading is a lot different but through this you get used to the process. If you are in technology for ex., I would have a look at tech shares, you will then have a slight information advantage at least. Trading account: either just talk to your bank (most of them provide a trading account) or find a broker on comparison websites. ultimately the trading fee, if not exaggerated, is not that important if you only dabble once in a while.
icu 13y ago
I wouldn't trade stock per se, I would trade LEAPS or use a combination of options and stock trading. For example, enter the market by writing Puts, earn a premium and if executed you then own shares at a discount. Then turnaround and write Covered Calls on the stock for out of the money strike prices. Earn a premium on your stock, and earn dividends, and capital gains. Protect your capital by using part of your Call premium to purchase a protective put on your stock (in line with your risk profile). If executed on the Call repeat by writing Puts. Of course there is a lot you need to know, Google is your friend.
- sireat 13y ago
  Writing puts seems like a free money, if you think about it as possibly owning your favorite stock at a discount in worst case scenario. Problem with this is that sometimes the price might dip for irrational reasons(let's call it technical reasons), which is the good scenario. However, sometimes price might dip because of fundamental reasons(let's say company announces that their CFO has misstated results for last 5 quarters). Even worse is writing Covered Calls without any thought. There was that guy on Reddit who sold Covered Calls on his McDonalds stock. It worked great for a few months, collecting premiums while the stock stayed stagnant. Then the stock dipped in such a way that writing Covered Calls at the original strike price was not really worth it anymore, while writing at a lower price than purchase price was even worse. The protective puts(which he did not have) would not have been triggered either as the dip was not low enough. So again, there is no free lunch.
  - icu 13y ago
    Yes, what sireat is saying is somewhat true. However with options I believe you have a greater flexibility and more opportunity to make gains when compared to trading stock on its own. With this strategy you have the chance to protect your capital (by buying protective puts) while earning an income (write premium) and capital gains (in the money Covered Call strikes and dividends). You can make money with this strategy when the market is going straight up, somewhat up, and sideways. You can protect your capital when the market goes somewhat down, but you will loose money if the market crashes. Frankly there is much I've not said when it comes to trading that is do or die. Money management, position sizing, managing positions, emotional management, fundamental/technical/sentimental analysis just to name a few areas a successful trader should master or at the very least have a working knowledge of.
    - throwaway13qf85 13y ago
      The volatility skew on equities is generally downward sloping as a function of strike (because investors are scared of crashes), meaning that the puts you buy to protect your capital will be more expensive than the calls you are selling to earn the premium - if you want the same amount of downside protection as you have upside risk, you'll actually bleed cash with this strategy. The only solution is to buy less downside protection that upside risk, which leaves you vulnerable to a market crash, whilst at the same time capping your upside - exactly the situation you don't want to be in!
      - icu 13y ago
        Hi, you are forgetting about timing the purchase of protective puts or buying back the options you have written at a profit.
        throwaway13qf85 13y ago
        If the price moves against you (down if you have written a put, up if you have written a call) then you never get the chance to buy the options back at a profit. You might get a bit of theta decay, but equally any large moves will tend to kill you on the gamma and vega. As I said in another comment, writing options covered or not is basically a bet against volatility.
- throwaway13qf85 13y ago
  What? If you write a put option, and it is executed, then you have to buy the stock for its strike price, which will be above its market price (that's why the put was executed in the first place). You end up buying the stock at a premium, not at a discount. Here's a concrete example. A stock is trading at $100 and you write a put on it struck at $90, earning a premium of (say) $5. Then the stock falls to $80 and the put is executed, so you buy the stock for $90. You now have something worth $80 and a $5 premium, but you paid $90, so you are $5 out of pocket. Now you write a covered call on the stock struck at $100, earning a $3 premium (because it's further out of the money the the put you wrote earlier). The stock goes to $110, so you sell it to the call owner for $100. That's nice, you've earned the $3 premium and you sold the stock for $10 more than you bought it for (a total of $13 up). But if you hadn't written the call, you could have sold the stock for $110, and been $20 up instead. If you also buy a protective put (say for $1) then that's an additional loss you bear in this scenario, since you can't execute the put. If you're writing options, you're basically betting against market volatility. You'll do alright in the short term, but you'll get absolutely creamed if there's a stock market crash or other crisis.
  - icu 13y ago
    For clarification you write puts at or out of the money. If executed, the premium earnt offsets the difference between strike price and spot price. No one is saying this guarantees against a market crashes but it acts as a cushion. You are still trading when you decide not to place a trade. To put it another way, you make money when you buy, not when you sell. Therefore your purchase price is a margin of safety if done right. I carefully select the companies I trade by building up a 'conservative' price target based on a company's tangible book value per share (TBVPS). I try to write puts that offer a good risk/reward profile relative to the TBVPS. Even if I was caught in a market crash I'm as close to book value as I can get. Having done my homework I'm sure this company will outlast the extreme market sentiment. When such events occur I add to my position on the strength of my fundamental analysis. The market always overshoots and creates a wealth transfer opportunity.
    - throwaway13qf85 13y ago
j_s 13y ago
HN discussed Quantopian a year ago mentioning a number of alternatives: https://news.ycombinator.com/item?id=5107045 https://news.ycombinator.com/item?id=5107045 Edit: specifically (in the UK?), http://www.timetotrade.eu http://www.timetotrade.eu About a week ago there was additional discussion of their support for live trading: https://news.ycombinator.com/item?id=7300291 https://news.ycombinator.com/item?id=7300291

squigs25 13y ago

I think there's way too much emphasis on volume here. Sure, if price swings wildly, there will be a large volume associated with it, but if there's a large spike in volume it doesn't necessarily mean a big change in price. So ultimately volume is a measure of interest, but for every bought share there was a sold share, so it's not a measure of performance. I would bet that higher volumes might mean lower bid/ask spreads, meaning you're paying a smaller penalty to get in/out of a position, but for most retail traders that spread isn't going to make or break you anyway.

throwaway13qf85 13y ago

I don't think it's worth taking this very seriously (I am a full-time trader at a hedge fund). Most of it is technical analysis type stuff, with very little to nothing backing it up. The decent bits of advice that I can filter out are > Concentrate on current investments, not past or future ones. Good advice in general. A similar motto applies in poker - once your money is in the pot, it's no different from anyone else's money. Don't get hung up on sunk costs. However, you might occasionally give a thought to your future investments, especially if your current ones are somewhat illiquid (free cash is optionality). > Always keep some cash for short term opportunities. Decent advice, though it's questionable how many short-term opportunities you're going to spot if trading isn't your full-time occuptation. > You don’t need to trade every day! You don’t need to trade every day! In fact, if you're not a professional, the less you trade, the better. > If a company publishes earnings and the stock doesn’t move much it might be that most people already own the stock. It could go down. Or, more likely, the earnings figure was already priced in and it is as likely to go up as down. > Stay away from penny stocks. Very good advice. Stay the hell away unless you have some privileged information on the the company (and even then, stay away 90% of the time).

RockyMcNuts 13y ago
true...wouldn't pass for particularly insightful advice on a day trading forum, never mind Hacker News. The very first thing, volume is the cause for price, is only true in 'normal' markets, until it isn't. When there's no bid, prices drop massively on no volume, see e.g. Russia this week. Go read Schwager, John Train, Buffett, Graham, Bernstein, Malkiel.
bunderbunder 13y ago
> if you're not a professional, the less you trade, the better I once found some numbers that relate frequency of trading to earnings for individuals, & was initially shocked by just how strong the inverse correlation is. Though on further reflection, I'm not sure it's really counter-intuitive. The more money you spend on broker commissions, the more you have to profit just to break even.
- 13y ago

xpose2000 13y ago

I'm a novice trader, and agree with everything said. However, about penny stocks..... I've dabbled in marijuana stocks for 2014 and its the only type of penny stock I have or will ever touch. The only thing I am risking at this point are my profits because that's how little faith one should have in penny stocks.

rrggrr 13y ago

A problem in his analysis is that 'smart money' has to look a step or two ahead of his indicators at hyper-technical data that includes the velocity of price movement, volatility and the probabilities that price trends will continue, revert or propagate. It is all mostly inaccessible to the lay investor. I don't think Warren Buffet has an ulterior motive an advocating the average inventor focus on broad, low-cost index funds, like the S&P500, where you dollar-cost average in over time. Not that I take that advice, or my own for that matter.

tim_sw 13y ago

learning from only the last couple of years risks ingraining habits that might be dangerous going forward, as the last couple of years have been a bull market. Once you've been through an entire market cycle, there will be even more perspective.

bunderbunder 13y ago
Obligatory Warren Buffett quote: "A bull market is like sex. It feels best just before it ends."