Trading Beliefs


Some of my beliefs about trading (in no particular order):

  • There are two keys to successful trading:
    1. Risk management
    2. Finding and making trades that, in the aggregate, return far more profits from winning trades than losses from losing trades (High “expected value”)
  • Compounding my positions while my taking profits off the table and managing risk is the route to exceptional profits.
  • The Black-Scholes model is a model that must be taken in context.  Some of its flaws present us exceptional trading opportunities.
  • It is futile for a retail trader (i.e. not an institution with secret and/or expensive information channels) to attempt to trade an instrument based on the instrument’s price action (i.e. breakouts, channels, etc.)
  • Spread trading can provide excellent opportunities for profit while also hedging against several kinds of risk.
  • Options provide the means to express almost any point of view and assume or offset a wide range of risks. There is no better trading instrument.
  • If an underlying is in a trend, even a small options position (risk of position relative to account size) that is compounded several times can provide a series of winning trades that literally multiply the value of the entire account.
  • Scaling into losers and scaling out of winners may be acceptable for range-bound trades such as futures spreads/butterflies but this is a losing strategy for trading outrights that can trend.

These are just a few of my beliefs.  If you trade, you have beliefs about trading.  Whether you’re successful in your trading or not, I would suggest you write them down, maybe even share them with someone (besides your wife, who probably has heard you talk enough about trading to last her several lifetimes) and see if they withstand your own scrutiny.  Why do you believe them?

To good trading,