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Hi,
The risk of a crash is not a risk if you are hedged against that risk
using options. That is why I reccommend hedged scale trading which is
a highly successful alternative approach to trading. Unlike
technical analysis, which uses back-testing/statistics to inform
trading decisions, scale trading is a form of fundamental analysis in
which a trader slowly buys prices as they reach bottom and sells them
as they climb back up. But a litle technical analysis can go a long
way in scale trading by timing the market accurately.
Scale trading provides the edge and hedged scale trading sharpens that
edge, allowing experienced traders to stay on both sides of the market
and use their edge most effectively. Hedged Scale Trading allows you
to work with the increased leverage provided by scale trading while
covering their backs (by using options) against the inevitable moments
when, despite taking every precaution, they find fast-moving markets
moving against them.
This high-level trading combines the increasingly popular hedged scale
trading method with the judicious use of options to control downside
risk.
You are correct that the bucks may be well hidden because there are
only so many bargains to go about. One cant find a sale going on
every day in the stores. The intrinsic value of an instrument is very
rarely reflected in the price what the public is willing to pay for.
Succesful investors/traders are able to discover this intrinsic value
relative to the current price and then teach the public of the value
of the instrument, but the public in general is too late to recognize
it and left with holding an empty bag. That is why the Contrarian
theory which is a weak from of the EMH theory, works.
rgds, Pal
--- In amibroker@xxxxxxxxxxxxxxx, Franco Gornati <francogornati@xxxx>
wrote:
> Hi Mark,
>
> how are you? you are meaning rationality, perhaps ex-post, aren't you?
> even if bubbles have been modelized under the hypothesis of rational
> expectations, so that at least as long as the expected accelerating
> returns are enough to compensate the risk of a crash it seems to be
> rational to be invested.
> But I was thinking to the very possibility that there may always be 100
> bucks on the ground, because that's the equivalent of the inefficiency
> of the market. (ok the bucks may be well hidden ..)
>
>
> quanttrader714 wrote
> >Hi Franco,
> >
> >I'm not sure that the concept of market efficiency as you've outlined
> >it makes sense logically or empirically. Logically, it ignores trader
> >and investor psychology which has been empirically demonstrated over
> >time by market manias from tulips in 17th century Holland to the more
> >recent internet/tech bubble.
> >
> >--- In amibroker@xxxxxxxxxxxxxxx, Franco Gornati <francogornati@xxxx>
> >wrote:
> >> Hi Pal,
> >> I understand your point but the concept of efficiency, in the
weak form,
> >> in financial markets is intended in another sense. It means that it's
> >> not possible to extract information (make a rule) from past
prices that
> >> allows to make extra profit. If there were, the nature of the markets
> >> (competition) would clear it out very fast.
> >> This would make any positive backtesting result (against a
benchmark and
> >> adjusted for the risk) a case of curve fitting.
> >> But the fact that both logically and empirically (with reserves) it
> >> seems acceptable doesn't mean it's true. So I would have liked to
know
> >> if systematic traders, like Fred, were consistently satisfied of
their
> >> approach.
> >>
> >> Pal Anand wrote
> >> >Markets are efficient, but prices are not. Prices move wherever the
> >> >markets lead them to in response to supply and demand. Prices
tend to
> >> >equalize supply and demand, in order to maintain the markets
> >> >efficiency, ie., a free market's. But it does take time to
maintain a
> >> >markets efficiency. During this time, a seemingly random
movement of
> >> >the prices is a tug of war between bulls and bears responding to
> >> >supply and demand.
> >> >
> >> >A market that is not free is not efficient because the prices are
> >> >artificially controlled by a state monopoly (with no regard to
profits
> >> >and losses except the alledged public good) and not by the
competition
> >> >created by free market. In a fully free ("laisez-faire") market,
> >> >monopolies cannot exist but for a brief duration in time before
other
> >> >producers enter the market and depress prices...
> >> >
> >> >rgds, Pal
> >> >--- In amibroker@xxxxxxxxxxxxxxx, Franco Gornati
<francogornati@xxxx>
> >> >wrote:
> >> >> Fred wrote
> >> >> >Personally I prefer my braille trading system so I can "feel"
it.
> >> >>
> >> >> Is it profitable? Are you doing better than the market? Don't
> >> >> misunderstand me, i know you are consistent in your approach
so you
> >> >> can say better than anyone else if there is such inefficiency
in the
> >> >> market to allow extra profits from past prices only.
> >> >>
> >> >> --
> >> >> Franco
> >> >
> >> >
> >> >
> >> >
> >> >
> >> >
> >> >Check AmiBroker web page at:
> >> >http://www.amibroker.com/
> >> >
> >> >Check group FAQ at:
> >http://groups.yahoo.com/group/amibroker/files/groupfaq.html
> >> >Yahoo! Groups Links
> >> >
> >> >
> >> >
> >> >
> >> >
> >> >
> >
> >
> >
> >
> >
> >
> >Check AmiBroker web page at:
> >http://www.amibroker.com/
> >
> >Check group FAQ at:
http://groups.yahoo.com/group/amibroker/files/groupfaq.html
> >Yahoo! Groups Links
> >
> >
> >
> >
> >
> >
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