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You are looking at an annual volatility and trading a 5 week, 2 mo. or 3 mo.
option. I found that it is better to adjust the time frame for getting the
volatility so that it more closely relates to the probability.
Some option traders get into a lot of trouble because they don't understand
that inter relationship. Ira
----- Original Message -----
From: "Jacobson, Alex" <AJacobson@xxxxxxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Tuesday, October 22, 2002 10:57 AM
Subject: RE: [RT] Trend Trader's Strategy -- Strategy Lab - MSN Money
Either situation can exist. It is not uncommon for VIX to exceed actual
volatility in the market as has been the case for the last few days.
There times however, when VIX .. implied would be lower than actual
volatility in the market.
A good rough benchmark of actual volatility is to take the daily move and
multiply by 16 to annualize the number. So if the OEX moves 2% in a given
day it's annualized volatility would be 32% based on that day's activity. A
VIX value in excess of that 32% would imply that implied exceeds actual ..
which is normally the case.
If there is too large of a difference between actual and implied Wall Street
has a mechanism for arbing away the difference through the trading of what
is termed dispersion. In essence you buy the cheaper and the sell the
greater.
-----Original Message-----
From: Daniel Goncharoff [mailto:thegonch@xxxxxxxxxx]
Sent: Tuesday, October 22, 2002 1:25 PM
To: realtraders@xxxxxxxxxxxxxxx
Subject: Re: [RT] Trend Trader's Strategy -- Strategy Lab - MSN Money
Ira
You didn't really address my question.
I gather from your statement that VIX is not the volatility of the
index.
It is the IMPLIED volatility of the index derived from the prices of the
ATM options.
The real volatility of the value of the index can be higher, or lower,
than the implied volatility.
Do you agree?
Regards
DanG
ira wrote:
>
> VIX is the volatility of the OEX as measured by the Implied Volatility of
> the near month at the money options.
>
> ----- Original Message -----
> From: "Daniel Goncharoff" <thegonch@xxxxxxxxxx>
> To: <realtraders@xxxxxxxxxxxxxxx>
> Sent: Tuesday, October 22, 2002 9:35 AM
> Subject: Re: [RT] Trend Trader's Strategy -- Strategy Lab - MSN Money
>
> Isn't there a difference between the volatility of the actual market and
> VIX, which I thought measured the implied volatility in options? VIX can
> climb or fall while the market stays steady, and vice versa.
>
> Regards
> DanG
>
> "M. Simms" wrote:
> >
> > regarding below:
> > "q.. Markets form their tops in violence; markets form their lows in
quiet
> > conditions."
> >
> > HUH ? Totally contrary to the VIX concept.....and does not follow past
> > history...at all.
> > Many bottoms coincide with large increases in volatility....which can
> > correlate with violence.
> > Maybe he has this one reversed.
> >
> > > -----Original Message-----
> > > From: John Cappello [mailto:jvc689@xxxxxxx]
> > > Sent: Sunday, October 20, 2002 12:33 AM
> > > To: Realtraders@xxxxxxxxxxxxxxx
> > > Cc: MedianLine@xxxxxxxxxxxxxxx
> > > Subject: [RT] Trend Trader's Strategy -- Strategy Lab - MSN Money
> > >
> > >
> > > Please scroll all the way down for what he is doing. He is up almost
> > > 60% using a Technofundamental Investment Strategy which he esplains.
> > >
> > > John
> > >
> > >
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> > > Follow every buy and sell Trend Trader's Transactions
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> > > Strategy
> > > If there is anything I have learned in 18 years of
> > > trading, it is that simple works best. Those who need to rely upon
> > > complex stochastics, linear-weighted moving averages, smoothing
> > > techniques, Fibonacci numbers, etc., usually find that they have so
> > > many things rolling around in their heads that they cannot make a
> > > rational decision. One technique says buy; another says sell. Another
> > > says sit tight, while another says add to the trade. It sounds like a
> > > cliché, but simple methods work best.
> > > Discuss the latest trades
> > > on the Strategy Lab
> > > message board
> > >
> > >
> > >
> > > Therefore, my trading strategy is to analyze fundamental
> > > and technical factors to determine whether a long, short or a
> > > sideline position is warranted in the market. Fundamentally, I
> > > develop a macroeconomic view of the world using Federal Reserve
> > > interest-rate policy, world economic trends and currency movements.
> > > This allows me to use my fundamental beliefs as a backdrop against
> > > which to apply technical analysis. If I perceive that fundamentals
> > > are bullish, then I am poised to go long the markets if my simple
> > > technical indicators tell me to do so. Conversely, if the
> > > fundamentals are bearish, I trade from the short side when my
> > > indicators tell me to do so.
> > >
> > > Those simple technical resources are simply log charts,
> > > common trend lines and other well-known chart patterns. To supplement
> > > this, I use various term moving averages dependent upon the equity
> > > under analysis, for I believe that all equities beat to their own
> > > drum, thus a one-moving-average-fits-all does not necessary apply.
> > > Also, my favorite oscillator is the 20-day stochastic, for it is
> > > longer term in nature and captures the intermediate trends rather
> > > well.
> > >
> > > In addition, and more importantly, I use trading rules to
> > > effectively manage my positions and to protect myself from making
> > > judgment errors. I must admit, I am not smart enough to have devised
> > > these simple trading rules. A great trader gave them to me some 15
> > > years ago. However, I will tell you they work. If you follow these
> > > rules, breaking them as infrequently as possible, you will make money
> > > year in and year out, some years better than others, some years
> > > worse -- but you will make money. The rules are simple, but adhering
> > > to them is difficult.
> > >
> > >
> > > a.. The first and most important rule is that in bull
> > > markets, a trader should be long. This may sound obvious, but how
> > > many of us have sold the first rally in every bull market, saying
> > > that the market has moved too far, too fast? I have, and I suspect
> > > I'll do it again at some point. Thus, we've not enjoyed the profits
> > > that should have accrued for our initial bullish outlook, but have
> > > actually lost money while being short. In a bull market, one can only
> > > be long or on the sidelines. Remember, not having a position is a
> > > position.
> > > b.. Buy that which is showing strength; sell that which
> > > is showing weakness. The public continues to buy when prices have
> > > fallen. The professional buys because prices have rallied. This
> > > difference may not sound logical, but buying strength works. The rule
> > > of survival is not to "buy low, sell high", but to "buy higher and
> > > sell higher". Furthermore, when comparing various stocks within a
> > > group, buy only the strongest and sell the weakest.
> > > c.. When putting on a trade, enter it as if it had the
> > > potential to be the biggest trade of the year. Don't enter a trade
> > > until it has been well thought-out, a campaign devised for adding to
> > > the trade, and contingency plans set for exiting the trade.
> > > d.. On minor corrections against the major trend, add
> > > to trades. In bull markets, add to the trade on minor corrections
> > > back into support levels. In bear markets, add on corrections into
> > > resistance. Use the 33% to 50% corrections level of the previous
> > > movement or the proper moving average as a first point in which to
> > > add.
> > > e.. Be patient. If you miss a trade, wait for a
> > > correction to occur before putting the trade on.
> > > f.. Be patient. Once a trade is put on, allow it time
> > > to develop and give it time to create the profits you expected.
> > > g.. Be patient. The adage that "you never go broke
> > > taking a profit" is maybe the most worthless piece of advice ever
> > > given. Taking small profits is the surest way to ultimate loss I can
> > > think of, for small profits are never allowed to develop into
> > > enormous profits. The real money in trading is made from the one, two
> > > or three large trades that develop each year. You must develop the
> > > ability to patiently stay with winning trades to allow them to
> > > develop into that sort of trade.
> > > h.. Be patient. Once a trade is put on, give it time to
> > > work; give it time to insulate itself from random noise; give it time
> > > for others to see the merit of what you saw earlier than they.
> > > i.. Be impatient. As always, small losses and quick
> > > losses are the best losses. It is not the loss of money that is
> > > important. Rather, it is the mental capital that is used up when you
> > > sit with a losing trade that is important.
> > > j.. Never, ever add to a losing trade, or "average"
> > > into a position. If you are buying, then each new buy price must be
> > > higher than the previous buy price. If you are shorting, then each
> > > new selling price must be lower. This rule is to be adhered to
> > > without question.
> > > k.. Do more of what is working for you, and less of
> > > what's not. Each day, look at the various positions you are holding
> > > and try to add to the trade that has the most profit while
> > > subtracting from that trade that is either unprofitable or is showing
> > > the smallest profit. This is the basis of the adage, "let your
> > > profits run."
> > > l.. Don't trade until the technicals and the
> > > fundamentals agree. This rule makes pure technicians cringe. I don't
> > > care! I will not trade until I am sure that the simple technical
> > > rules I follow, and my fundamental analyses, are running in tandem.
> > > Then I can act with authority, and with certainty, and patiently sit
> > > tight.
> > > m.. When sharp losses in equity are experienced, take
> > > time off. Close all trades and stop trading for several days. The
> > > mind can play games with itself following sharp, quick losses. The
> > > urge "to get the money back" is extreme, and should not be given
> > > into.
> > > n.. When trading well, trade somewhat larger. We all
> > > experience those incredible periods of time when all of our trades
> > > are profitable. When that happens, trade aggressively and trade
> > > larger. We must make our proverbial hay when the sun shines.
> > > o.. When adding to a trade, add only one-fourth to one-
> > > half as much as currently held. That is, if you are holding 400
> > > shares of a stock, at the next point at which to add, add no more
> > > than 100 or 200 shares. That moves the average price of your holdings
> > > less than half of the distance moved, thus allowing you to sit
> > > through 50% corrections without touching your average price.
> > > p.. Think like a guerrilla warrior. We wish to fight on
> > > the side of the market that is winning, not wasting our time and
> > > capital on futile efforts to gain fame by buying the lows or selling
> > > the highs of some market movement. Our duty is to earn profits by
> > > fighting alongside the winning forces. If neither side is winning,
> > > then we don't need to fight at all.
> > > q.. Markets form their tops in violence; markets form
> > > their lows in quiet conditions.
> > > r.. The final 10% of the time of a bull run will
> > > usually encompass 50% or more of the price movement. Thus, the first
> > > 50% of the price movement will take 90% of the time and will require
> > > the most backing and filling and will be far more difficult to trade
> > > than the last 50%.
> > >
> > > There is no genius in these rules. They are common sense
> > > and nothing else. But as Voltaire said, "Common sense is uncommon."
> > > Trading is a common-sense business. When we trade contrary to common
> > > sense, we will lose. Perhaps not always, but enormously and
> > > eventually. Trade simply. Avoid complex methodologies concerning
> > > obscure technical systems and trade according to the major trends
> > > only.
> > >
> > >
> > >
> > >
> > >
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