I love listening to your podcast. I’m not sure I ever reached out before. I’ve been following along (no pun intended) for a number of years now. I don’t think I ever asked for your initial free trend following handouts. I’d love to see whatever you have to offer.
I’m writing now because I’m frustrated. I still try to work with financial planners some. Why? I still don’t fully trust myself to trade all of our funds, and yet, whenever they talk about years in the market and using mutual funds, I get scared. Scared isn’t really the right word. I get frustrated. They tell me my trading is more risky than what they are doing. We always end up talking around in circles. The problem is my trading still isn’t fully keeping up with our additional income needs. So I’m “stuck” and yet I’m not stuck.
Love the info and am really excited to be learning about this. I have to admit I wish I had learned this a month ago before the market dropped out of crypto. I should have listened to my same intuition when it was up as when I got into it. Have not been able to put the book down or stop listening to your podcasts. Its been hard to focus on anything else since I started the book.
Your podcast mentioned to send you an email. Keep up the great work.
The inevitable result of financial innovation gone awry, which it ALWAYS does, is that it ALWAYS ends up empowering the State. When too clever by half people misplay the meta-game, that’s all the excuse the State needs to come swooping in and crush them, just as they are with Bitcoin today they did with Bear and Lehman in 2008.
Financial innovation is always and in all ways one of two things — a new way of securitizing something or a new way of leveraging something.
Securitization is a ten-dollar word that means associating something in the real world (a cash flow from a debt, an ownership interest in a company, a deed on a property, a distributed ledger mathematical calculation, etc.) with a piece of paper that can be bought and sold separately from that real world thing.
Leverage is a ten-dollar word that means borrowed money.
That’s it. There’s nothing new under the sun. Finding new ways to trade things (securitization) or new ways to borrow money on things (leverage) is what financial innovation is all about, and there are vast riches awaiting the clever coyotes who can come up with a useful scheme on either.
The biggest market disasters happen when both leverage and securitization get mixed up with the same clever scheme, as when new ways of leveraging and securitizing U.S. residential mortgages were developed in 2001, resulting in the creation of a $10 trillion asset class that utterly collapsed during the Great Financial Crisis. There were a lot of coyotes involved in so gargantuan an Idea That Changes Things, but most illustrative for these purposes is the Gaussian Copula formula published by David Li in 2000, the “technology” which allowed the securitization of pretty much any mortgage portfolio (prior to this most securitization was limited to “conforming” mortgages securitized by Fannie Mae and other government-sponsored mortgage agencies) and also the leveraging of those securities through tranching (splitting up the security into still more securities, each of which can be used as collateral for more borrowing, particularly those tranches with higher credit ratings). I wrote a bit about the Gaussian Copula in “Magical Thinking”, and if you want to learn more you can’t do better than Felix Salmon’s 2009 Wired magazine article — “The Formula That Broke Wall Street” — still my all-time favorite piece of financial market journalism.
I wish to write this letter to thank you for your efforts, as it has benefited me greatly. I have worked for [name bank] Global Macro Index Trading business and last year, I left [name bank] to pursue my own [fund].
I was very much captivated by Statistical Arbitrage research papers of Stanford, and tried to implement [them]. It looked good on paper, but when I started running it on my own money, it made losses and I realized that the system was so complex, as it involved stochastic and other deep mathematical structures, that I couldn’t find a way to improve or adapt the system to the needs of [name] Market.
At some point, on deep introspection, I decided to give trend [following] a chance as it always appealed me for various reason. The biggest reason was, although it may not promise a mathematical proof, but logically and common-sense wise, trend following made sense and also the biggest reason was that I could improve it as I understand it.
[Over the] last few months I have got good results. Your podcasts helped me in a way as you brought the best of the best from the industry and listening to them I realized that I am not alone. People have done it in the past and I too will do it. Second thing, is that you provide these resources for free.
I cant say how much I really feel grateful for your efforts. Thanks once again.
David Ricardo would be just as successful today trading as he was trading 100’s of years ago. He understood, from a trend following perspective, that there is no value in prediction. When trading, you take an entry signal, get into the market, and ride the trend. It is impossible to know with certainty where the market will go, so you trade with the market rather than against it. Some think they have a grasp on bitcoin, but there is no way to understand the “why” behind it or any other market.
You don’t have to be an expert to trade bitcoin, gold, coffee, or cocoa – just have rules in place and start trading. Small losses will happen but they are balanced: home runs – small losses = extreme gains. Do the homework, put rules together and go.
Still uneasy about diving into trend following? Check out performance from trend following traders such as Dunn Capital and Winton Capital. Much can be learned from information in public trend following track records.
In this episode of Trend Following Radio:
Time series momentum
Cross sectional momentum
Definition of managed futures
Trend following diversification
“Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.” – Ed Seykota
Annie Duke’s new book is, “Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts.” She has taken her poker expertise and graduate level degree of psychology and digested it into a book we all can relate to our lives. She is a poker player, author, decision making expert, and cognitive scientist. Her understanding of how luck, skill and uncertainty all play a role in life is fascinating.
The foundation of decision making crosses over to all genres. She touches on football play calling, crypto currency, and everything in between. In Annie’s book she breaks down “the worst football play in Super Bowl history”, relating to Pete Carol. She proves that it was actually the right call in terms of probabilities and mathematics, Carroll was just unlucky. Carroll is on record admitting that it was the worst result of a call in Super Bowl history, but not the worst call.
Under a stressful situation, like the Super Bowl, would you be able to make the right call? How good are you about checking your beliefs and keeping your bets in line? Are your decisions and outcomes lucky? Smart? Skilled? Very few outcomes are solely skill or solely luck. Phil Ivey, arguably the best poker player in the world, sorts out what was luck and what was skill after every win or loss he may have in a poker tournament.
Learning occurs best when there are lots of decisions to be made in a compressed amount of time paired with lots of feedback to those decisions. Annie first studied this in young children learning to listen, speak, and digest words and quickly saw this study directly relate to the poker table. How do you learn when there is a lot of noisy feedback? Having limited resources, how do you use those resources to make educated bets?
Life is a series of bets that compound on themselves. Annie makes the point that, “I’m not sure” is the best answer in many situations – and there is nothing wrong with that. Coming from a place of uncertainty helps to make more rational decisions. When that decision doesn’t turn out well, you can then analyze how you can improve that action going forward.
In this episode of Trend Following Radio:
Crypto currency bubble
Decision making groups
Decisions in uncertainty
In life we treat it like we are playing a game of chess and we are not. We are playing a game of poker. – Annie Duke
I bet that you’ve heard it a thousand times – and will hear it a thousand more – but thank you for a great book! It’s simply amazing. I am glad to have had the opportunity to read it once, and I’m now into my second time. My trading has really improved after the first pages – just amazing! I bought the Kindle version since I read a lot on the train back and forth to work, but I think I’ll get the paper version as well to keep at home. Is it perhaps possible to get a signed copy from you? I’d love to receive the interactive trend following presentation in order to learn more about trend following. Attached you’ll find my receipt of the book. Do you have any other recommendations on books about trend following
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