June 30, 2014

What I am reading: 6/30/2014

Recent articles that I found interesting.

We’re all Smart

When everyone in your field of choice is intelligent it’s much harder to separate yourself from the crowd.  The paradox of skill is what makes it so difficult to beat the market over time.  Finding undervalued assets isn’t as easy today as it was in the past because there are more smart people who know where to look. …

Trend following does not work on stocks

There’s a good reason why most professionals who apply models similar to trend following to stocks call them momentum models. It’s not just a clever rebranding, it’s really a very different game. To blindly cling to trend following as a religion, disregarding any real world evidence and attacking anyone presenting ideas that differ to the trend following mantra is not only unprofessional, it’s outright dangerous….

Is your risk random?

Your trading model might have a random risk element and you might not even be aware of it. In particular longer term models need special care to avoid ending up with random risk. …

Where Have All the Traders Gone?

What is causing the plunge in trading volume (and volatility)?


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Steven Gabriel - July 7, 2014 Reply

There’s a couple of takeaways that I really enjoyed.

Your risk is random, and unpredictable by definition. If there is anticipation of the risk, it is predictable. For the most part, one needs to know that you can’t predict risk–no matter how much you’ve backtested the worst drawdown is yet to come.

The other point I liked was in the momentum article. Trade fewer stocks with larger size. I agree–trading more stocks to think you are diversifying is just deluding yourself. Be truthful. There is high correlation amongst stocks–just trade a few of the best.

Great Articles

steve g

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