Why we do not Trade news

Shown on BBC Nov 2014:

I consider this to be dumb luck trading

and anyone who trades the news, has a 50% chance of being right.

Their only hope of profit is to ensure their gains are bigger than their losses. When you risk £100 to make £100 you will starve. Risk £40 to make £100 you might get lucky 40% of the time, but you have to hope the 60% losers don’t come in a run of 10 losing trades. Which is a statistical certainty by the way. ( I’ve beta tested a system that did this)  This is a real soul crushing experience. I quite like to break systems as I think they are horrible, though I’m always open to the next big thing.

The classic news trade

– the monthly report from the US on the first Friday of the month- ‘non farm payrolls’.http://www.forexfactory.com/calendar.php

This number moves the market, though these days not as much as it used to-the data is spurious but everyone seems to trade it.

You can construct any manner of options trade to take advantage of this. The difference is….we don’t have to be right to make money.  We look for trades not in a millisecond but often when markets are closed,when we are calm and considerate.            If there is one simple key to trading it is the same in any aspect of our lives- never be a forced buyer or seller.                      Even when we are horribly wrong we should not need to be forced into anything. We can quietly compose an adjustment, and learning this is like throwing off the shackles of trading.

Options let us do a number of ‘WHAT IF?’ scenarios,

instead of a clear cut win or lose. And that trader who closed out too early….-we do not have to do that, we can run profits in structured trades that lock in profits. Our trading can even be done while we are on the golf course, without worrying about the market fluctuations. As a non-trader onced asked- Do you look at the markets every day? Do you need to? Answer – yes and no.

 

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About the Author: First found out about options in 1995.From the arcane magazine Exchange and Mart! First trade- a covered call on VOD in 1999. Made 10%,VOD almost doubled. That's when I realised I was not a good trader,and I was forgiven thanks to the amazing world of exchange traded options

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  1. Terrapin Trader says:

    Typically traders like to fade moves-so there would be for example a big up move,which fizzles out, then everyone goes short(sells),then when that move runs out of steam,they go long. I have read thousands of words on this type of strategy- I’m still here,where are those guys? I hope they made their fortune, but it’s just not what we do-we have massive advantages which over time will become clear

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