- “Nobody would have called every turn in the market recently – whether they were in front of the screen 24 hours a day or not. Getting hit on turns is unavoidable.
- The main critical thing required to do REALLY well as a trader is to take positions (properly tested and sized) and be able to take pain (volatility) in the short term.”
- Resize based on:
- volatility forecasts to your target standard deviation.
- whether fixed income is the hedge it was ‘a million percent ago’
- volatility levels
- some discretionary input. In “normal” market regimes we’re almost entirely systematic. If I interfered during normal times I’d just mess things up. When it goes haywire you either size things down and carry on as normal… or you get in there and start swinging”
- “Long vol is really hard to systemise… you just don’t really have enough data and everything is very context dependent. You do the quant analysis – but then you have to trust your instincts to observe the way fear is feeding on itself. Needs screen time. For most people in environments like this you just want to size down and stick to the plan. And also have some wall street contacts who tells you quietly what’s up.
- You don’t want to plan for the very best case scenario.”
16% with 8% voly? No, need more voly.
“If you want to hit 16% CAGR after tax you are going to need to get all the systems in place etc – but you’re also going to need to gear it up a lot more than 8% voly and get ok with the volatility.”
Hard emotionally to cut exposure after 3 to 5pct down opens. Would you, James?
“Yeah of course… Don’t get hung up over pot money if you think it’s the right trade. No shame in going to cash for a while if you’re feeling very unsure what to do… Market is still going to be here next week.”
Sharp drop in bull market (06-20)
Don’t sweat it mate… these things happen… doesn’t mean the positions you had were wrong, or you could have had a panic-hedging crystal ball (because hedges weren’t on as sudden). I’m sure there are a lot of hindsight geniuses on the internet who say they got short because barstool sports guy said X or whatever and it was obvious we were gonna fall, but that is crap as you know.