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A lot of people start trading, without actually understanding the theory of trading.  I’m talking about some basic concepts like:

  • Understanding that trading is a zero-sum game (relative to a benchmark), and a negative sum game if you include transactions costs.
  • So for you to actively trade, you need to have some kind of advantage in a zero-sum game.  What is your advantage?
  • Understanding the difference between good trading and gambling.
  • Developing good habits and thought processes.
  • Discussing approaches to trading.
  • Understanding the power of diversification and carry.

I will focus on developing these ideas in the next few months.  Here are the first of what will probably be dozens of posts on my trading philosophies:

Beating the Zero Sum Game

By | June 1st, 2016|Categories: Featured, Philosophy|

How do you beat the zero sum game?  You can’t change the fact that trading is a negative sum game with transactions costs.  The expected value of the overall global game is always going to be [...]

Homework

By | May 22nd, 2016|Categories: Featured, Philosophy|

Have you ever seen Star Trek II: Wrath of Khan?  There’s a training simulation called the Kobayashi Maru, that is programmed so you can not win.  The goal is to test the captain in a [...]

Trading vs Gambling

By | May 19th, 2016|Categories: Featured, Philosophy|

Since I brought up gambling so many times in the last Philosophy post, I want to discuss “trading” vs “gambling.”  In our society, traders are considered one of the “top” professions in the world, and [...]

The Active Trading Test

By | May 13th, 2016|Categories: Featured, Philosophy|

I’m looking forward to sharing my thoughts on investing strategy with you, in the context of a negative sum game.  But first, a little “yes / no” test to make sure we are on the same [...]

Taking Inventory

By | May 10th, 2016|Categories: Featured, Philosophy|

Let's delve a little deeper into your situation in the negative sum game.  Most individual traders are very myopic.  They think about the great “tools” they have with respect to their trading.  But what they [...]

The Corollary to the Fundamental Truth of Trading:

By | May 5th, 2016|Categories: Featured, Philosophy|

For you to do well, someone else has to do poorly, relative to the benchmark.   It is a negative-sum game after all.  I am not going to touch “have everyone do worse, so I [...]

The Fundamental Truth of Trading:

By | May 5th, 2016|Categories: Featured, Philosophy|

Trading is a negative sum game, relative to a benchmark.  The Fundamental Truth of Trading is definitionally true for trading futures.   The benchmark for futures trading is zero.  For someone to make money, someone [...]