Derivatives- say what? [Archive]

DJDD

26-10-2009, 08:58 AM

I was listening to one fo the ABC radio stations yesterday and heard an interview with a UK banker (?) talkign abotu derivatives and hwo they should not be heavily regulated.

I did not really understand it as I had just heard about derivatives but decided that they should be more heavily regulated just because the guy was:
(a) a financier of some sort; and
(b) did not like the idea of regulation because then then they could not move money around so easily (of course, he made ti sound like it helped everyone when they used them)

anyway, I read more about it online, still did not really understand derivatives (lots of gobbledook, even wikipedia), and then read this gem:
http://billsandiego.blogspot.com/2008/10/derivatives-explained.html

and it cleared it all up. :)

there may be some use for them but at the end of the day, weighing pros against cons, maybe they should be heavily regulated or, dare I say it, banned?

Baddad

26-10-2009, 10:45 AM

Hi DJDD, :)

That is crooked. I agree with you. Should be banned. Its transactions like that that cause depresions/recessions.

Paper money is bad economics.

Cheers Marty

casstony

26-10-2009, 10:51 AM

From Nathan's Economic Edge:

"JPM holds more than $80 TRILLION worth of derivatives.
Those who think that the financial crisis is over are simply living with their noses buried in the sand. The large banks and the government are complicit in trying to hide the rotting smell. Their fraud and deception are going to be the end of both..."

My impression is that we either do a few tough years now and reduce debt, or we condemn our kids to a few tough decades and another world war :question:............sorry kids, you lose.

Bobbyoutback

26-10-2009, 11:23 AM

I trade CFDs ( contracts for difference ) a form of derivative , the word derivative means derived from .
CFDs are highly geared & although the rewards can be spectacular the losses can be monstrous !

Be careful out there .

Ian Robinson

26-10-2009, 02:13 PM

Damb right derivatives should be regulated , a lot the financial problems in the USA, UK, and elsewhere last year that led to melt down were due to greed and unregulated speculation in the markets.

IMO , derivatives should be outlawed.

Waxing_Gibbous

26-10-2009, 05:36 PM

Err. No. They should not!
They should be regulated no more than they are, but regulators should pay far more attention to the financial solvency of the holders.
Derivatives have been around since Babylonian times. They are an essential part of any economy, Capitalist, Socialist, even Communist.
Derivatives, as pointed out, derive their value from an underlying asset (currencies, mortgages, oil, greasy wool, grain, gold contract etc etc), anything for which their is a major market).
The two most common types of derivative are:

Futures - a legally binding contract to buy or sell an asset at a price mutually agreed. For instance anyone who's bought $10000 worth of gear in the last 18 months could have instead bought a future in US$ agreeing to buy them now at say 89 cents, when they were at 78 cents. You'd be ahead.
Of course it could have gone the other way and you'd be stuck. Your exposure is the difference either way.

If you'd bet on the AU$ to fall and bought a contract to sell, you would have been "short selling". Boo. Hiss, I hear. Wrong! Wrong! Wrong! Tell you why in a minute.

The second most common type is called an 'Option'
An option is just that. You purchase the right to purchse an asset at a certain time for a certain price.
The main difference is that an option is not a contract, you have no exposure beyond the price you originally paid.

Financial derivatives (swaps, exchanges eyc) are VERY complex instruments, often tied up with the value of other derivatives.
This was one of the major problems of the GFC. Banks, seeking higher and higher returns opted to take positions on derivatives that were based on 'sub-prime' mortgages.

But this was not THE cause. Many other factors came into play years before the GFC. A declining US "real" economy, that was largely hidden by all the speculation on Wall Street was the principal cause.
Greed and ignorance were pretty high up there as well. And I don't just blame the Banks.
Mom & Pop have no business in financial markets. If you haven't got time to monitor your investments or broker, or the markets in general, you should just shove it in the bank or buy a decent rental property. Stay away from the market unless you are prepared to lose. Its just like horse racing. A lot of negative publicity and venom has been directed at hedge funds.
But these were the people everyone SHOULD have been listening to!
Their portfolios made up largely of "shorts" should have set the alarm bells wringing months before the crash. A quick look would have shown the negative opnion these massive funds had of the Financial sector. They are a massively important corrective indicator, before any "corrections" actually happen. The more 'shorts' you see in the market, the more you should pay attention!

But herd behaviour on the part of investors, corporate and retail, meant that more and more cash went into buying derivatives that, had anyone taken a good look, would have been seen as worthless. Nobody believed the bubble would burst. Despite historical evidence to the contrary.

To summarise: just about everything we take for granted is coverned by commodities exchanges. When BHP sells X dollars worth of Iron ore to China, it will likely take out an long option on US$, in case the price falls. China will do the reverse.
When we sell our products o'seas or buy from abroad in any quantity we do the same thing.

As I said these are just the two basic types of derivatives, They can become very, very complicated - to the point were the broker and traders don't really know how they work, they've just benn given a set of parameters under which to trade.
So: Yes derivatives should be regulated, but certainly not banned. At the end of the day, Caveat Emptor, must apply.
My .02$ which I'll trade you for .03euros for Jan 31/10 delivery.
PJH

Starkler

26-10-2009, 06:41 PM

Tell me what business does anyone other than a primary producer or a food company have in trading wheat futures? Parties other than oil producers/industrial consumers in oil futures etc?

Its speculation for speculations sake, which is the art of profiting from market inefficiencies whilst value adding absolutely nothing, and when you're a big enough entity to move and manipulate markets to your advantage its truly parasitic!

The purpose of a bank is to be a conduit between those requiring loans, and those with capital to lend.

Investment banks creating money and then distorting markets with it to their own ends is predatory, parasitic and serves nobodies interests but their own.

/rant

Nesti

26-10-2009, 07:13 PM

The total derivative market is US$600 Trillion. It is now believed to be almost entirely toxic...leveraged far worse than the US housing market.

Why worse? Well, unlike a house, really, people can only own 100% of a property. BUT, in the derivatives market, securitization of assets can be leveraged. This means that for every real share out there, there could be 2 or 3 real owners who on paper own 100% of it.

If it unwinds, and it WILL if there's a run on the US dollar, a market 10 x the global GDP will make the stock market, housing market and Dot Com market bubbles seem like dropping $20 on the floor.

Cheers
Mark

Kal

26-10-2009, 10:49 PM

Funny you should mention options. Myself and a few other employees where I work got a letter in the mail recently regarding "non qualified stock options" granted back in 1999 that are about to expire. We each have no idea of what we got it for, possibly when compaq bought DEC (although that was 1998)

*shrugs*

I am in the process of exercising that option now, I should get a bit over $1000 for it. Just wish I knew why lol

Kal

26-10-2009, 10:50 PM

amen!

Waxing_Gibbous

27-10-2009, 01:32 PM

Partly true and I partly agree.
Curiously, most commodity exchanges are actually on behalf of primary producers and secondary processors. The amount of speculation by 3rd parties is actually only about 3% +/-.
Real estate speculation is far more damaging to the average person. But would you deny someone the right to buy a rental property or lease out a shop?

A bank's raisonne d'etre is the same as any other company's: to make money for its shareholders, any benefit accrued by the customer is, technically, an irrelevance. Shareholders generally demand a return of 8-10% minimum before they invest. No shareholders. No bank.
So High Street banks only loan you money to make money for the people who put money IN, in the first place. They are only nice to you to get hold of your $$$ so they can make more.

An investment bank is a different matter. Unless you burst through the door with a cool million or two in your purse, you're unlikely to get further than the front step.
They do not deal in high street bank's business. Their job is to direct large amounts of capital into investments for clients and, importantly, to make markets - that is stimulate various sectors of an economy in order to produce profit.
Granted, some of the biggest were woefully bad at it, getting it hopelessly wrong and in some cases criminally negligent.
We're back to regulation again. The US banking system is one of the most heavily tegulated in the world. But under the Bush administration the whole free-wheeling-cowboy, yee-haa, lets make billions. buy-now-pay-never policies, seriously undermined the authority of the SEC & the FDC. Laisse-Faire capitalism of the worst kind become the order of the day.

End result: Global financial meltdown. But not because of the system itself, rather a failure to govern and a failure to comprehend.
Its worth reading Adam Smith's seminal work The Wealth of Nations' written in the 18th century.
As they say on Bttlestar Galactica-"All this has happend before. All this will happen again!"

FredSnerd

27-10-2009, 05:24 PM

If the US banking system is one of the most heavily regulated in the world it is clearly not regulated enough.

As to the second remark, for the last decade and a half we watched governments all over the world dismantle the regulatory system so the wealthy elite could make their $$$ quick and dirty without restraint. The result. They have brought the system to the brink of disaster and now were to be told that the fault for all this lies with the regulators. What $#@!. The system is to blame and we need a democracy that servers the people and not the few greedy capitalists that would sell their own grand mothers for a few bucks and then blame everyone else for not stopping them from doing it.

Rod66

27-10-2009, 06:07 PM

My my, what a pretty mess this really is. I just want to buy a house, food and clothing for my family and watch the stars..Isn't it interesting how the greedy have invented so many ways to make money from the same thing. So how do we make a society that doesn't need money? Do we have to get rid of the greed first?

Rod

Starkler

27-10-2009, 07:10 PM

Indeed it is. Those with the capital demand continuous exponential growth.
What globalisation has brought us is a situation where advanced economies such as Australia, Uk and Usa have all but priced themselves out of actually producing anything other than what can be dug from the ground.

In lieu of actual production, what we have is the illusion of wealth growth driven by exponential growth in credit.

This chart shows the story of whats really been happening since the expansion of credit in the early 80's.
Exponential credit growth has been required to give us linear gdp growth.

US consumers already have hit the wall. Without real income rises, no more credit can be taken on. The only sector where credit is now growing is government.

A major crash has to happen to purge the system. No it hasn't happened yet. The longer we have to wait for it, the worse its going to be.

Chart sourced from http://market-ticker.denninger.net/

Rod66

27-10-2009, 07:41 PM

So in order to "reset" the system, why not declare these big institutions insolvent then start new ones up operating under vastly different regulations?
At this stage inflation has to keep going up in order to make the value of the loans today look quite small in ten years time so that the money we earn in ten years time can keep up with the interest payments on the debt we have today. Its whether we are still earning any money in ten years that determines if we're still able to pay it off. When the earning stops, then the debt comes crashing down because it can't be repaid, then the govt steps in and then the system gets artificially inflated and hence we have what is occuring now - a bubble due to govt influence. What happens when the govt stops earning money... :) Someone ask the third world countries that have uncontrollable debt...

Remember its confidence that causes crashes, not any particular level of debt or statistic that says it should happen. Pray for calm people...

Bobbyoutback

28-10-2009, 12:13 AM

Humans are naturally a manipulate species , in the financial world the predators are manifest .

When the market was going down down" some superannuation funds lend stocks to brokers for a fee who then at a fee supplied certain hedge funds , the hedge funds then shorted those stocks to drive down the price so to be able to buy back at the lower price for great profit , the original suppliers then got back the stock .

Legal but stinks :sadeyes:

Bobby.

Nesti

28-10-2009, 12:24 AM

They will short sell and naked short sell their own dollar into oblivion when the time comes.

Astro78

28-10-2009, 12:33 AM

Bow Sir - could not agree more.

Short term buying and selling within financial markets for the sake of pure profiteering adds virtually NO VALUE whatsever and is simply taking the cream off people who actually work to produce a service or product.

If the devil exists, reckon I'd know where to find him

Bobbyoutback

28-10-2009, 12:37 AM

Hi Nesti,

Naked shorting is now banned in Australia , at last !
But after all the poison games in the past that send so many to the wall , why was this crap play possible ?

Cheers Bobby.

Nesti

28-10-2009, 12:45 AM

Because we're not China. Any national shorting China would go to the firing squad...rightly so too.

The West wrongly admires those who play survival of the fittest monetarily. The weak or ignorant are cannon fodder.

I wanna see Wall Street become down-town Mogadishu.

Bobbyoutback

28-10-2009, 12:59 AM

Like your fighting spirit Mate :)
Got to ask about survival of the fittest , where do you stop giving to the unfit ?

I'm trading live the Dow at the moment , as I type its chopping up & down , my real money is on the line , hope I survive these new hunting grounds .

Regards Bobby.

Bobbyoutback

28-10-2009, 01:25 AM

In the short time from my last post the Dow dropped over 30 points & almost Got me , I had to keep dropping my stop levels.

This trading game is cruel on the nerves .

Bobby

Nesti

28-10-2009, 01:55 AM

I have to ask the question...what's the difference between paying on-line gambling and playing on-line stocks?

I'm sure the former is rigged and that latter is manipulated.

Geez, I don't even play Lotto. LOL

Bobbyoutback

28-10-2009, 02:52 AM

Your answer is I'm trading index CFDs Nesti , how is trading these derivatives manipulated as you alluded to ?

Cheers Bobby .

spearo

28-10-2009, 05:12 AM

DJDD,
good reference
I read the blog and it all makes more sense to me now
surprising that these things are allowed really
frank

DJDD

28-10-2009, 11:07 AM

first, i know very little about the world of shares/trading/CFD's, etc. I have shares in Toll and Asciano, about 50 of each, just to get my toes wet...

second, don't want to offend anyone

right, that's out of the way.
I do not understand what value "day trading", short term trading, etc. adds to a company or the economy as a whole. I have to agree with Nesti- it does seem little different to online gambling. In fact, the term "trading game" says it all...

although, willing to be educated on this.

DJDD

28-10-2009, 11:09 AM

what got me interested is that the guy on the radio made it sound like all of this derivative trading really helped everyone, including the little person.
then I heard another guy in an interview the next day say that financiers, bankers, etc. had learnt from recent events. of course they did... :screwy:

Starkler

28-10-2009, 11:26 AM

It doesnt value add anything except keep brokers and the ASX in business.
Buying shares adds zilch to the economy or even the companies whose shares you're buying unless they are newly issued shares. Trading shares already existing is akin to dealing in 2nd hand goods.

Starkler

28-10-2009, 11:35 AM

Big mistake! Pretty much any time I have moved a stop loss back I have just lost more money when it got hit. If you're going to move it in real time to avoid having it hit then you are ignoring the reason for having it in the first place. A losing trade is a losing trade and needs to be cut loose.

Bobbyoutback

28-10-2009, 01:41 PM

Yes all the trading books in my library say the same , guess its hard to take the loss when emotions say fight for it .
I did take the hit today on 4 contracts that I rolled overnight Ouch " :(

Went back in again long , have set trailing stops nice & wide .
Should have been scalping but to lazy to concentrate .

Cheers Bobby.

Allan_L

28-10-2009, 02:41 PM

I don't want to offend anyone, either.

FUTURES:
OK your growing wheat.
You are short of funds.
You know (hope) you will be richer when you can sell the crop.
But that is months away.

So you agree with a buyer to sell him a certain amount (not all) of your crop for a "good price" to be delivered at a date 6 months hence. The price incoporates the expected price at that time and a discount for the present value of that money now (interest rate) and an inticement.

All is good.
you get the money now for the crop.
The buyer has a guarantee of supply.
All is good.

Except if the Buyer is someone who does not really want x,000 bushells of wheat, then or ever. (Read : A Bank or other trader )

Then he has to find a REAL buyer.
Until he does, he is playing the risk that the price will move in his favour.

OR
He can make a SELL contract for the exact amount of wheat he has the previoius BUY contract for (and same period). Another Futre! But the two contracts offset. And he can take his profit (or loss) NOW. that is the margin. And the Futures Exchange monitors margins to make sure they do not get out of hand.

So futures are good for the real producer and the end purchaser.
But it is the middleman who speculates and takes the risk.

FINANCIAL FUTURES:
You want to buy a tractor. It comes from overseas. It costs $200,000US. It cannot be delivered until 6 months from now. At that time you will have to pay for it.
You dont want to risk exchange rate changes so to completely eliminate any risk, you buy a future contract for $200K US for 6 months hence.

So this future completely eliminates any exchange rate risk.

They are good in principle. But the trading (without REAL Delivery in mind) can get speculative and then you are gambling. This is where regulation may need stiffening up! Traders wanting a quick buck!
AND, not all Futures are through the Futures Exchange.

I don't really have a point. Just wanted to show that they can have a good purpose.
Maybe regulation would be improved if they should make it compulsory for ALL futures to be traded through the Futures Exchange ??
.

Nesti

28-10-2009, 07:42 PM

Because even traders admit to manipulating the market...so long as you have enough pull. You can't tell me Sachs don't play any games.

Watch Max's video clip at about the 3min mark into the program...says it all really!
http://www.youtube.com/user/MaxKeiserTV#p/u/58/rtIEGvtwHFI

Mum and Dad investors are icing on the cake for these people who spend their entire lives bending and manipulating the play...and then dodging the SEC raindrops.

Yes, I know the ASX is far more regulated.

Nesti

28-10-2009, 07:51 PM

I've posted this one before, but not only is the market manipulated, it's getting SKIMMED to the tune of $100 Million a day!!!
http://www.youtube.com/watch?v=iDzjxV8JUzQ

Sorry, "don't want to offend", but isn't it just playing for crumbs with a loaded dice???

Bobbyoutback

29-10-2009, 01:40 PM

No offense taken :)
I've known about these practices for a long time & try to ride their plays sometimes by using the art of contradictional trading , I can't manipulate any of my trades , all I can hope to do is be on the right side when the big boys fire off their algorithm bots .

I did enjoy the videos ' thanks .

Regards Bobby.

Tallstock

29-10-2009, 03:51 PM

Bobby,
It might be interesting for those reading this thread if you explain what you do in more simple English.
How you create income for yourself (in a location like Broken Hill) from the market/derivatives whilst battling the "big boys" could help others understand the fascination of successful investing.
Peter

Bobbyoutback

29-10-2009, 10:28 PM

Hello Peter '
Firstly I'm no expert at this .

What I do is trade some stock indices from this list ,

FTSE 100 Cash
Wall Street Cash
Germany 30 Cash
Japan 225 Cash
Hong Kong Cash HS34
China H-Shares Cash
US SPX500 Cash
India 50 Cash
but mostly the Aussie 200 Cash based on the Australian XJO or the top 200 stocks on the ASX .
This trades almost 24 hours a day & some nights I,m at it till 5AM .
The standard contract is worth $25 a point with an initial margin requirement of $1250.00 or a mini contract at $5 per point & $250 margin.

Depending on the style of trading I'm using , I can go long or short & force openings to be on both at the same time .
The game is to take more points then you lose .
I have good & bad days .

What I'm trying to do is work out a methodology that will allow me to always ride the changing trends & chop , this has been a daunting challenge .
Ren'e Descartes published a book ( The Discourse on Method ) in 1637 that layed the foundations for modern thought .
Descartes ability to solve problems was unique , he imagined the problem solved and looked at the consequences of the solution , in doing so he would quickly realize whether his solution had been right or wrong .

Cheers Bobby.

Tallstock

30-10-2009, 12:37 PM

Hi Bobby,
Thanks for your information.

How would Descartes solve the problem of consistently generating income from derivatives such as Index CFD?
What "consequences" would he consider successful/unsuccessful?
How would he judge "right or wrong"?

Sitting in front of a computer screen (or telescope) at 5 a.m. has no attraction for me. However trading shares in the ASX Top 200 between 10 a.m. and 4 p.m. is more like a day job. Learning what the Fund Managers of Index Funds do during trends and how they create momentum gives small investors like me a chance to be successful.
Using charting software with a system that has produced consistent results gives me added confidence when seeking candidates to invest in.

A long time ago I gave up trying to "always" ride the changing trends.
I pick and choose carefully and keep my greed under control.
I have a small Margin Loan account (rarely used). I do not short.

I believe, derivatives have their place in the world financial markets. They are not going to be regulated out of existance any time soon.
Peter

Allan_L

30-10-2009, 01:57 PM

This is a true (albeit fractured) story:
I work for a company that produces a commodity. (Lets call it a wattsit)
Everyone needs wattsits, every day.
However, it only lasts for one day. It cannot be stored.
So you have to buy these as you want them.

My company has to guess how many will be needed each day.
Some days we do too many. Some days too few. Because demand fluctuates on unrelated basis.
Therefore, the price is variable day to day depending on supply and demand.

It costs us $25 to make one wattsit (on average).
We generally can sell them for about $40.

But some days the price will go to $1000.
Also, some days we only get $10.

Someone then saw a niche and created a derivative market for wattsits.

Now, we could use futures to secure our profit, as I described the other day, or we can use this new derivative. It is a ceiling. (It could just as easy be a floor).
It works like this.

I sell you a contract that says if the price of wattsits goes over $60, I will pay to you the difference between the actual price that day and the $60. For this right I charge you say $15.

Ideally, everybody wins!
I pay you the difference if the price goes over $60 for that day.
But thats OK because the middleman paid me the FULL price. I am a winner either way.

You pay the middleman the Full price, but I give you back, the amount over $60. If the market price went to $1000 you are very happy.

No speculation, only safety limits.

Again, the only problem comes with speculators who don't want to produce or use wattsits. They just want to buy the "contract" and hope that the price goes up. Because they don't consume them, the WHOLE $925 is theirs as profit in the above scenario. ({$1000 -$60} - $15)

I see that it is sort of like the original description in post 1. Buying a contract based on someone elses mortgage status.

Hope this explains more of WHY they came exist.
Not necessarily evil.
But in the wrong hands they sure can be.

BTW: The derivative market for wattsits is not currently regulated.
(At least there is a law that says we cannot manipulate the market by deliberately producing too many or too few! Lucky for YOU ! )

(Aside: I wonder if anyone can guess our commodity)

Rod66

30-10-2009, 03:55 PM

Sounds a bit like the electricity supply market...

Bobbyoutback

30-10-2009, 04:46 PM

Greetings Peter ,

Descartes would keep looking for the solution that tested profitable in all market conditions , If I may use this parable as an example :
When questioned about his 1000 failed experiments leading to his invention of the light bulb Thomas Edison was asked " what was it like to fail a thousand times " . He replied he hadn't failed , he had " discoved a thousand ways it didn't work . :)

I have no faith in charting software nor technical or fundamental analysis .
Elliot Wave Theory was one area I spend valuable time on once , in the end I discovered it illusionary .
True example : On the 11 November 2004 the SPI ( share price index futures ) neared 3866 , a technical hedge fund called a major Elliot Wave top at 3866 announcing they would stake their reputation on it having shorted 4500 contracts .
Then the phones ran hot when the Elephants came to play , the best exit offer obtained was 3920 .

Good Luck with your trading .

Cheers Bobby.

Tallstock

30-10-2009, 06:08 PM

Hi Bobby,
In Nov 2004 the market had rallied steadily from the March 2003 Low of some 2835 by 36%. Momentum was clearly in place. Why anybody would short that type of market and with 4500 contracts is beyond me. An exit at lower than 3920 would have been possible if a smaller (less greedy) number of contracts were held. Trading long with the underlying trend would have produced substantial profits -- by March 2005 the market had risen to around 4220 (another 357 points or +9%).
Elliott Wave theory is just one of 1000's of "experiments" used by investors. Some fail with it some don't. It is not the only system available.
Finding a methodology that is "profitable in all market conditions" is the "illusion". I wish you luck in your "daunting challenge".
Peter

Bobbyoutback

30-10-2009, 07:47 PM

Yes Peter the old greed & fear are guiding irrational probability , been guilty of this many times , one night I traded multiple future contracts naked ( no stops in place ) overnight with a belly full of beer , the result was complete destruction of a healthy account :ashamed:

The search for a formula for when to roll over a long into a short or vice versa is the grail I seek :thumbsup:

Cheers Bobby.

Tallstock

31-10-2009, 02:21 PM

Hi Bobby,
In the inexpensive charting software I use there are numerous formula that are freely available to help you decide when to roll over a position. A clear set of rules is the starting point. Discretionery chopping and changing on a whim (or a belly full of beer) should not be an option. However, you have already stated you have "no faith" in Technical Analysis so I assume you have exhausted all these avenues to find your "grail".
Where you are now searching is a puzzle to me.
Peter

Bobbyoutback

31-10-2009, 04:54 PM

Hi Peter ,
Using charting software that has formulas that advise do this or that are mechanical systems , a well known American authority Linda Bradford Raschke said : I've known hundreds of professional traders throughout my career but I know of only two who were able to make a living with a mechanical system .
Its about perception , thats why I,m a discretionary explorer who now knows the belly full of beer disadvantage well :lol:

Try this test of observation , give yourself 15 minutes to get it .

Look at the equation 5 + 5 + 5 = 550 . Obviously it is not correct .
Write it down on a piece of paper . Now to make it correct you may add one straight line to the equation . It can be vertical , horizontal or angled . You cannot place a slash through the equal sign to indicate inequality .

Have a go then let me know how long it took you .
Bobby.

Tallstock

02-11-2009, 12:37 PM

Interesting that you should quote Raschke.
A Google turned this up;

"Linda Bradford Raschke is the lead trader at LBRGroup, Inc., where she has been actively trading futures and stocks for her own account for the past 20 years. Linda started her career as a member of the Pacific Coast Stock Exchange in 1981, and later became a member of the Philadelphia Stock Exchange where she became a registered market maker in equity options. In the early 1990's, Linda became a registered Commodity Trading Advisor and formed LBRGroup Inc., a professional money management and commercial hedge fund firm.
Linda has been featured in numerous publications, including Jack Schwager's The New Market Wizards, and Sue Herrera's book, Women of the Street. She has lectured in over 30 different countries for Dow Jones and has been actively involved with the Market Technician's Association. She co-authored the successful book, Street Smarts -- High Probability Short-Term Trading Strategies, and has written articles on classic technical analysis for numerous publications."

If you were a trader with a successful mechanical system why would you tell Raschke you had an edge over her and the rest of the market?:shrug:

The benefit of a well written mechanical system is that it helps to control emotions such as "perception" and a host of other feelings. When a trader uses derivatives such as CFD's with high leverage the pressure to be financially successful is immense and emotions like "hope" can have a devastating affect on the bank balance. However, a trader who has taken the time to write software code for a (mechanical or discretionery) system that they have traded profitably has developed a high level of confidence.
Peter

Bobbyoutback

02-11-2009, 02:18 PM

Hello Peter ,

In regard to telling Linda , my guess is ego :question:

Yes mechanical systems seem to eliminate emotions & the fear of loss & failure are postponed , a mechanical system is great for identifying whats already happened .
I do see your point about trading systems that have proved profitable , But change always happens , alter all a price chart is an intra-spatial after image , the expired time frame inside the after time dimension .

Did you have a go at correcting the 5 + 5 + 5 = 550 equation ?

Have Fun
Bobby.

Tallstock

02-11-2009, 04:42 PM

Hi Bobby,
Don't you think that Linda, as a trader/fund manager/market maker is in it for the money? :D Sure she probably has an "ego" but at the end of the day she wants to make a living whatever way she can. Her "grail" appears to be a mix of money making solutions.

Successful traders don't blab their secrets to every Tom, Dick or Harry. Why should they?
They keep their edge (whether mechanical or discretionery) to themselves. They have worked hard to establish their confidence, normally starting from a low bank balance, and through experience and numerous profitable trades developed a system, often restricted to a specific type of company, sector or market. The history of successful trades can be confidently repeated time after time because the market has a history that is repeated. Nothing complicated, rather basic really --- certainly not rocket science. Just plain hard work. The more hard work, the luckier you get. Well, that's my experience.......

Sorry, I am not smart enough to crack your equation. How you use "perception" to trade Index CFD's derivatives remains a puzzle to me.:question:
Peter

AndrewJ

02-11-2009, 05:00 PM

545 + 5 = 550

Oldie but a goodie:thumbsup:

Andrew

Bobbyoutback

02-11-2009, 05:53 PM

Well done Andrew ;)

Yep just add a line to the + sign to make it a 4 , when first shown this I looked at it for 2 minutes & just could not see how , then 10 minutes later I was doing something else when it hit me ! :thumbsup:

Bobbyoutback

02-11-2009, 07:10 PM

I think Linda now makes enough money by just mentoring others ,no need to trade anymore .

Some years back A mate & I booked a 10 day luxury holiday in QLD , our interests were womanizing , boozing & fishing . Whilst there I was going to have a chat with a real trading guru but his fee was $395 per hour for a one on one consultation , I thought it a bit steep for a two hour yak yak & spend the money on indulgences.
You can just imagine Linda's fee .

The use of perception when trading Index CFDs is not just about being on the right side of the trade , you need to survive what the provider may throw at you , they control the bid/offer , they know were your stops are , & your playing against them . :rolleyes:

Have Fun
Bobby.

Tallstock

02-11-2009, 07:57 PM

Hi Bobby,
If, for whatever reason, Linda doesn't trade anymore then that tells me she probably didn't work hard enough as a trader. Much easier to mentor, advise, teach than trade.
What about finding a market where you have more control?
If your CFD provider has so many obvious advantages then why do you bother risking your hard earned money?
Is it because of the thrill of using leverage?:confused2:
Is it because you are making buckets of money?:mad2:
Is it because you are happy giving the CFD provider your cash in the "hope" that one day you might find your "grail"?:screwy:
Maybe if you had spent the $395-00 per hour with the "guru" then you might have already established a profitable trading system and be laughing all the way to the bank. Might have been money well spent.
Peter

Bobbyoutback

02-11-2009, 11:55 PM

Peter , the number of successful individual traders who sell their secret is nil .
Whats available is the same rehashed stuff offered again as new re- birthed rhetoric .
Gees even Gann theory courses are still sold to the gullible !

Trading software are a fixed set of instructions unable to adapt to changing conditions , you can make the appropriate decision better to those unfolding conditions .

The CFDs I trade suit me with there flexibility & I can trap the trapper using appropriate brackets after placement ;)

But still I search for that magical solution that will allow me to always milk the flow when ever it changes .

Have Fun
Bobby.

Tallstock

03-11-2009, 10:54 AM

Hi Bobby,

Having a fixed set of instructions that are profitable is the "secret"!
Well written software that adapts to changing conditions is the "solution".
It's out there.
Without the right tools then, I think, trading derivatives such as highly leveraged CFD's are a recipe for financial disaster.
Peter

Bobbyoutback

03-11-2009, 02:46 PM

Greetings Peter ,
If such software exists try it before the inevitable happens .
Are you familiar with the Law of Unintended Consequences ,
its that actions of people always have effects that are unanticipated or unintended .
I don't think you need spoon feeding to get the point :P

And your right about trading highly leveraged CFDs without the tools , best one is a clear mindset !

Cheers Bobby.

Tallstock

03-11-2009, 04:48 PM

The software certainly exists.
Some formula are better than others. They have been around for years and are tried and tested. Investors don't need to spend thousands of $'s on "black box" systems that might not suit them. Most software vendors offer a free trial period.

Better yet find a local mentor through an Investor Group. A mentor will probably get you to chart some historical prices on a piece of cheap Graph paper. Trends and their reversals soon start to become apparent. For something more fancy you might progress to an Excel Spreadsheet/Chart. Most On-line Brokers have free charting with multiple indicators (formula). Later, move up to a software program.

I enjoy writing my own code for the adaptable software I use. Very satisfying. Like Edison I had to wade through 1,000's of lines of code to find the system that works for me to produce consistent profits. That's the fun part.

Sorry, I am not familar with the Law of Unintended Consequences.

Peter