Some Good Readings

Read an interview with Dr. Van K. Tharp, the author of Trade Your Way to Financial Freedom in his free weekly newsletter for Aug 22, 2007 on his opinion about the current market�s condition and if the interest rate cut will move the market up.I think this article is too good to be missed. There are many important messages there that we can learn from.And still from Van K. Tharp Institute�s Weekly Newsletter, Dr. Steve Sjuggerud shared "The Easiest Lesson of Successful Investing".Richard from Move The Market Blog wrote a great post about Trading Mission.Big Picture provides �A Historical Perspective of Recent Bear Markets�.Chris Perruna pointed...

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Relationship between Historical Volatility (HV) and Implied Volatility (IV)

In the previous posts, we�ve discussed about the differences between Historical Volatility (HV) and Implied Volatility (IV) and the sources / websites to get such info.In this post, we�ll talk further about the relationship between HV & IV.What is the relationship between Historical Volatility (HV) and Implied Volatility (IV)?At a certain point of time, IV is hardly related to HV because IV represents future expectations of stock price movement due to certain reasons, which may not be reflected in Historical Volatility (HV).Remember that IV is a prediction of stock�s volatility for the next 30 trading days, whereas HV is a measure of stock�s...

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Trading System: What Is It and Is It Important?

What Is Trading System?A trading system is a systematic system or a set of rules which should be able to answer the following questions:a) What stock to enter.b) When to enter (Entry strategy).c) How much to enter per position (This is called position sizing, or money management, or bet size).This is meant to limit the size of what you are prepared to lose / risk in any single trade to a percentage of your total trading capital (risk management). If you risk too little per trade, you win little, and hence it will take much longer time to grow your account. If you risk too much, it will put your account into danger. Ideally, it should be somewhere in between.d) When to exit (Exit strategy).Many people emphasize too much on the entry, but have no idea when to exit. Actually, you should pay more...

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Links for Good Readings

Check out the following links, some readings good for our learning:As always, Dr. Brett Steenbarger never runs out of excellent posts for our trading psychology / education. Don�t miss the following posts:Stress, Coping, and Trading: The Role of AppraisalThe Fundamental Mistake of Trading PsychologyTrading to Win Vs. Trading to Not LoseAlso, another great article from Corey from Afraid To Trade blog. As usual, he also never runs out of excellent posts for our trading education. In this article, he suggested:Be selective with your trade set-ups and entries. Always find a reason for why you take the trade you did. This can help you to ensure you�re taking the highest probability trades and eliminate the trading mistakes that could have been avoided if you had followed your rules or identified...

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How To Get Historical Volatility (HV) vs. Implied Volatility (IV) Information � Part 2

Go back to Part 1.How To Get HV and IV Info (Cont�d) 3) optionistics.com.This site provides some tools & data such as:Option Chain: It provides IV as well as Options Greeks data (Delta, Gamma, Rho, Theta, and Vega) for various strike prices and expiration months (not only near ATM options). Options Calculator & Probability Calculator. Volatility Charts.There are 2 types of Volatility Charts provided in this site (for 1 week, 1 month, 2 months and 3 months windows):a) Stock Price vs. Implied Volatility (IV) chart.This chart can be found under �Tools� >>�Stock Price History� at the left bar.However, this chart shows no Historical...

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How To Get Historical Volatility (HV) vs. Implied Volatility (IV) Information � Part 1

In the previous post, we discussed what volatility is and the differences between Historical Volatility (HV) and Implied Volatility (IV). Now, we�ll carry on with some websites for obtaining volatility information.How To Get HV and IV InfoThe following are the sources from which I usually find HV and IV info for FREE:1) ivolatility.com.This site provides some tools & data such as: Stock�s Historical Volatility (HV) and Implied Volatility (IV) figures (1 day lag). IV and Delta figures for near ATM options (No other Options Greeks info). Options Calculator.It can be found under �Analysis Service� >> �Basic Calculator� at the left bar....

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The Psychological Need To Be Right vs. Making Money

In my previous post, I picked one simple example from the book Trade Your Way to Financial Freedom by Dr. Van K. Tharp to illustrate that being right does not necessarily mean making money.Yes, in trading, you can be right most of the time, yet still lose money in the end. On the other hand, you can be wrong most of the time, but still making money over the long run. It depends on �how much� you gain when you�re right & how much you lose when you�re wrong, more than on the �how often� you�re right or wrong.Basically, �being right� is represented by frequent / majority small gains but with occasional large losses, which results in a losing...

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Random Links

Creating and Managing Trading Journal by Toni HansenWhy you should trade like a machine by Fresh TraderWords of Inspiration by Chris PerrunaMiracle on Wall Street by Corey from Afraid To Trade blog.About Liquidity by Bill a.k.a. NoDoodahsWhat Defines a Bear Market by Active TraderYou need more than umbrella in this storm by Alpha Tre...

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Historical Volatility (HV) vs. Implied Volatility (IV): Definition

WHAT IS VOLATILITY?Volatility is a measure of risk / uncertainty of the underlying stock price of an option. It reflects the tendency of the underlying stock price of an option to fluctuate either up or down. Volatility can only suggest the magnitude to the fluctuation, not the direction of the movement of the price.In options, there are 2 types of volatility:1) Historical Volatility (HV), or sometimes called Statistical Volatility (SV): A measure of the fluctuations of the stock price over the past 30 trading days.Therefore, when there is a sharp move in the stock price (up or down) during that period, the Historical Volatility (HV) number will increase drastically.HV is obtained by calculating the standard deviation of historical daily price changes (i.e. daily returns) over the specified...

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Why Being Right In Your Trading Does Not Necessarily Mean Making Money

I like the discussion in Corey�s Afraid To Trade blog some time ago on the topic of �Should I trade to be right or should I trade to make money?�"Being right" does not necessarily mean "making money". In that post, Corey also gives some examples why it is so. But what interests me more is the discussion in the comments of that post, in conjunction with the post from Chris Perruna on �Position Sizing and Expectancy�.The discussion in that post has triggered me to refer back to one of the favorite books of mine, which is also a popular book among many traders: Trade Your Way to Financial Freedom, by Dr. Van K. Tharp. A �must read� book if you want...

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Links Of Reflections

Check out the following links:Food Of Thoughts* Excellent articles from Corey from Afraid To Trade blog:> Frequency vs Magnitude in the markets & in life.> Focus on the trade, not on the money.It carries similar message to my post "The Real Purpose of Trading".*Great post for reflections from Dr. Breet Steenbarger on the painful truth about trading.* Kirk shows how golf can be quite similar to trading.* What is the Difference Between Gambling and Investing?General* Adam from Daily Options Report is running a fundraising to help Friendship Circle. Do lend your support when you can.* Currency Trading lists down the top 100 trading blogs.I have the honour to be included in the list. Thanks a l...

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The Real Purpose Of Trading

I found the following thought-provoking post from Van K. Tharp�s blog, the author of "Trade Your Way to Financial Freedom" book:The real purpose of trading is not to make money. If that's your goal you probably struggle with it a lot. But all of the following tend to work.If you goal is to be a great trader, then you probably will do well.If you goal is to use trading as a way to measure your self-development, then you will probably do well.If you just love trading and that's why you do it, then as long as you are willing to work on yourself you will probably do well.Those, in my experience, are the key motivations that bring success in trading.Are...

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How To Determine Options Liquidity?

Quite often I read articles which tell us that options liquidity can be measured by open interest. Because when options have high open interest, this means there are more people interested in the trade, and as a result, it�s more likely for us to get a better pricing for the trade.Yes, this is quite true. Normally, the higher the open interest, the more likely we�ll be to trade that option at a narrower spread between bid & ask prices. On the other hand, the lower the open interest, usually there will be a wide spread between bid & ask prices.However, in many occasions, I found that options with high open interest still have a wide bid-ask spread, i.e. about $0.3 or more.On the other hand, sometimes options with low open interest might have a narrow bid-ask spread too. When I traded...

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