2 key concepts for traders

This past Wednesday I did an AMA with Kris Longmore’s RobotWealth community. Kris’ work and general way of being is a personal inspiration. I’m a big fan.

(His bootcamp is my #1 recommended course for retail trading because it’s grounded in both the practicality of trading but also in the conceptual — what is edge, where to find it and why it might exist)

This is all to say it was quite an honor to nerd out on his channel 🤓

​📽️Watch the replay of our conversation here.

Just a sampling of topics we discussed:

• Some differences between professional and retail trading
• How a retail trading operation can be set up to align with your life
• Good options trades and where to find them
• How important is modeling time decay?
• How important is backtesting for options strategies?

2 ideas that received some extra emphasis:

1) Traders are searching for contradiction not prediction

This is a callback to Measurement Not Prediction which explains why trading rests on “seeing the present clearly” as opposed to playing Nostradamus. The distinction might sound abstract or subtle. This section of a thread I wrote this week is a concrete example:

2) On timing vol

The topic of timing vol came up. And I shared something I suspect people might find surprising.

I had no edge in timing vol. In fact, I don’t think most professional vol traders have any edge in this. In other words, their edge doesn’t look anything like “vol in general is cheap here, let’s load up”. I almost always regret drawing lines in the sand about getting net long or short a bunch of vega. Did I tend to be leaning long vol when it was cheap and vice versa? Sure, but I was usually long or short for a considerable amount of time before it bottomed or peaked too, because markets love to stretch like they’re double-jointed ballerinas before reverting.

After getting humbled by a timing opinion gone awry, I always centered myself by going to back to basics. What does that mean?

The most basic decision in a trader’s arsenal, their reliable fastball so-to-speak is some version of:

“I’m buying this for X, because that is Y bid”

“I’m buying 1-month APPL straddles for X vol, because 3-month QQQ puts are Y bid”.

When you get away from decisions that take that grammatical form you are in the realm of “I’m buying this because the line went down”.

When you feel enough pain to accept that you did something wrong you will usually find this subtle switch in decision logic is the source. It stings the ego because re-focusing on the basics is admitting that you haven’t transcended the grind to become some market maven who just knows when something is about to turn.

(I think all traders subconsciously expect that their 10,000 or even 20,000 hours of practice will unlock that ability. These back-to-basic moments, if you are lucky enough to overcome your pride and negative p/l, to rediscover are humble reminders that markets are learning just like you are so the value of the 10,000 hours isn’t exerted on your ability to beat them, but instead on the practice of process so you have a chance of keeping up. There’s no “best”, only “next”.)