Posts

Expected Value (EV) & Bayesian Analysis In Trading

Expected Value (EV) & Bayesian Analysis In Trading

An alternative title for a trader is “professional uncertainty manager.”

Trading is a business of possibilities, not certainties. Despite our best efforts to predict financial markets, we’ll inevitably be wrong time and time again. Many of our bets will lose purely due to bad luck or unforeseen circumstances. It doesn’t matter if they were objectively good bets. Read more

Guerilla Speculation

Guerilla Speculation

The following is an excerpt from our weekly Market Brief. If you’re interested in learning more about Market Briefs and the Macro Ops Hub, click here.

 

“If you wait by the river long enough, the bodies of your enemies will float by.”

“He will win who knows when to fight and when not to fight.”

“If a battle cannot be won do not fight it.” ~ Sun Tzu

The Art of War by Sun Tzu dates from 6th century B.C and is the oldest known manual on military strategy.

I first read it in my early teens and was captivated by the weight of the wisdom packed into such a short book. It’s not just a treatise on war but a deeper philosophical look at the underpinnings of how nature works, and more importantly, how we should operate within it.

It’s one of the few books that I revisit every few years and still manage to come away with new insights each time.

Sun Tzu birthed the concept of guerilla warfare. Guerilla warfare enables a small force to defeat a significantly larger and more well equipped one. It accomplishes this through extreme patience, knowledge of thyself and thy enemy, and a superior strategy that shapes the rules of the game to one’s advantage. Read more

Plan Your Trades And Trade Your Plan

Plan Your Trades And Trade Your Plan

The following is part 3 of our 3-part psychology series. You can read part 1 here and part 2 here.

Clearly our biology and the biases that come with it are hazardous to our financial health.

But how exactly do we solve this problem?

The trick is to plan your trades and trade your plan.

The first step to successful trading is creating a solid strategy that accounts for every possible market scenario. High volatility, low volatility, black swans, it doesn’t matter. Everything should be planned for. Nothing should be a surprise. Read more

Understanding The Difference Between Alpha, Beta, & Cash Returns

Understanding The Difference Between Alpha, Beta, & Cash Returns

At their highest level, investment returns can be subdivided into three components: the cash rate, beta, and alpha.

return = cash + beta + alpha

The cash rate is the base interest rate controlled by central banks. Every other asset is priced off this rate, including stocks and bonds.

A majority of the time stocks and bonds return more than the cash rate to incentivize investors to take risk. This makes intuitive sense. Why would someone buy risky assets if they could earn the same return in their checking account? Read more

The Fallacy of Market Prediction

The Fallacy of Market Prediction

Spoon boy: Do not try and bend the spoon. That’s impossible. Instead… only try to realize the truth.

Neo: What truth?

Spoon boy: There is no spoon.

Neo: There is no spoon?

Spoon boy: Then you’ll see, that it is not the spoon that bends, it is only yourself.

~ The Matrix Read more

Intuition In Trading And Investing

Intuition In Trading And Investing: Can You Trust It?

Do you ever get that feeling that a certain trade will be huge? That you should size up on it and go for the jugular? You can’t exactly describe why this trade is the “one”, but you can definitely feel it.

This feeling is what we call intuition. Read more

How To Find And Execute Global Macro Trades Or Investments

How To Find And Execute Global Macro Trades And Investments

The following is an excerpt from an email sent to one of our Macro Ops Hub members. It’s a cursory look at how we apply the Macro Ops’ Trade Identification Formula (MOTIF) to markets. The MOTIF series was originally introduced to our Operators through the Vault — a section of the Hub that contains a growing number of educational PDF’s to help advance our member’s trading knowledge and skill set. If you’re interested in learning more about the Hub and everything it offers, including the Vault and MOTIF series, just click here. Enjoy the MOTIF example below!

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The MOTIF structure simply serves as a starting framework to build other mental models and practices off of. It helps ensure that you’re trading with the larger trends and macro forces currently at work. This is extremely important. As traders, we want as many tailwinds behind our trades as possible. Read more

Ditch Options And Buy Stocks With “Cheap Optionality” Instead

Ditch Options And Buy Stocks With “Cheap Optionality” Instead

It probably didn’t take long after becoming a trader to stumble upon options. Brokerages and websites all over the internet are constantly pitching these complex financial derivatives, claiming things like “defined risk” and “100% returns a month”. But these advertisements only end up luring novices into a game that creates losses rather than stunning returns. Read more

Variant Perception

Variant Perception and How the Market Is Always Wrong

“The generally accepted view is that markets are always right — that is, market prices tend to discount future developments accurately even when it is unclear what those developments are. I start with the opposite view. I believe the market prices are always wrong in the sense that they present a biased view of the future.” ~ George Soros Read more

Artificial Interlligence

Hasta La Vista… Traders? (The Future Of Artificial Intelligence In The Financial Industry)

One of our favorite movies at Macro Ops is Terminator 2: Judgement Day.

The early 90’s classic had Arnold at his best and changed the sci-fi action genre forever.

People have always had a particular fear of technology and machines, but Terminator really solidified that picture. How many times have you heard the “Skynet” argument when it comes to today’s technology? Read more