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Why would you want to learn about integrating higher math into trading? In other words, why would incorporating higher math into trading equal better trading results? Is there a point? how simple can mah be useful in the day to day trading
Ultimately trading is a signal based method, based on variables you think are relevant for buy and sell.There is absolutely no link between “higher math” and “better trading results”.
Ultimately the principle of quantitative trading is nothing more than using math, to analyse data, identify opportunity and put signals for buy and sell. In other words, time series analysis, regression analysis, etc.
The level won't go past stochastic calculus for most tricky one's, especially some typical arbitrage opportunities. I'm currently working on a black - litterman model which isn't yielding better results than a simple CAPM model, which only indicates that whoever uses this for their trading simply coded it wrong.
So you check how they derived the model in the first place. It does not exceed second year's BSc Econometrics level.
The Risk I took and what not to do in your Journey
I retired at age 54 due to the fact, that I’d invested $10k, which grew into $135k, in 4 years. Plus, my job was extremely stressful. I was obese, my blood pressure was dangerous, and I had developed a nervous tick, in one eye. That was Feb 28, 1995.
The value of my holdings reached their peak on Feb 1, 2000, at $2 million. It was all in one stock, Wind River Systems. I’d bought the shares on Nov 11, 1993, for $55k.
The stock had traded below my buy price, for 11 months. Then it took off.
In 2000, the tech bubble burst, which was followed by 9/11, and a crushing recession. Over a period of 7 years, I took out $450,000. When Intel bought the company, I was forced to sell the rest of my shares for $144,000.
I live on what my investments earn. After the Great Recession, I didn’t invest in anything for 2 years. Money was running row. I actually sent out feelers, with some old co-workers, where should I consider applying.
With the last $70k, I invested it in NVDA, at $17 share, on April 11, 2011. It traded below my buy price for 2 yrs, 10 months. Then it began to climb, before tripling in price.
Things to do when your new to Trading
Sometimes the best advice is not taken. So I’ll start with that get off Robinhood. Get as far away from Robinhood as you can. Robinhood is the absolute worst app/account/platform for stock market trading/investing that I know of. If not prove me wrong, comment below...
They don’t have real brokers to help you. You can’t call a broker and ask him questions. If you have an issue, you will have to resolve it via emailings to which you will get a response three days apart, each. Not only that, but they will quickly refer you to the platform guidelines ‘general answers’ written by someone else, for someone else. Try getting an issue resolved like that. Meanwhile, your money is on hold or your trade is on hold. If you want to do something meaningful with Robinhood, you will have to get Robinhood Gold, and you have to pay for that service whether you use it or not. So Robinhood isn’t free after all.
Get TDAmeritrade. They have all the brokers you need for all your questions, and they give you 24–7 access to customer service and to your money. TD has plenty of local offices you can swing in to, make deposits/withdrawals — and talk to a real live broker for questions. They give you an ATM card to get cash from your account when you need it. Free check writing (pay your bills from your stock market account), free transfers and free wires. TD has way better trading tools and platforms than Robinhood can ever imagine. They even have free stock trades now. Robinhood isn’t so special after all.
Now enough of that. I know that’s a tough pill to swallow. But you need to consider what I’m saying and look around. But let’s offer a few pointers; you asked.
Don’t Day Trade: I have seen so many potentials lose their way day trading. You repeat something enough times and it becomes a permanent bad habit — not a successful one. The more often you trade, the more difficult making money is going to be. My best advice is right here. Also, don’t over trade. Many brokers load up new clients with 90 free trades. The problem is, you have to use these trades within 3 months or lose them. That means they want to get you to day trading — don’t. Some of this has changed now with free stock trades all the time.
I want you to wait and study your perspective stock instead of frequently trading it. Wait some more. Look for an opportunity. Plan for it. The stock will give you the signal when the time is right. Only then, do I want you to trade. Patience wins the day.
So my advice is to keep a slow but steady pace while trading and investing. If you do feel the need to trade, start with 3-month, 6-month and 9-month time horizons to trade. It’s way easier, way simpler, and way better to make money.
Buying a calling option
In theory, you should not. In theory, if you are certain about what a stock will do then it has zero volatility, and options on it are worth only their intrinsic value.
In that case, you are better off borrowing large amounts of money to buy the stock, and the loans are safe because the stock cannot go down.
In reality, most non-professional investors are not able to borrow more than half the purchase price of a stock.
TSLA is currently selling at $675 and a one-week option to buy the stock for $710 sells for $25. Suppose you knew the stock was going up to $800 next week.
You could use $675 to buy two shares of stock (depositing your $675 as 50% margin for the $1,350 cost). In a week you sell for $1,600, repay the $675 loan plus, say, $0.40 interest, and have a profit of $249.60.
Or you could buy call options on 27 shares of stock. When the price goes up to $800, each option is worth $90, so you have $2,430, a profit of $1,755. The options gave you much more leverage.
However if the price doesn’t move, the first position costs you only $0.40 interest, while the options lose everything. If the price goes up to $709, you make a lot of money buying the stock, and lose everything with options. So while the extra leverage is good if TSLA goes up enough, if it doesn’t, leverage kills.
© 2020 Jake ty
Trương Thị Cẩm Tiên on May 28, 2020:
Thony on May 27, 2020:
Mark Charter1 on May 26, 2020:
Great article ! Very informative, Thank You.