Monthly Archives: November 2012

Futures Scalping Part 2: 21 Good Ideas

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One thing I hope I’ve gotten across with this blog is that there are lots of ways to trade successfully.  It’s not that there’s one magical formula, and once you have that formula it rains money.  Rather, there’s a lot of little things that you can do wrong or right.  This is very much true in futures scalping.  If you do enough of them right, you start to make money.  As you get more right, you can make more money with less downside risk.  Here’s a list of 21 good ideas that helped me move from being a losing trader to a winner.  I’m not going to provide excruciating detail on each aspect right now.  Just enough info to get you thinking about a given topic. Continue reading →

Kelly Criterion Part 2: Avoid Lotteries and Reverse Lotteries

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Somewhere along the way someone probably told you not to play the lottery – that it’s a dumb idea.  And this is true.  The typical state lottery pays out about 50% of the money it takes in as prizes.  The other 50% is retained by the state to build parks or educate kids or some such nonsense 😉  It’s no exaggeration to say that lotteries are a tax on people that are bad at math – a sort of tax I heartily approve of.

There’s an interesting intersection between trading and lotteries you may not have thought about.  One aspect of a lottery is the deficient payout – in the typical case $0.50 is paid out for every $1 payed in.  In other words playing the lottery has a profit factor of 0.5.  Another aspect is the extreme imbalance of payouts – infrequent huge wins paired with frequent small losses.  This later aspect is what I want to investigate today – especially the idea of lotteries where the payoff is greater than pay-in.  In other words, “good” lotteries.

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Choosing The Right Broker

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Most of my readers, like me,  approach trading from a retail perspective.  A “retail trader” is a person that executes trades through a broker.  The alternative is an “institutional trader” – someone who is part of a company that has their own exchange memberships and clearing ability and thus can function as their own broker.  So if you’re going to operate as a conventional retail trader, you need a broker.  And it turns out that choosing a broker is very complicated.  What makes it worse is that you have to choose a broker before you can gain any real trading experience.  So traders are at the most ignorant point in their careers when they have to make this important decision.  I’m going to walk you through some aspect of the process, and hopefully at the end you’ll know enough to proceed. Continue reading →