LOL_Niederhofferaments

[DesertCat]

He's such a smart, interesting guy, but he hasn't just blown up twice, he comes close to blowing up every few years. I think it was 2006 where he lost 30% in a month.

It's stuff like this why I've never been enamored of trading. Anytime you introduce leverage, and operate with very thin edges, volatility can kill you. This guy is one of the most brilliant, greatest traders of all time, and he's constantly trying to avoid total meltdowns.

Value investing allows me to sleep at night. The only leverage I use comes from my home equity, the fact that I still have car loans that I could pay off, etc. Stuff that won't get called if my account declines 35% one day. And I've never been leveraged to even 20% of my portfolio assets. It's slow and boring, but making 20%+ each year will eventually get me to my destination.

[DcifrThs]

[ QUOTE ]
He's such a smart, interesting guy, but he hasn't just blown up twice, he comes close to blowing up every few years. I think it was 2006 where he lost 30% in a month.

It's stuff like this why I've never been enamored of trading. Anytime you introduce leverage, and operate with very thin edges, volatility can kill you. This guy is one of the most brilliant, greatest traders of all time, and he's constantly trying to avoid total meltdowns.

Value investing allows me to sleep at night. The only leverage I use comes from my home equity, the fact that I still have car loans that I could pay off, etc. Stuff that won't get called if my account declines 35% one day. And I've never been leveraged to even 20% of my portfolio assets. It's slow and boring, but making 20%+ each year will eventually get me to my destination.

[/ QUOTE ]

i have his contact info if you want to give him lessons [img]/images/graemlins/smile.gif[/img]

Barron

[DesertCat]

ha! I'm sure he knows everything I know about investing. But willingness is a whole other thing.

[DesertCat]

Just wondering, do any traders here work without leverage?

[mal_noles]

My personal portfolio uses minimal leverage, sometimes none.

Trading energy at work I am obviously considerably leveraged.

[kimchi]

[ QUOTE ]
Just wondering, do any traders here work without leverage?

[/ QUOTE ]

I used to trade ETFs without leverage (not through choice, but because they were held in a tax-free account that didn't allow leverage).

I would have done better just buying & holding the funds I traded - although I made gains while only being on average invested 30% in equities at any one time. If I could have used leverage, then obviously I would have done better.

People always think leverage and futures etc. are risky. The S&P500 futures contract is known as 'the rocket' for being very volatile - but its not. It's just that most people who trade it don't have sufficient enough capital to employ proper position sizing and risk management.

Leverage is only risky if you don't employ proper risk management.

That Niederhoff link won't open for some reason, but I suspect that since he was using OPM, then he took on riskier positions which is a definate incentive to do due to hedge fund manager's payment/commission schemes. These payment stuctures emphasise them striving for huge gains in a single financial year at the expense of long-term risk management.

I suspect that given a fee structure which favoured risk-adjusted returns, he would stop busting out every couple of years. But then 'investors' love to gamble.

I read some interviews a while back with some famous hedge fund traders from the 80s & 90s (Market Wizards books maybe?) and if they had a year returning much over 25% then they would look again at their risk-management and search for ways to reduce risk.

[mrbaseball]

[ QUOTE ]
The S&P500 futures contract is known as 'the rocket' for being very volatile - but its not.

[/ QUOTE ]

The S&Ps are tame puppies compared to the Russell 2000 and Midcap and if you really want volatily there is Rbob and Crude and only for the very adventurous Natural Gas. Natural Gas is truly the widowmaker.

[DcifrThs]

[ QUOTE ]
[ QUOTE ]
The S&P500 futures contract is known as 'the rocket' for being very volatile - but its not.

[/ QUOTE ]

The S&Ps are tame puppies compared to the Russell 2000 and Midcap and if you really want volatily there is Rbob and Crude and only for the very adventurous Natural Gas. Natural Gas is truly the widowmaker.

[/ QUOTE ]

what about JGBs? at my old job that was definitely the riskiest position in my portfolio. i didn't trade natural gas though.

Barron

[kimchi]

[ QUOTE ]
[ QUOTE ]
The S&P500 futures contract is known as 'the rocket' for being very volatile - but its not.

[/ QUOTE ]

The S&Ps are tame puppies compared to the Russell 2000 and Midcap and if you really want volatily there is Rbob and Crude and only for the very adventurous Natural Gas. Natural Gas is truly the widowmaker.

[/ QUOTE ]

I understand you're a scalper. I've heard you guys take high-probability trades but get a few pretty sick outlyers go against your positions. You must have a very strict and conservative risk-management strategy (unlike Niederhoff) as you've previously described how you survived October'87 and the Asian meltdown in '97

One well-known simple way to manage leverage:- If one market has an ATR of 5 points and one contract is worth $10/pt, then buying 100 contracts is just as volatile as buying a single contract of another market with an ATR of 20 points traded at $250/pt.

This allows you to normalise risk across different markets - then you decide how much risk you're prepared to accept and size your positions appropriately. I suspect Victor is a talented trader, he just took on position sizes that increased his risk of ruin beyond reasonable levels.

If buying 100 contracts of one market might expose your account to a greater than 1% risk before your stop-loss is hit, then it probably means your account is too small to risk buying a single contract of the 'volotile' market.

IMR is often temptingly and deceptively low.