Member Login

 
 

A Visit with Alex & Kerry
Weekly Gold RSS

Research has shown that a well-structured group is smarter than any of its members. SpikeTrade brings together serious independent traders. It is a place where we learn from each other and support each other in our discipline. It also functions as a high-end educational resource. On this sample page you see a weekly feature in which the Spiker who won Gold for the week analyzes his or her trade. To get full access to weekly picks and real-time updates, as well as educational resources, please click here and consider becoming a Member.
 

May 25th 11:05pm EDT - by Alex
 

Subject: A shrewd operator of a craps game - Long XIV by Tom K
 
The first thing that came to my mind when I started writing this piece was, “Well, I didn’t really win.” How so? Two Reasons:

1. I lost money on this “Continuation” Spike Pick of long XIV. I entered long at 9.23 at the market open of the Friday before. By that day’s end, the trade had the worst return among all Spiker picks for the week. I got out at 9.20 this Thursday, 0.3% lower than the entry. [Alex comment: Tom “paid” for his loss last week, and duly owns the gain for this week]

2. The amount of “Spiker Equity” I assigned to this trade was only 40%. So, in terms of equity gain, the 7.35% rebound this week translated into a 2.94% gain in equity, which ranked only fourth among the Spikers in this week’s competition. [Alex comment: weekly competition is graded on the percentage gained per pick, but the quarterly competition on the total equity gained; Tom is a modest man].
 
2012_05_25_tk1.jpg
 
Without getting into the details of the trade analytics (see my Note below), I think the best analogy to my XIV trading approach is that I’m trying to play the role of the house in the casino game of craps. On any given roll of the dice, the house may gain one bet from a punter if it wins, but it has to pay out a multiple of the wager if it loses. As illustrated in the chart above, my trade’s expected loss amount, or the distance from entry line to the “downside” line, is decidedly greater than the expected win amount. The House wins in the long run, or has a positive edge, because its high probability of winning more than compensates for the unattractive win to loss ratio. I look for a similar positive edge in laying odds through buying and selling XIV from the long side.

Therefore, one of the determining factors for the success of my trading approach, especially given the relatively low payoff ratio, is to size the trade appropriately with respect to the capital. A shrewd operator of a craps game, facing a tableful of drunken sailors hell bent on betting the “hard eight”, may supply the alcohol liberally but keep a strict bet limit, so that he will survive an occasional payout of 9 to 1 when both dice turn up fours. In the context of Spiker competition, 40% of equity is probably the most aggressive “bet size” I can take on XIV.

Let the dice roll!

Tom K

Note:
Interested readers may find more analytical discussions on my XIV strategy in some of my weekly Spike Pick comments such as Feb. 13th, 2012, May 14th, 2012, and May 21st, 2012. The format of this post doesn't permit inserting links; to see those posts please click on Spike Picks - then on Spiker Picks - then on Archived Picks and find the above mentioned weeks.
 
 

Join Our Email List:Your privacy is guaranteed.