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March 27th, 2014 at 3:30 pm
Akademia / Futures Trading –
phil and zeroxzero is right on point here regarding this part of the financial system.
You are trading against human and artificial agents, who sometimes act independently and other times weakly/strongly collude together. The artificials can analyze/strategize thousands of times at in nanoseconds. They can they readjust those same strategies in microseconds as conditions alter. Either way, they act at subluminal speeds that are not possible for human beings to process at. The humans can can head-fake you left and right – one method is quote-stuffing, just a neat way of saying that they can deluge an exchange with high volumes fake orders that they send and cancel above and below that current prices which raises or lowers bid/ask spread values and all done while they start gearing up to sell contracts at higher levels or buying contracts at lower ones than they are feeding the exchange (someone once told me that 80% of the commodity orders are actually false, just designed to manipulate others into buying and selling) collecting ungodly amounts of money from pushing around the price by illicit means. Again – the kicker is that they do it in before you've even blinked! They've staffed themselves full of financial economists who research auctions and contract theory, cognitive & behavioral psychoilogists and neuroscientists to pinpoint behavioral thresholds in auction behavior, and biostatisticians to run extensive trials to populate their findings and build models for financial auctions that are bootstrapped. Human agents are buying an selling sometimes on wholly different strategies that you and I are – they are looking to exploit neural weaknesses such as frustration tolerance, resignation stressors that together result in capitulation both technical patterns and fundamental values so they can estimate how far they can push contract values away from short- and long- term averages or existing technical patterns that lead to doubts in people like you and me about the validity of our position(s) and produce resignation/capitulation and our subsequent exit.
What you'll learn is that Phil can rock his system because he's built it, tuned the system to work with limited losses, tamed his own fear and greed so that he abides by the system and not by his feelings, run that system for hundreds of thousands of iterations and then been able to show both results and pen the rationale for why he makes the moves that he does.
You aren't the first to have gotten a backhanded a little by these markets. Me too. I got smoked in them. Beyond just the nature of the insane level of competition you're facing in monster-level players at the futures table (kind of like, to use a Star Trek analogy, having to face off against groups of vulcan scientists/engineers like Spock and packs of androids like Data in a game of three-dimensional chess), and futher it doesn't help much that the futures markets are about as addictive as a video game, nor does it help that that they tend to reward you sporadically (dropping goods on you at times when you expect them and when you don't) which is the same formula that casinos use in Las Vegas on their slot machines that keep users both somewhat insane and hooked into coming back to them again and again to because it fuels your desire to control outcomes so as to master them (see B.F. Skinner on the term "Variable Schedule of Rewards").
The options route, while more challenging and not necessarily as fun, can be somewhat safer and doesn't feed you with moment-to-moment thrills and cringes that can pique your emotions to make terrible decisions…terrible decisions that your opponents are counting on you and me and every Average Joe on the digital floor to make so they can stack their chips up even higher.
Until you've really got the simulated futures down, try making similar bets with the options advice given here. I'm only realizing how much of a con job the financial world can be with all the new developments constantly spawned by some of the most innovative minds on the planet who build them just to skim your money away from you in a nearly invisible fashion (so, so ninja they are).