Designing Risk

Financial markets allow you to design your own risk. Market is a vast pool of risk - return matrix. Investors can manufacture their own risk according to

1. The timeframes  ( IntraDay, Swing, Positional, Long Term, Short term)
2. Selection of Instruments ( Stocks, Futures and Options)
3. Position Size  ( small or large)
4. Type of strategies ( Long or Short or Pairs trading )
5. Diversification ( Across stocks, industries, asset classes like commodities and currencies)
6. Liquidity preferences

Different ways of approaching the Market

Some of my random observations interacting with market participants and self styled portfolio advisors

1. Need to appreciate that there are many ways of approaching the market from different angles
2. Market comprises of different risk and time frames. Both long and short may be right when viewed from different time frames
3. Market consists of RISK. It is like a raw material made available to the participants.They can manufacture their own risk ( dish)
4. Experts trying to tell about their succesful tips but unwilling to discuss methodology and concepts of Trading.

Lessons from ANACONDA,the movie

Some of the points that struck me from watching the Anaconda movie today

1. Deception : How the snake hunter practices deception leading the others in the Amazon Jungle. Parallels to market where traders are mislead by the hidden motives and apparent movements to one direction sharply reversed in the other direction
2. Insearch of Risk : My favorite analogy of a trader in search of risk is the snake hunter in search of Anaconda where other people are afraid of the snake. When I encounter questions about risk of a given trade, I wonder why they are in the market if not in search of risk
3. Preparation : Jon Voight is well prepared to catch Anaconda. He is anticipating and longing for it to show up. Instigating it with his monkey bait. He is ready with ropes,net, gun with anaesthetic etc. Proper preparation with his trading framework , significant price levels to watch for, trade structure, awareness of context is essential.
4. Timing : Acting decisively when the snake appears. The trader is not surprised. Extreme agility to time the trade not missing the shot at the right time is critical.
5. What are the signals similar to the trembling Monkey: When big predator is around the market weather changes. The prey gets the signals. Monkeys holler and make unberable noise. What are similarities in markets. I have witnessed trembling in leading stocks in leading sectors before a panic sell off or Squeeezes. Can we look for trembling and howls in VIX, Int Rates, Gold, Oil, Dollar Index, Baltic Dry Index, Credit Spreads.

what shows fear before big predators make a move in markets ?