How Would You Trade It if You Knew ...

[bakrob99 11]

How would you trade it if you knew what the ES would be at September 25th 2012. Let's say a recent time traveller accidentally left the business section from his newspaper dated Thursday September 20, 2012. There was no other references to the prior week's or days.

 

How would that knowledge assist you in making money?

 

What strategy would you employ to maximize your profit?

 

Does perfect knowledge about the future price help you in your immediate decision?

 

Scenario 1: Let's say you discovered this today and decided to buy the open and hold on. And then discovered that today was a down day and your out of pocket $1000 at the close. Then what do you do.

[SIUYA 11]

How would you trade it if you knew what the ES would be at September 25th 2012. Let's say a recent time traveller accidentally left the business section from his newspaper dated Thursday September 20, 2012. There was no other references to the prior week's or days.

 

How would that knowledge assist you in making money?

 

What strategy would you employ to maximize your profit?

 

Does perfect knowledge about the future price help you in your immediate decision?

 

Scenario 1: Let's say you discovered this today and decided to buy the open and hold on. And then discovered that today was a down day and your out of pocket $1000 at the close. Then what do you do.

 

Damm time travelers only ever leave the business section - I want the horse racing section to know which bets to parlay.

 

It is an interesting thought experiment - if you are a day trader then really you only get one day to trade - thats the day you know of the close.

If you believe in the butterfly effect (I think this is the right reference) then by acting on that info - do you then change the future?

There is also the possibility of experiencing a crash (if you go long) between now and the day that takes you out.

All things considered - an option or bet taken on where the index closes on that day would be what I would use. (give a small range so as not to arouse suspicion) and see what odds you get on that - might be better leverage that a future or normal option.

[BlueHorseshoe 10]

How would you trade it if you knew what the ES would be at September 25th 2012. Let's say a recent time traveller accidentally left the business section from his newspaper dated Thursday September 20, 2012. There was no other references to the prior week's or days.

 

How would that knowledge assist you in making money?

 

What strategy would you employ to maximize your profit?

 

Does perfect knowledge about the future price help you in your immediate decision?

 

Scenario 1: Let's say you discovered this today and decided to buy the open and hold on. And then discovered that today was a down day and your out of pocket $1000 at the close. Then what do you do.

 

I think my strategy would be to use the very maximum amount of leverage that I thought 'safe'.

 

So, if the newspaper told me that prices would be higher on 20th Sept than they are today, and 20th Sept is (I can't be bothered counting) 20 trading days away, then I might examine all instances of a close that is higher than twenty days prior, calculate the maximum adverse excursion that would have been endured if holding a long position throughout each of these periods, use the largest of these MAEs plus a fraction as an estimate of the worst drawdown that I might have to endure, and then postion size a long entry such that should the greatest historical MAE plus a bit occur, I would have sufficient account margin to maintain the position.

 

In other words, I'd go "all-in" using an approximation of what might happen between the two known certainties ('now' and 'then') to control risk.

 

Is that the right answer?

 

Is there a prize?

 

BlueHorseshoe

[Obsidian 10]

I would convince Soros to invest into the future!

[MightyMouse 12]

How would you trade it if you knew what the ES would be at September 25th 2012. Let's say a recent time traveller accidentally left the business section from his newspaper dated Thursday September 20, 2012. There was no other references to the prior week's or days.

 

How would that knowledge assist you in making money?

 

What strategy would you employ to maximize your profit?

 

Does perfect knowledge about the future price help you in your immediate decision?

 

Scenario 1: Let's say you discovered this today and decided to buy the open and hold on. And then discovered that today was a down day and your out of pocket $1000 at the close. Then what do you do.

 

If I knew that, say, The S&P was going to be at 1455. I would sell as many in the money puts as I could below 1455, I would buy as many out of the money calls as I could below 1455, I would sell as many calls as I could above 1455, assuming that option ex is Friday the 21st.

 

Even knowing where the market will end up, you could mess up with futures, but not with options.

 

Options and Perfect knowledge are made for each other.

[bakrob99 11]

If I knew that, say, The S&P was going to be at 1455. I would sell as many in the money puts as I could below 1455, I would buy as many out of the money calls as I could below 1455, I would sell as many calls as I could above 1455, assuming that option ex is Friday the 21st.

 

Even knowing where the market will end up, you could mess up with futures, but not with options.

 

Options and Perfect knowledge are made for each other.

 

Okay BUT what if between today and the Sept 20 close the market sold off 100 points? The increase in volatility would drive up the value of those put options you were on the hook for, right? And the calls would be worthless.

[bakrob99 11]

I think my strategy would be to use the very maximum amount of leverage that I thought 'safe'.

 

So, if the newspaper told me that prices would be higher on 20th Sept than they are today, and 20th Sept is (I can't be bothered counting) 20 trading days away, then I might examine all instances of a close that is higher than twenty days prior, calculate the maximum adverse excursion that would have been endured if holding a long position throughout each of these periods, use the largest of these MAEs plus a fraction as an estimate of the worst drawdown that I might have to endure, and then postion size a long entry such that should the greatest historical MAE plus a bit occur, I would have sufficient account margin to maintain the position.

 

In other words, I'd go "all-in" using an approximation of what might happen between the two known certainties ('now' and 'then') to control risk.

 

Is that the right answer?

 

Is there a prize?

 

BlueHorseshoe

 

 

1 NO prize.

2. What if you weren't filled as it rallied off the open?

[bakrob99 11]

Damm time travelers only ever leave the business section - I want the horse racing section to know which bets to parlay.

 

It is an interesting thought experiment - if you are a day trader then really you only get one day to trade - thats the day you know of the close.

If you believe in the butterfly effect (I think this is the right reference) then by acting on that info - do you then change the future?

There is also the possibility of experiencing a crash (if you go long) between now and the day that takes you out.

All things considered - an option or bet taken on where the index closes on that day would be what I would use. (give a small range so as not to arouse suspicion) and see what odds you get on that - might be better leverage that a future or normal option.

 

Sp even having knowledge in advance is not helpful. You would wait until it was very close to Sept 20 and what if on that date it opened at 1460? What would you do then?

[MightyMouse 12]

Okay BUT what if between today and the Sept 20 close the market sold off 100 points? The increase in volatility would drive up the value of those put options you were on the hook for, right? And the calls would be worthless.

 

That's why I would sell as many as I could and not write puts that I couldn't write. The calls above 1455 that I wrote would go down in value as well if the market went down 100.

 

The calls below 1455 would be temporarily worthless. They would be worth the 1455 - the Strike price on 9/21. So I don't care what they are worth if the market drops in between

[bakrob99 11]

Even knowing where the market will end up, you could mess up with futures, but not with options.

 

Good point,

 

How would the knowledge influence you if you ONLY HAD the futures account to manage?

[BlueHorseshoe 10]

1 NO prize.

2. What if you weren't filled as it rallied off the open?

 

Panic would set in. As the market ran away and left me on the sidelines I would begin to feel the sweat running down the back of my neck. And then I would hear the disappointed voice of my father in my ear, berating me thus: "Even when you have messages from the future you still manage to screw it up! What's the matter with you, boy? Can't trade, even when you know the future - you'll never amount to anything! Now go and fetch my beating stick, you useless waste of space . . ."

 

If I used a market order, why wouldn't I be filled?

 

BlueHorseshoe

[bakrob99 11]

If I used a market order, why wouldn't I be filled?

BlueHorseshoe

 

1. I enjoyed your rant about the Father thing.

 

2. I misunderstood your entry technique - I had thought you were waiting of r apullback equivalent to some MAE calulcaiton - but I guess your idea is to go ALL IN AT THE OPEN USING A MARKET ORDER with a stop equal to the MAE calc?

[Predictor 11]

This is an interesting question because often traders have an "end point" in mind but don't know the path the market will take.

 

As stated, options might provide one with the highest leverage to play this. The other technique could be to wait until the very day and then go all in. One problem with #2 is that if the day was very flat then it may OPEN at the CLOSE. But the market is never completely flat..

 

The nice thing about going all in on the very day would be that you could fade any move away from where the market would close.

 

With futures... 10k account, you could leverage up to 20 contracts but maybe you could scale and add more. One strategy would be to scalp at maximum leverage... take the profits that come and just hold all the losers...

 

The best way to play this might be a binary option weekly on the SP500 though. This would give you a limited loss and guaranteed profit... you could still lose in the futures.

 

In either case, borrowing money, selling everything you have, getting multiple credit cards, etc would all be advisable. I would probably play this with a combination of options and scalping.... just keep pyramiding all day...

[BlueHorseshoe 10]

1. I enjoyed your rant about the Father thing.

 

2. I misunderstood your entry technique - I had thought you were waiting of r apullback equivalent to some MAE calulcaiton - but I guess your idea is to go ALL IN AT THE OPEN USING A MARKET ORDER with a stop equal to the MAE calc?

 

The rant about my father was just a joke, by the way

 

That's right. I guess it's not a million miles from the options ideas that some have suggested, as the estimated MAE might have something in common with the implied volatility of an option. Although I don't know anything about options.

 

There are also the obvious drawbacks that would apply when one uses MAE in any strategy. It's a "worst case" drawdown, and maybe if one knows the future it feels a bit too risk adverse? Maybe if prices never fell more than a few points from entry I would suddenly regret not doing more to capitalise on the opportunity by assuming a little more risk and leveraging my position more? On the other hand, there is always a worse MAE lurking somewhere in the future . . .

 

BlueHorseshoe

[BlueHorseshoe 10]

One strategy would be to scalp at maximum leverage... take the profits that come and just hold all the losers...

 

I like that!

 

BlueHorseshoe

[MightyMouse 12]

Good point,

 

How would the knowledge influence you if you ONLY HAD the futures account to manage?

 

Well, you asked a question that I dreamt about a million times and each time the answer was with options.

 

Futures is tough and if that is what you had in mind, then I see why you asked. An adverse move could wipe you out if you made a mistake with leverage even though you have perfect knowledge. Of course, you could hedge your futures position with options.

[bakrob99 11]

The best way to play this might be a binary option weekly on the SP500 though. This would give you a limited loss and guaranteed profit... you could still lose in the futures.

.

 

The Binary option is a good one ...

 

But notice how having perfect knowledge only goes so far to help in the decision. I think it comes down to Money Management.

 

I think I'd go long with 1 contract in the Futures and enough margin to cover a substantial move against. Then as and when the account gained in value to warrant another contract, add 1 to it and trail a stop). As time and price moved in your favour - add another. Build a position BUT notice this wold not guarantee that you could withstand a move against.

 

The OPTIONS may be the only "safe" way to play this.

[bakrob99 11]

I just as easily could have posed the question about an intraday close. How does KNOWING what the close will be help you at the open?

 

You still have the same problem - You need to have an entry strategy or trade small enough that you can withstand any move against you (unless its the Flash Crash day !).

[jpennybags 11]

I know exactly what I would do:

 

I would wait for a pullback… because "this market has run too far, too fast; can't keep going up".

 

After 5 days of the market moving up, I would relent to the "damn fools" that keep buying this nonsense.

 

On day 6 I would hunker down with all I could manage… because "there's no time like the present"…

 

On day 7 the "damn fools" would become circumspect on their designs, and the market would sell off.

 

On the night of day 9 I would have a bad dream, to wake up the next morning believing in nothing at all (forgetting that I had the "all in trade" from the future), but my own misfortune.

 

Day 10... unwind my position.

 

Day 11 watching the market fall a bit further, I would be sitting in a bit of a stupor and counting my blessings for cutting my losses early (not early enough)… a survivor (just barely).

 

Day 12 the market would take off on a "terror filled short covering rally" that would unbelievably continue (because of the "damn fools"). This would last until 9/25 (to which I would consider entering again… because "such a strong move must mean something").

 

This is why I scalp with attached orders… I'm my own worst enemy.

[BlueHorseshoe 10]

This is why I scalp with attached orders… I'm my own worst enemy.

 

When you say 'scalp' . . . ?

 

BlueHorseshoe

[jpennybags 11]

When you say 'scalp' . . . ?

 

BlueHorseshoe

 

The term "scalp" gets misused a lot, and I'm misusing it here, but I've not found a better term for it: 3 - 30 minutes in the market on any trade ("extremely short term swing/momentum trader").

 

Not saying that's a good thing for everyone, but it works for me. Honestly, if I could trade another way; I would. No complaints though... it's something I understand.

[rathcoole_exile 10]

this thread is the biggest heap of BS I've ever seen on any trading forum

[bobcollett 10]

this thread is the biggest heap of BS I've ever seen on any trading forum

 

Hi rathcoole,

Not so cool?

Its your choice..... click on ignore.

I think its quite interesting.

regards

bobc

[MightyMouse 12]

this thread is the biggest heap of BS I've ever seen on any trading forum

 

Thank you for enriching us. I feel whole now.

[Predictor 11]

I think this thread is interesting but would be more interesting if someone actually took the work to create a hypothetical or pick some previous dates to see how this would play out.

 

While not exactly like this, I used to run hypothetical experiments on what type of drawdown I might have to take if I could predict a 2-3 day market swing. I used focus on predicting 1-2 day swings in the market. I had an incredible win ratio in predicting 1-2 day market swings.

 

For the backtest, I used a look forward method so that I only took some % of winning trades. So, first I just took the winning trades and then randomly decided I will win say 70% of winning trades. But, even with 100% win ratio... I found some startling data.

 

One of the things I found was that even with perfect prediction.. the drawdowns were very steep for anyone holding overnight. I was able to compute from this various theoretical maximum profit ratios. Even when choosing that the profit would need to clear some threshold, the drawdowns were still larger then I expected.

 

Due to this analysis and other factors, I decided to focus more on my day trading. As it is, this thread is just amusing but if someone were to do some more extensive analysis then the results could be quite useful.