As from April 2013 my Journey in Investing is to create Retirement Income for Life till 80 years old for two over market cycles of Bull and Bear.

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This blog is authored by an old multi-bagger blue chips stock picker uncle from HDB heartland!

"The market is not your mother. It consists of tough men and women who look for ways to take money away from you instead of pouring milk into your mouth." - Dr. Alexander Elder

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Monday, 18 February 2019

Setting Stop Loss Is False Risk Control In Extreme Volatile Market


Option trading for passive income?

Those "Guru" or Trainers who are earning trading courses are telling you that option trading for passive income. Have they told real person, real blow out and chopped fingers?


The term `picking up pennies in front of a steamroller' is linked to Nassim Taleb, an acclaimed author on randomness and risk, whose books describe an investment strategy that has a high probability to yield a small return (pennies), and a small probability of a very large loss (steamroller).

Read? Picking Up Nickels In Front Of A Steam Roller


Last night gathering of two veteran bloggers and two veteran ex bloggers in 2005/2006; we can say that we are the pioneers in this investment blogoshere in Sinagpore.

Real life example of picking up pennies in front of a steamroller'  and killed by steamroller.

Steamroller is slow mover and definitely we have more than sufficient time to pick up pennies and duck safely. Right?

One of them shared how he blew out from option trading and whatever theories and practices he knew are all thrown out!

Setting stop loss is workable and effective in an orderly market and you can get out safely at your stop loss; but in extreme volatile market; your stop loss is NOT REAL!

It can't never control your risk! You may blow out in just one trading day (night in Singapore)! Extreme gap up or gap down. You are gone! Your stop loss is useless!

He lost $160K in one night and giving back all he had earned and more! 

Now; he adopted retiree investing strategy of 80% bonds and 20% equities and focus on earning more to build up even larger capital base when he finally retires in his 50s from his full-time job.








7 comments:

  1. High income earners with higher saving rate can even adopt retiree investing strategy during their wealth accumulation to reserve energy for their job.

    ReplyDelete
  2. CW,

    I think I better add my shades of grey into the mix least bei kambings may think stop-loss orders are "useless"!


    Stop-loss orders are like seat-belts on the plane or in the car.

    During air turbulence or minor car accident, seat-belts do make a difference in protecting us from harm.

    But you are right. In a plane crash or major car crash, seat-belts don't matter...



    Anyone who can "sell" Options writing/selling as passive income definitely has ethical issues.

    Period.

    ReplyDelete
    Replies
    1. With stop loss in place, how much can we lose?

      Can blow out in just one extreme day meh?

      Delete
    2. CW,

      That's where bei kambings become old muttons provided they survived the ordeal ;)

      And learn first hand the differences between margin and leveraged products versus cash accounts.


      Anyone who teaches leverage without instructing students to wear seat-belts has a competence issue ;)



      Delete
    3. Ar. Remind me of one fund (ut) that adopts derivatives to provide income.

      Starting yield high and yummy, until when earnings kana makan...

      Delete
    4. Leverage for higher income yield. Better pray hard that unlucky gap down doesn't happen too often!

      Delete
  3. i rarely use stop loss.

    If i do it is in my mind.

    i think i favour a world of black or white than grey in the stock market though of course there are a lot of greys or in between in our room World.

    So my orders are usually limit orders.

    Stop orders already made up "mentally"

    ReplyDelete

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