Volatility and Standard Deviation

Simply stated, we can define volatility as a 1 standard deviation (StdDev) price change over the course of one trading year. The value is normally expressed as a percentage of the security price. If a stock trades at $100 with a...

Value-at-risk (VaR)

VaR is an estimate of an amount of money. It is based on probabilities, so cannot be relied on with certainty, but is rather a level of confidence which is selected by the user in advance. VaR measures the volatility of a company’s assets, and so the greater the...

The odds against you

Why do most traders lose and wash out of the markets? Emotional and thoughtless trading are two reasons, but there is another. Markets are actually set up so that most traders must lose money. The trading industry kills traders with commissions and slippage. Most...

Just business, nothing personal

Treating your trading as a business means accepting the fact that it is just business and you should not take it personally. When you lose money on a trade, it is not a personal attack on your character or a conspiracy by the underlying security to ruin you. Losses...

System testing

You must test each indicator, rule, and method before including them in your trading system. Many traders do this by dumping historical data into testing software and obtaining a printout of their system’s param- eters. The profit-loss ratio, the biggest and the...