Monday, September 03, 2007

Overtrading and Other Ideas for a Labor Day

* Why Do Traders Overtrade? - Overtrading is a term traders loosely use to describe a situation in which they either trade too often, too large, or both. The idea is that they are trading more than objective opportunity (and their trading rules) would normally dictate. I was recently asked about the personality traits that are responsible for overtrading. While there are indeed personality factors that affect risk assumption and aversion, my experience is that the main cause for overtrading has nothing to do with personality per se. Rather, traders overtrade because they are trying to make a living from relatively small account sizes. They cannot trade large and thus cannot make much money per trade, so they hope to compensate by trading more often. It's a clear road to ruin.

* Markets Anticipating More Volatility? - Adam Warner sees a persistently high VIX, higher than one would normally expect given the recent rally. This fits with my earlier stated scenario of a volatility bottom during 2006, not unlike how we came out of the 1994-5 period with rising prices, but also rising volatility.

* Looking for the Wrong Solution? - A recent NYT article examines doubt that a Fed cut in short-term rates would address the underlying concerns about credit. Indeed, Mish finds a lot to be skeptical about in all the housing bailout proposals. Abnormal Returns links several articles that offer perspective on the housing situation, including a skeptical look at the President's proposal. Barry Ritholtz, in his weekly review, also finds several articles expressing doubts about the efficacy of Fed easing in this situation, including an interesting look at what happens to stocks when the Fed makes an easing step after a period of tightening.

* Trader Mike Strikes Again - Lots of good updated links from Mike, including a look at how the mortgage situation could affect advertising revenues for GOOG and others. See also Mike's link to the interesting (and skeptical) story on Google's growth.

* How Will the Election Affect Stocks? - A Dash of Insight is beginning a look at the stocks that would benefit under various election scenarios. Here's the Election Stocks site.