Volatility and the Crash of 2008

Trading remotely from the apartment in Grand Island, in the slow but progressive bear market of early 2008, I developed a strategy according to Jared's strategy development models that capitalized on the daily volatility of the currency markets that had become increasingly effective over the summer of that year.

The actual details of the strategy I employed are much less important as a lesson for beginner traders than the mindset behind the development of the strategy. The strategy itself was an exploitation of a relatively transient edge that no mathematically inclined long-term system developer would consider to be extremely robust. And that was not the purpose of the strategy. Never once did I consider using this particular strategy to build equity over the next 10 years. Rather, the strategy took advantage of short-term relationships between assets that existed at the time and could be exploited to take regular profits, day in and day out, for a short period of time.

A variation of high-volume scalping had remained a staple strategy of mine at the time, and my own development was used almost entirely as a supplemental income that I never intended as a long-term staple of my arsenal. As long as the strategy is designed so that losses are contained, and a set of criteria is included to prevent long-term bleeding of losses, there's no harm in employing a technique that was built entirely to extract profits from a transient market phase. ...

Get The Prop Trader's Chronicles: Short-Term Proprietary Trading Strategies for Both Bull and Bear Markets now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.