Outrageous risk – Part One
This is how many would describe the following strategy I am about to outline.
The strategy takes on the maximum risk possible in a market, here it is :-
Go into the market at 1pm and back every favourite with a £1 tick size….. that’s it! Ok, you will have to close your position before the off, but that’s about it from a strategy viewpoint. No offsetting your order or closing out one tick away from your entry price. By the way, don’t do this till you read part two!
Sounds like madness, but what will actually happen from here? Have a careful think about it. According to some you will lose a fortune as your position drifts hopelessly away from you, taking your money with it. Putting the rhetoric aside, what’s the reality? Well the results may surprise you.
Volatility is often seen as the enemy in markets, but a chance meeting in a pub in Throgmorton Street in London changed my view on volatility forever. In the middle of the city of London you may expect my inspiration to be a trader of some sort, maybe a quant trader; but it was actually a telecoms engineer. I was chatting to him over a pint and was explaining how volatility was the joker in the pack, we were talking about stock prices. “Oh that’s easy!” he explained and went on to describe how he predicts noise when he is looking at transmission of data. After meeting him I did some research to learn more. Curiously, what he pointed out, predicted the variability of the stock market very accurately. When I started looking at horse racing I realised that the very same characteristics were likely to occur here as well. What I learnt was that volatility can actually work in your favour given the right circumstances. It was a revelation.
So how did this crazy experiment work out? Well I perfomed this experiment randomly last Thursday. Keep tuned into the blog for part two and the results.
Category: General, Trading strategies
