Famous Traders & Investors
Michael James Burry’s 2005–2008 short of the United States subprime mortgage market is one of the most thoroughly documented profitable trades in modern financial history. The instrument did…
Famous Traders & Investors
From 1988 to 2018, the Medallion Fund at Renaissance Technologies produced gross returns of roughly 66% per year before fees and roughly 39% after fees, sustained across thirty…
Options & Derivatives
The four Options Greeks — Δ (Delta), Γ (Gamma), Θ (Theta), and ν (Vega) — are partial derivatives of the option price with respect to four of its…
Economics 101
The Efficient Market Hypothesis (EMH) states that asset prices reflect available information, with the consequence that systematically generating excess returns through technical analysis, fundamental analysis, or any other…
Risk Management & Psychology
The risk/reward ratio (R:R) of a trade is the ratio of expected gain to risked loss, defined per trade as (target − entry) / (entry − stop) for…
Market Crises & Events
The cleanest way to read May 6, 2010 is as a feedback loop with no saturation term. A volume-participation algorithm sells faster as traded volume rises; faster selling…
Market Crises & Events
A balance-sheet leverage ratio of 30:1 means that a 3.3% adverse move on notional wipes out the equity base. That is the arithmetic, before anything is said about…
Trading Strategies
Pairs trading is a strategy that takes a position in the spread between two correlated stocks rather than in either stock individually. The trader goes long one name…
Technical Analysis
The Volume Weighted Average Price (VWAP) is the running average of trade prices through a session, with each price weighted by the volume that printed at it. A…
Trading Strategies
Mean reversion is a property of certain stochastic processes: values that drift away from a long-run central tendency exhibit a measurable pull back toward it. In equity markets,…
Options & Derivatives
A covered call is a position composed of 100 shares of an underlying long, plus one short call written on those shares. The premium received from the short…
Options & Derivatives
An option is a contract whose payoff is a non-linear function of an underlying asset's price at a future date. The buyer pays a fixed amount today (the…
Trading Strategies
A gap is a discontinuity in the price series: the open of session t prints at a level meaningfully different from the close of session t-1, with no…
Technical Analysis
Bollinger Bands are a volatility envelope wrapped around a 20-period simple moving average. The upper and lower lines sit at ±2σ of the closing-price series, computed over the…