HowToLambo: Your Guide to Trading Success

Options trading may seem like an exciting way to profit from market movements, but beneath the surface lies a trading environment that is heavily biased against individual traders. Many retail investors jump into options trading unaware of the many disadvantages they face, making it more of a gamble than a calculated investment. In this blog, we’ll explore the major challenges that make options trading so difficult for individual traders and why you need more than luck to succeed. 1. The Odds Are Biased: Complex Algorithms Unlevel the Playing Field The first thing to understand is that the playing field is not even. Professional traders and market makers use complex algorithms that evaluate a wide range of factors—volatility, market conditions, historical data, time decay, and more—before they even think about entering a trade. These systems are designed to assess risks, manage exposure, and execute trades with a precision that most individual traders simply can’t match. For an individ...

It's quite common to see profile pictures of traders using visual metaphors like "laser vision" to convey the idea of focus, precision, and determination in their operations. These representations often symbolize the trader's ability to identify opportunities and make decisions quickly and accurately in the financial market. However, beyond intuition and instinct, which reduce laser vision to a graphic metaphor, nonexistent in the real conditions of trading, there's a fundamental tool that acts as the true "laser vision" of the trader: the expected value of returns. The expected value of returns is a measure representing the average return expected from a series of operations based on a trading system. It's like projecting the future value of our own trading account, allowing us to focus on a fundamental aspect of trading: growing our accounts. Let me ask you a question: what's more important to you, being able to project the price of an asset in...

t's common for some traders to see things in black and white, worrying too much about the outcome of each individual trade and giving excessive importance to winning or losing on every try. This perspective is pernicious because it overlooks the inherent uncertainty in the process, which often leads to unnecessary emotional burden and is almost always detrimental to decision-making.   Unlike gambling, trading is more akin to a marathon than a hundred-meter sprint. Both for the trader and the marathon runner, the key factor isn't the outcome of a single operation or the speed in covering a short distance, but rather maintaining a consistent pace that allows them to reach their goals.   Just like a professional marathon runner doesn't run the entire race at the same pace, a trader will experience losses and gains at different times. However, the key is to maintain a steady and consistent progress, evaluated in blocks of operations rather than each individual transaction.   ...

Probability is a fundamental tool in assessing the success of a trading system and making informed decisions. In simple terms, probability tells us how often we can expect a system to succeed relative to the total number of trades executed. Imagine you have a trading system with specific rules that are repeated over and over again. Each time we apply these rules and execute a trade, we're making an attempt. The probability of success is calculated by dividing the number of successful trades by the total number of attempts, giving us a kind of "success rate" or probability of success. It's important to understand that a good measure of probability is only achieved after a large number of individual trades. It's akin to flipping a coin many times and counting how many times it lands on heads. The more flips you make, the more accurate your estimate of the probability of the coin landing heads on the next flip becomes. Probability also helps us anticipate the future ...

In a world where uncertainty reigns and the future is always unknown, trading becomes a realm where probability plays a crucial role. Throughout history, no one has been able to predict the future of financial markets with complete accuracy. This uncertainty is inseparable from trading, as we can never fully anticipate market movements.  Uncertainty is necessary in trading, as it is the origin of opportunities. Each trader may have a different view of the market, creating a balance between buyers and sellers, thus generating the possibility of closing deals.  Recognizing uncertainty allows us to enter a world of probabilities. We understand that no tool enables us to accurately predict the future value of an asset. Therefore, each operation carried out in the market has an expected success rate that is never 100%. Any unexpected event, such as relevant news or surprising economic data, can alter market conditions and turn an apparently perfect trade into a loss....

From Uncertainty to Risk, from the Casino to Strategy. In our previous post ,  we explored the distinction between uncertainty and risk, underscoring  how the ability to measure risk serves as the bedrock of a successful trading system. Now, let's delve deeper into this foundational concept. Understanding the difference between risk and uncertainty is paramount. It illuminates how uncertainty often leads us into the realm of chance, transforming each trade into a gamble where outcomes are shrouded in mystery and subject to randomness. In contrast, statistics offers us a beacon of clarity, providing a framework to comprehend and quantify risk. Armed with statistical insights, we can construct trading systems capable of estimating the probabilities of success and failure. The significance of this cannot be overstated. Imagine knowing today whether you'll emerge victorious or defeated in the trading arena twelve months from now. The time and resources saved would be invaluable. ...