Trade idea generation
As far as I know, S&T ppl will constantly ask SA to generate trade ideas and see if they really know the market.
I have checked website like Seekingalpha for trade ideas, and it's fine. I wonder if there is any book that teach how to generate trade idea/ how to develop investment or trading strategy?
I think textbooks teach so much on valuation/ trading/ econ/ math; but they are not practical enough when it comes to idea generation.
Any comments?
Advice for Generating Trading Ideas
As a summer analyst you’ll get excellent on the job training for potential post-graduation careers. An important part of a job in Sales and Trading is being able to generate trade ideas. WSO members offer their advice for interns just starting out:
Identify Market Opportunities
From WSO user @ivoteforthatguy"
- Find something stupid that the market is doing
- Try to understand why
- Figure out the timing such that even if you are right, you aren't too early/late
- Figure out your hedges so you don't blow up
- Repeat steps 1-2 and make sure that it isn't you that will be doing something stupid
Focus on What You Know
From Certified Asset Management Professional @Addinator"
- I think the best place to start is look at what you know/what you do currently. Do you love gambling? Look at casino stocks. Video Games? Take a look at Activision, EA or maybe even hardware makers.
- Read everything you possibly can on places like seeking alpha, wsj etc. Even watching Fast Money or other shows will help give you insight into how professionals do it for a living.
- Once you get an idea I would identify:
- Why you are buying it
- Where it is going (e.g. what price your looking for, an exit point)
- What is going to make it go there. Is it going to have awesome earnings? A great idea that can grow? Takeover target? etc.
- Armed with those three things you can do your due diligence on the financials/merits of the idea, set your position size up and off you go.
Work Hard at Independent Thinking
From WSO user @Macro Arbitrage"
Please don't bounce the garbage trade ideas that you read in blogs to traders and portfolio managers. In fact, throw away any sell side analyst and strategist research reports as well. Work really hard at independent thinking:
- Follow the markets themes closely
- Generate a general thesis based on catalysts
- Test the validity of your idea historically (don't just follow 'hunches')
- Evaluate potential risks that could jeopardize your trade thesis
- Structure your trade and optimize the timing
good luck broski let me know how it turns out.
what might be more effective than reading seeking alpha, which you might have to filter through a little more to find quality stuff, is to look for material that hedge fund managers put out (interviews, investor letters, presentations, etc)
for equities, they sometimes do presentations on specific trades like here: http://www.marketfolly.com/2011/10/value-investing-congress-notes-day-1…
for more macro stuff, it might be helpful just to read more blogs and stuff to give you a more real-time view of the markets bloomberg and wsj are good but more limited in quality
Have you read Market Wizards? Have you seen any powerpoints by Einhorn or other big names?
When I started trading a few years ago I tried to focus mainly on what I know. I didn't know much about finance (couldn't have told you how the stock that I bought actually worked or even really what a stock was) but I did know a lot about computers and technology and surmised that this cloud computing thing was a good idea. That led me RAX way back when it IPO'd. I really think the best place to start is look at what you know/what you do currently. Do you love gambling? Look at casino stocks. Video Games? Take a look at Activision, EA or maybe even hardware makers. You get the drift. Obviously I would read everything you possibly can on places like seeking alpha, wsj etc. Even watching Fast Money or other shows will help give you insight into how professionals do it for a living. If you don't know anything about the VIX or have no idea what that random company from china does stay away from it, at least to start. Experience, in my opinion, is the best way to generate trade ideas.
Once you get an idea I would identify:
Armed with those three things you can do your due diligence on the financials/merits of the idea, set your position size up and off you go. Hopefully it works. Of course there are different types of trading be it technical or fundamental, bottom up or top down etc. I think that a good combination of all of them is essential to being a good trader.
A great example of a random idea I heard the other day was about Lionsgate. A guy bought lions gate because his daughter loved the Hunger Games and he reasoned that if she and all her friends loved it there was potential for multiple blockbusters and, thus, was undervalued at the time. Obviously that worked out pretty well. Haha.
How about coming up with directional trades on rates and currencies? How is an SA supposed to know what constitutes a market being stupid? Even the seasoned traders/strategists get it wrong often enough...
i'll give you an example. SNB is defending a 1.2 EURCHF peg right now because the eurozone is a flaming pile of dogshit. greece just restructured but now spanish yields are surging and we are going to get may 2010 and august 2011 replayed. CHF is a flight to safety play and now the question is: who has more money? the market? or the SNB?
ok that's the thesis. now pitch me a way to short EURCHF.
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