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245: Jason Shapiro - The Mind of a Tape Reading Contrarian Trader
Chat With Traders
The Importance of Correlation
I've heard you mentioned in other interviews of having the importance of having a uncorrelated plays. Can you give us an example of an uncorrelated play that you put on? My portfolio gets built as I get individual trades, right. And each trade gets this is all about you know risk control, you know risk and risk management. If the trades are highly correlated and it's really not one trade right. So you have to watch your risk management on that so I'm measuring the correlation between my trades.
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Speaker 2
I've heard you mentioned in other interviews of having the importance of having a uncorrelated plays. Can you give us an example of an uncorrelated play that you put on.
Speaker 1
So, for me, you know, my portfolio gets built as I get individual trades, right. So whatever I got long stocks I got short British pound I got whatever. And each trade gets this is all about you know risk control, you know risk and risk management. So each individual trade has its own risk management right. But then as I have a portfolio of trades on. If the trades are highly correlated and it's really not one trade right. So you have to watch your risk management on that so I'm measuring the correlation between my trades and if these two trades have a correlation of one. Well, and to me it's the same trade so I'm going to cut the risk on each one of them, because what's the point of having the same trade on twice if you're measuring your risk right. So that's really the importance of correlation to me. So when
Speaker 2
you put on a trade typically how often do you find or how many times do you typically get stopped out before catching a significant move in your favor. It
Speaker 1
varies. Sometimes I get it. I get it right on the spot. First time. And sometimes I mean truthfully sometimes I never get it. But the good thing about waiting for the new failure thing and the confirmation is that like it's not like I'm going to be buying it today I get stopped. Okay, the next thing I'm going to be buying it again and get stopped. You know for this new failure event to happen, you know that's not going to happen every day. Right. So, but there's plenty of times where I'll trade the thing three times or four times get stopped four times and then either my data goes away and it's no longer crowded. Or I'm not getting any more new failure or whatever and therefore it's kind of gone. So I guess it varies.
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