"max pain"

Discussion in 'Trading' started by SethArb, Jun 10, 2006.

  1. now this is not a comment on options strike "pins" on expiry

    rather on the idea that every trader whether trading

    one stock or future or a pair trade or portfolio

    will experience "pain" at some point in their trading life

    even if they try to hedge their position , refusing to "break"

    or "puke out the loser" ...

    sometimes it seems to me like the other side of the trade

    "mr market" ( or margin clerk ) is playing games with the trader

    trying to make us scream ... "max pain" ...

    Have their been any scientific studies on this ?

    or does this only apply to the pros as "joe six - pack"

    just gets another beer to cry in and holds on

    as its only a paper loss ( until forced out if not using stop loss ) ?
  2. Banjo


    Since we can't ever know who's on the other side wouldn't the only scientific study possible be of the face in the mirror and why it's chosen to remain and operate in a losing/ negative environment. Altho it appears to be so, extracting money from the markets is not an exogenous event.
  3. Kenny Rogers (in the song "The Gambler"):

    You'll have to know when to hold them
    You'll have to know when to fold them
    You'll have to know when to walk away
    You'll have to know when to run

  4. Cheese


    Well hell I don't understand playing a game with pain. This is not trading.

    As obstinate as the human mind can be, why put it in the way of losing positions which apparently it then commands you to hold until the blood is dripping from your fingers. That is not trading.

    Just take day trading if there are those who don't know what they are doing, and ask what is the worst? Day trading by definition finishes at EOD. So the worst must be that any loss is limited to the EOD and finishes then and there.

    But the truth is the market is a little soft pussycat where you keep stroking its tummy every day and every day you do the purring just collecting your days take day on day.
  5. romik


    Unrealistic drawdowns should only happen to an amateur investor, should not be allowed by a professional, especially to a trader using high leverage while building up an account. Personally that is my number 1 rule not to hold on to a loser, no matter what the circumstances might be for holding the position.
  6. If you trade CME products your counterparty is identified. In my fill window on my TT workstation I can see who my counterparty is.

    There are traders in the CME index futures who use this information to make trades and muscle the markets.

    For example, in ER2 Firm 815(customer account of Goldman Sachs) puts one lot orders at almost every price level. By doing this they can get an idea of who is moving the market and when they are finished. Then they will attempt to press the market in the opposite direction.
  7. nevadan


    If I understand this correctly that is being changed.
  8. Max pain refers to the maximum number of traders getting hurt at an option's expirations.
  9. Banjo


    I know scalper, was just making a general statement.
  10. The market will naturally find those max pain points you speak of. It may not be going after you personally, but since most people have similar ideas of where their stops should be, they tend to be self-fulfilling (defeating).

    Another way to look at it is that the market often won't stop pushing until it recognizes it's broken something. So if the tape seems to be slowly tightening the noose around your neck, it's often best to get out sooner, rather than "hang" around just hear the bones snap.
    #10     Jun 10, 2006