"Options and Options trading" by Robert Ward explain the Black-Scholes and biniomial models in a very accessible way starting with coin tosses.
If you struggle with the quant finance maths at first, Neftci is a good, soft intro, and so is Wilmott. For me, at least, intuition about how trades/markets work is a different part of my brain than building a base of competence with stochastic calculus/greeks. MJ
I agree. Hence my statement above about reading books on market psychology. Making money in the market, is about more than just being book smart. We are only as smart, and only as rich, as our next trade.
With all due respect, trading/market psychology is bs. Focus on finding trades with edge, and suddenly you will be in the right mindset.
There are no trades with "edge". Trading is about analyzing "probability". Just like poker players do. There are no 100% probability trades, let alone trades with an edge. The best any trader can do is lower his risk, and/or increase his probability. But that is still not an edge. Trading without a basic understanding of market history, and the psychology of trading and traders, and of the overall market, is like entering a professional poker tournament, with ONLY a grasp of the basic math probabilities of getting various cards dealt to you,.... while sitting at a table with oponents, who can clearly read your emotions via body language. Anyone can have a good day(s)..... but over time?
After discussing edge on ET for so many times/years, now I'd view a trader's edge is the accumulative winning probability of his trades how much relatively better than other traders collectively. Perhaps when his competitors improve their winning probability (can be seen by better timing or changed market behaviour), he may encounter much more losses if keeps trading the same strategy without improvements. Just 2 cents!
I'm not really sure what you are trying to say, so I'll simply say there is no such thing as "accumulative winning probability". Just as each new shuffle at the poker table starts the process over again, so too does each new trade. The result of the last trade(s), have little bearing on the probability of the next trade result. My discussion is not really about strategy selection, as that is more about the issues of risk/reward/probability/% return, ect.... I'm talking more about the psychology of trading, of traders, the market in general, the herd affect, thinking independently, getting in the market, getting out, being a follower, thinking independently, ect..... It's about why so many investors get caught up in bubbles and busts,.... when it LATER in hindsite, always seems so obvious what was occuring.
Perhaps my post above is much more related to directional trading edge (including directional trading with options)!
Agreed. Especially in fully automated trading. Not saying that some people won't screw things up because of their psych-makeup/habits/etc, but in IMHO most that blame trading psych for their lack of success simply have no edge(s) to start with. Having said that, I believe PutMaster's reference to market psych is about something different, namely behavioural finance.