Top Five Trading Myths

These are the top five trading myths that we would kill right now if we could.  Since human brains are wired to remember often-repeated associations as true even if they’re false, we’ll state the true propositions.

  1. Technical analysis does not apply to 2x, 3x, and related inverse ETFs that track the daily changes in some underlying.
  2. You can’t trade the spot VIX; not with VIX futures, not with VIX ETNs, and not with VIX options.
  3. Credit spreads are synthetically equivalent to debit spreads.  Neither is superior to the other.
  4. LEAPS are only a good replacement for buy-and-hold stock positions if you a) trade them dollar-neutral vs your old stock position and b) actually buy and hold the LEAPS, since over the short term they actually increase your volatility exposure.
  5. Correlation does not entail causation.

Ok, that last one certainly isn’t specific to traders.

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  1. An A Priori Argument Against the Technical Analysis of Leveraged ETFs | Condor Options Says:

    [...] of the trading myths we noted recently has generated some questions.  There seem to be some passionate proponents of [...]

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Jared Woodard specializes in trading volatility as an asset class. With over a decade of experience trading options and other volatility products ... Read More

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