MarketLife Ep 14 – Reader questions: risk, randomness, music, and coffee

Podcast-Cover300I answer three reader questions here, and stretch the boundaries of this podcast just a little bit.

Igor asks: “We know that the smaller the timeframe(TF), the more random the market is, and longer TFs are less random. If you want to risk X% of your capital than on shorter time frame (where stop loss is closer) you will trade bigger size than on the longer time frame where stop loss is further from entry. Do you think that those two statements negate each other? Since the longer timeframe is less random (we have bigger probability to make money) shouldn’t you trade bigger size and risk more?”

My answer to this question touches on quite a few important topics:

  • The importance of academic research
  • The nature of randomness
  • Longer timeframes are actually more random, from a quantitative perspective
  • Psychological and practical concerns can trump theoretical considerations of position sizing.
  • Above all, accept the risk you are trading with.

Jochen asks: “You talked a few times about remembering that charts are only a way of reflecting price action or buying/selling interest/history or in very generic terms what has happened in a market. Unfortunately I am anything but talented not even knowledgeable in terms of music, but I wondered whether you experimented with an acoustic representation of markets. I think you wrote about some type of alarm set-up in your 1min Nh-Nl trend day study, but did you ever go any further given you are both a professional musician and trader?”

In my answer, I ramble a bit (sorry, but that’s the nature of this episode!), and touch on my misguided and failed attempts at directly translating market action to music. I also talk a little bit about some of the benefits of a music background for market participants, relating mainly to focus and perhaps to some ability to manipulate abstract patterns in time. (I left music for business school and finance about ten years ago. Here is one of the last pieces of music I composed.)

Dave R asks: “How do I up my coffee game?”

My answer is first of all, clean your brewing equipment. I know that’s not an exciting answer (I would have dismissed it ten years ago), but it’s the truth. I don’t think vinegar and water works; you need something that cuts through the oil coffee leaves behind. Dishwashing detergent and a plastic brush works pretty well, but I’m a big fan of Cleancaf. It says espresso cleaner, but a small scoop of that dissolved in some hot water will eat coffee oil off of plastic, metal, and glass like you can’t even imagine, and works on any brewing equipment. Clean your machine so that hot water run through it tastes like nothing other than water. If you haven’t cleaned your machine in some time, this may be hard to do, but every cup of coffee tastes like the residual, stale, rancid oil baked into the machine. First, clean it well.

Next, I suggest starting with where you are, and moving up a notch:

  • Instant coffee? Then get ground coffee.
  • Big can of ground coffee in the freezer? Buy a good bag of freshly roastes (< 2 week old) beans and have them ground.
  • You guy ground coffee? Buy whole bean and grind at home.
  • You buy whole bean and grind at home? Consider roasting at home. (I didn’t get into this on the podcast, but I will if there is interest. Drop me an email if so!)

As for brewing equipment, I’ve tried every gadget and idea known to mankind. My favorites, out of literally 50 different ways I’ve tried to make coffee, are the Chemex brewers or a simple glass measuring cup and a fine sieve. (I also didn’t touch on espresso in this podcast, because that’s a different animal.) The idea is you want hot water to be in contact with ground coffee for 3-4 minutes, and then want some way to get the water separated from the coffee. It’s not as complicated as many people would like you to believe, but details matter.

Thanks for the questions, and keep ’em coming!

If you enjoy the podcast, one of the best things you can do for me is to leave me a review on iTunes here. The reality of the modern publishing world is that user reviews and comments help build audience faster than nearly anything else, and I thank you very much for your help!

Also, if you like the music for this podcast, then be sure to check out Brian Ashley Jones, my friend, and a fantastic singer-songwriter.

Enjoy the show:


Adam Grimes has over two decades of experience in the industry as a trader, analyst and system developer. The author of a best-selling trading book, he has traded for his own account, for a top prop firm, and spent several years at the New York Mercantile Exchange. He focuses on the intersection of quantitative analysis and discretionary trading, and has a talent for teaching and helping traders find their own way in the market.

This Post Has 3 Comments

  1. irdoj75

    Very nice and entertaining episode.
    I believe your food blog was excellent and I learned a lot in the few posts.
    Regarding espresso: yes, more on that please. 🙂 I have no experience with Aeropress but there was a few days ago a post on on the tweaks of using it.
    The acoustic chart must have been really crazy – I knew you were trying something like this… I did not dare to ask, but there are 3 more senses to explore… 3D printing charts? Some mechanical tool that physical transmits pressure? Or even translating a flash crash into a smell… 😉
    The acoustic alarm sounds interesting, but probably hard to put in practice for an EOD approach.

  2. Socrates-Trader

    Adam, once again a great podcast.
    Have heard it on the way to primarly day job and really made me lauging loud as you introduced the “coffee monster”. 🙂 Point here beside your great humor is that striving for excellence is always extremly energy and time consuming. But sometimes 80/20 rule is good enough. So I printed your tips for making a good cup of coffee, ordered good coffee and some tools and have the goal to make realy great coffe but not the best in the world. 😉 Thanks again for a really great and entertaining one with useful information.

    1. Socrates-Trader

      Ah, one more question and maybe a future podcast theme: How is it, that you only need few hours sleep on regular basis? Have you hacked it with something like “polyphasic sleep” (Steve Pavlina has written a lot about that) or is it just a genetic outlier? Have read a ton of research how super import enough (enough is more than most people think) sleep is for your health.

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