Notes for Chat with Traders, Episode 132

Added on by C. Maoxian.

Episode 132 ... Mark Gardner (55:43)

  • Australian, heavy accent, difficult to understand
  • Has four kids
  • Has a three strikes rule (mistakes, rule breaking, bad judgment, misses something) and he takes a break
  • In front of screen for 20 years, 80,000+ hours
  • [Can't understand him, he talks fast ... and there's the accent ... missing half of what he says]
  • Parents were blue collar, worked seven days a week, hard workers
  • Goes on "auto-pilot" when he's trading
  • Sets up his screens consistently, like a gamer, chart pattern recognition
  • Same things in his field of vision for 15 years
  • When he's stimulated, he's relaxed ... not worried about burnout
  • Working for himself, no one else ... that makes a big difference that he doesn't get sick of it
  • Power napper
  • Your rules shouldn't say "don't don't not not" ... make constructive rules when in neutral state of mind
  • Last year of high school in Australia, you need to get work experience
  • 14-year old first time on Australian trading floor ... he was enthralled, exciting, knew he wanted to do this
  • 17-year old he went right to work for brokerage
  • Grew up in small country town, not studious, University not something he wanted to do
  • Had a mentor who worked him hard, very strict, but he needed that, no regrets
  • Ten year apprenticeship, only two or three months of losses over ten years
  • Top 10% will always eat the bottom 90%
  • Eventually had enough capital to handle the swings psychologically
  • Got arrogant in 2014, thought he couldn't lose, then predictably took a big hit in March 2015
  • "God Complex," took position way too large, lost six or seven months of gains in four hours
  • Lightning strike hit house, everything knocked out, lost 20% right when that happened, once back up realized he was badly stuck, got angry, snowballed
  • Usually level-headed and calm, this stressed him out, he sort of freaked out, had a lot of bad thoughts, couldn't walk away, calm down
  • Tightened up all his redundancy measures after this event (diesel generator, backup computers, etc.)
  • Took six months to make it all back, which he did
  • Re-gained his respect for the market after this, respect for risk management
  • Feels his edge has diminished over the last 15 years
  • He's not up against another human anymore, he's up against quants
  • The competition had changed, he had to adapt
  • Quants are taking advantage of the inefficiencies of human traders
  • Math guys don't respect old traders, no love for the discretionary traders' pattern recognition and intuition
  • Human mind can adapt and make complex associations that are not quantifiable but need to be respected
  • Don't cuddle up to other losing traders when you're losing ... don't seek comfort
  • Twitter: @42trading

Dirty Dozen, Long Only Portfolio, End of July 2017

Added on by C. Maoxian.

Sorry for the delay in posting this ... I've been re-learning how to day trade these last several months and it's hard work, but I think I'm making progress, however slow-going.

One change to the Dirty Dozen portfolio: sold Starbucks (SBUX) on August 1 for a loss (I was worried about it at the end of June).  Amgen, Chipotle, Gilead, and Twitter remain on the sidelines for now. 

Changes in 2017 include selling Twitter in January, while getting long Chipotle and Tesla in February, Facebook in April, and Starbucks in June. The Chipotle sale last month appears to be well-timed, and we'll see how the Starbucks sale in August looks in time.  

Notes for Chat with Traders, Episode 46

Added on by C. Maoxian.

Episode 46 ... Hans Dederle (46:39)

[Can't tell if this guy really makes any money?]

  • Worked for accounting firm doing tax prep, quit
  • Joined brokerage firm, got series 7
  • Got interested in trading off of earnings reports
  • "So to speak...."
  • Started trading a couple months before the 2008 peak
  • Blew up his account a couple of times [doesn't give details]
  • Boredom traded, revenge traded, averaged down, blew up
  • Had eleven months of trading profits, friends and family wanted to give him money [11 month track record?]
  • Managing other people's money, he's less emotional, more professional
  • For his style, high volatility stocks the only way to go
  • Looks for reversals in the first thirty minutes of the day
  • Don't try to beat the market makers, join them
  • Uses five minute candlesticks, finds support on gaps down, resistance on gaps up
  • Trades one to three things a day
  • Looks for extreme volume in individual stocks
  • Buys calls and puts, not the actual stock [how does he price them?]
  • Also looks at Level 2 
  • Commissions will eat up your profits if you overtrade
  • Trails a stop on his option positions [market liquid enough to do this??]
  • Holds positions usually one to five minutes [what?!?]
  • Tries to set entry and target with every position
  • Done by 10:30 AM every day, never swings anything
  • Trades NFLX and AMZN all the time
  • "For me, ...."
  • Don't confuse yourself with too many indicators, keep it simple
  • Uses RSI (lagging) to judge extreme moves
  • You need a system to stay disciplined
  • "Fail your way to success" [Zen koan?]
  • Don't think about the money, think about staying true to your strategy
  • Has tweaked his strategy all along, adapted to changing markets
  • Paper traded his strategy for six months to fine-tune and gain confidence
  • "Hold and hope" instead of stopping out -- deadly
  • Everyone in the beginning cuts her profits short and lets her losses run, it's only natural
  • Figure out what works for you
  • Twitter: @Hdederle

Notes for Chat with Traders, Episode 48

Added on by C. Maoxian.

[I've always liked Linda Raschke ... she's the real deal and every word is gold. You should seek out everything she has ever written and recorded]

Episode 48 ... Linda Raschke (49:29)

  • 1981, started as equity options trader on the floor
  • Barriers to entry minuscule today compared with the past when she started
  • Once you find the key, they change the lock
  • Must learn to adapt
  • What works for someone else might not work for you
  • Still learns something new every day
  • After ten years of trading, she felt confident with her plan
  • You can't go and copy another trader
  • Have to move to markets where there's volume and volatility 
  • Many markets she used to trade no longer exist (pork bellies, OEX options, etc.)
  • Markets either go up or down
  • Don't force anything
  • Like tennis, keep the ball in play until you see an opening
  • The big money is made holding overnight, which is riskier
  • Don't use linear framework to approach the market
  • Wyckoff ideas of range contraction and tests and re-tests still good
  • Look for strong volume, strong directional bias 
  • Lethal to trade in the middle of a range
  • Trade location irrelevant if you're getting on a trend
  • Market moves now efficient, instantly goes to new equilibrium level
  • Look at price, not derivatives of price, like oscillators
  • Always check liquidity first ... can you get out quickly?
  • Intuition just the sum of experience, she's not a fan of intuition
  • Every time she's had a hunch, she's been wrong as often as right
  • Need a very consistent approach or framework to the market
  • Prepares the night before, has a game plan, comes in next morning ready to go
  • 80% of your profits come from 10% of your trades
  • Don't scramble in the morning to get prepared, do it the night before
  • You need to concentrate and focus, don't get distracted by Twitter and TV, shut out the noise
  • Take anybody else's opinion with a grain of salt
  • Most "educators" couldn't trade their way out of a paper bag
  • Anyone who trades well doesn't teach anybody else how to trade, it's a bottom-line business
  • Find your own style, do your own work
  • Print out charts and make a notebook, study action that preceded big moves
  • Gann was demented at the end, suffering from syphilis
  • Concentrate on one initial pattern and study it: a breakout thing, or a retracement in direction of trend
  • Keep track of your performance statistics, turn it into a game
  • Free yourself from ego, rid yourself of the need to call turns
  • Imagine yourself standing on your surfboard alone in the ocean waiting for the great wave
  • People think trading is easy, want to follow a guru -- they're doing it wrong
  • Every successful trader has found one little thing that works for her, and does it consistently
  • Has a website but neglects it
  • Look for YouTube videos of her ... all free! (5,210 results)

Notes for Chat with Traders, Episode 128

Added on by C. Maoxian.

Episode 128 ... Andy Kershner (49:55)

  • Geologist by training
  • Ski bumming, early 1990s
  • [Has a laconic speaking style, a native Texan]
  • Started trading options out of the library with his buddy with $5,000
  • Dyslexic friend, Scott Dyer?, in Texas, great at pattern recognition, "savant-ish"
  • Top 100 IBD names, trade options on them ... all pre-internet
  • Turned $5,000 into $1,500, couldn't get the prices they saw on the screen
  • SOES came into being, little guy finally had a chance to get quoted prices
  • Went to Cornerstone Securities, which became ProTrader, in 1996
  • David Jamail, David Birch -- founders of Cornerstone?
  • ProTrader started with 12 seats in Austin, 500 day traders across branch offices at their peak
  • Sold ProTrader to Instinet in 2001, kept proprietary trading group
  • He lives and breathes trading
  • Cornerstone willing to hire savant buddy, but not him, he was a "trainwreck waiting to happen"
  • Worked part-time jobs, was friends with all the ProTrader traders in Austin
  • Made one trade a day on the side at first
  • Markets change, strategies changes, but habits don't change
  • Once he was on his own and loaned enough capital, he made 100K a month "forever"
  • 80% of his trades were scratches or small losses, 20% were big winners
  • He's from the era when there was a human on the other side of the trade (mid-1990s)
  • Computer models today are always searching for stops, no more human involvement
  • His biggest strength/weakness: he can take a lot of pain
  • Big numbers don't bother him
  • Trade according to your psychology, do what works well for you, and is repeatable
  • Find an edge and see how large you can do it without changing what you do 
  • Best traders trade 100,000 shares exactly the same way they trade 1,000 shares 
  • [He means the decision-making process, not the actual execution which is different]
  • If you're sitting in a seat all day, you might as well being doing some size
  • He ladders in and out of positions now
  • Risks 1.5 to make 3.5 to 4 ... 50:50 odds he's right
  • Will triple his size when he thinks he can win big
  • Lots of styles work: scalpers, swing traders, high win rates, low win rates ... it can all work
  • Have to discover what you're good at, amount of risk you're willing to take
  • Develop good habits: journaling, reviewing, preparing
  • Strategies don't matter, good habits matter
  • Exercise and rest important
  • Review at end of day, what you got right and wrong, journaling
  • May 23, 2017 ... his MOMO position, wanted out 46-48, didn't happen .. tanked to 38, sold 41 
  • Lost 90K more on that trade than he expected, gave it too much room [charts below]
  • He didn't have his game plan structured well enough, too much thinking on his feet
  • Have to do what you think you have to do ... making and losing money doesn't matter
  • Fades overextended moves, laddering in, both on the upside and downside
  • Where people are getting stopped out, that's where you should step in
  • Trades 100% US equities and loses money consistently trading options [he has a sense of humor]
  • When you know that you're wrong, get out
  • He ladders in equal-sized usually ... position sized by liquidity and confidence
  • Find 3-4 : 1 RR winners, win ratio a little better than 50%
  • Add to your winners, not your losers
  • Teaches people good habits for six weeks at his firm, then they go live
  • Looks for people who have overcome adversity, people who can act with limited information 
  • Engineers tend to be bad discretionary traders
  • Common mistake new traders make is thinking it's easy
  • Only 2 out of 10 of the carefully chosen, great people he takes in make it, takes years to make it
  • Need your finances in order before you start, need your working spouse to float you for those *years*
  • Recommends reading Reminiscences of a Stock Operator, Market Wizard books
  • Find the best short-term trader you can find, and go work for him (her)
  • Shortcut your process
  • He talked to all the best traders at first in Austin and cut learning process from five years to one month
  • Good trading goes against basic human instincts -- fight or flight, have to do the opposite
  • Good trading requires extreme discipline
  • Don't keep doing the same thing if it's not working
  • If you're overly emotional, look into automated trading
  • Do you care about being right or making money?
  • Software eating the world, everything is getting automated, incl. trading and investing
  • AI is only a tool, still need smart humans to employ it
  • Generally uses Python to build models
  • www.kershnertrading.com
  • www.cloudquant.com

Loving the Real Cheryl Lynn

Added on by C. Maoxian.

Thrilled they have a live version of this great song on YouTube ... an amazing voice ... and I think that's one of the songwriters on the piano:

Notes for Chat with Traders, Episode 96

Added on by C. Maoxian.

Episode 96 ... "Nico" (71:07)

  • Has two 43" screens, Dell multi-clients, 12 usable virtual screens, 4K resolution
  • Previously four 24" screens and one vertical 28"
  • Ikea desk
  • Aug 2016 best month to date [podcast recorded in Sep 2016]
  • Worked for software development firm out of high school
  • Wanted to make more money
  • He didn't want to take core college courses, just computer science, dropped out
  • Built his own software development business from nothing
  • First client he had was a successful stock trader
  • Discovered that microcap stocks moved 20, 30, 40% in a day
  • Lived paycheck to paycheck in the beginning, had no savings
  • Had to save up money for a year to build trading stake
  • [Blipped out some bad habit?]
  • Do not quit your day job! Try something on the side first
  • First trade in early 2007, bought AAPL, no time horizon, sold dame day for $100 gain
  • "Easiest $100 he ever made"
  • Didn't want to work in a cube and make $100
  • Used Telechart by Worden Brothers in 2007, had built-in chat window, that was cool!
  • Charting appealed to him, fundamentals "too much work"
  • Timing the market using charts -- instant gratification
  • Did not know about shorting at first, just went long
  • Microcap market of 2007, he made $20K just getting long microcap runners
  • He thought, "this is easy" -- worst thing that could happen
  • First account was $5,000 with Fidelity
  • Either the market changed or his luck ran out, but he kept "pulling the handle" (slot machine reference)
  • Second year lost all his profits, cold reality slammed him in the face
  • Now he understood why trading is "damn near impossible," 90%+ fail 
  • Lost consistently for the next seven! years
  • Easy to lose trading profits, hard to lose "legitimately" earned income
  • Started to put his size in check, started trading small, $5,000 positions, maybe $10K
  • He would hit periods of profitability during those seven years, but then give it all back
  • He was making a good living as a software developer, trading losses didn't really matter, "slow bleed"
  • Three steps forward and five steps back
  • At one point he had over $25K, not shackled by Pattern Day Trader rule
  • Wished he didn't exceed PDT rule, wasted a lot of time and money
  • PDT rule exists because of degenerate gamblers (like he was)
  • Loves solving problems and puzzles, thought he could figure out the market
  • This shit is tough, I'm getting my ass handed to me, small size kept him from blowing up
  • As the years passed, self-doubt crept in, but people supported him despite his failures
  • Periods of profitability gave him hope
  • Can't be luck alone, because he's losing more than he's making [made me laugh]
  • Reached end of his rope, had a serious sit-down talk with himself, sick of adding money to trading accounts and losing it
  • Went full-time, stopped growing his software biz, focused solely on the market
  • Never had Facebook, MySpace, Instagram, Snapchat
  • Traded in isolation for those eight years, floated around, went nowhere
  • Discovering Twitter changed everything for him, every trader is on there [even good ones ;-)] 
  • Discovered shorting, those first eight years were long only
  • Investors Underground gave him a connection to good traders
  • His software biz big enough, successful enough, he can make his own hours, and has savings
  • He loves shorting, 90% short, 10% long
  • "Flying Pigs" ... short the microcap junk companies doing dirty stuff to boost stock price
  • Fluffy PRs, huge gaps up, presents good opportunity to short
  • Look at pre-market movers and gappers
  • Look at pre-market unusual volume
  • Has a watch list called "Pigs" ... every pig encountered is added to the list
  • Has 200 pigs on his list 
  • Pig list sorted by net % change, former runners appear once again, no homework needed
  • Top of the net % change list become his candidates for shorts
  • Wait for the backside, "crack VWAP," or "high of day rejection"
  • Shorting the frontside is stepping in front of a train, have to make an educated guess where the top is
  • Controlling your size is everything, don't be a gunslinger
  • He isn't comfortable sizing up because he still has lots to learn
  • One bullet shooting only necessary if you can't scale in
  • You can't improve what you don't measure [smart]
  • Account balance alone isn't a truly useful measure
  • Start plotting your equity curve
  • Puts everything on Twitter to curb his degenerate gambler impulses
  • Stopped overtrading, being impatient
  • He's the rare guy who thinks you should post your P&L publicly [I say: bad idea]
  • All about accountability, kept him from being reckless
  • Aaron mentions that you must have measures other than P&L to measure success [from "HF71"]
  • Track your daily P&L in great detail
  • Take a scientific approach and measure what you're doing
  • Develop good habits ... he had bad habits for eight years
  • Identify what you struggle with: Are you impatient? Are you a degenerate gambler?
  • Don't trade in solitude, surround yourself with better traders who are like-minded
  • One wolf hunting for food isn't going to eat as well as a member of a pack
  • Boy Scout system, try to keep each other out of trouble
  • Has developed spreadsheet for trade tracking, willing to give it away from free
  • Lots of people pay for TraderVue, but can just use his spreadsheet
  • Twitter: @inefficientmrkt

Looking at the Short Squeeze in DryShips

Added on by C. Maoxian.

The notorious $DRYS did yet another reverse split on Friday, July 21 (this one 1:7). I've been avoiding shorting this stock because I've been fearing a squeeze, which would happen the moment I got short, thinks Mr. Paranoid. I hadn't thrown in the towel and finally shorted it, but there was a wicked short squeeze last Friday. I didn't make a dime off of this expected squeeze, mainly because I was too busy tweeting about it instead of playing it.

My Twitter addiction costs me so many opportunities, and I have to work on curbing my need to be publicly "right." I really need to force myself to shut off Twitter during market hours ... I just have to go cold turkey. Catching this one trade could have made my week / month / year!

Click for lightbox

Notes for Chat with Traders, Episode 98

Added on by C. Maoxian.

Episode 98 ... Peter To (80:04)

  • 2004 started playing online poker, 15 years old
  • Inspired by Chris Moneymaker winning WSOP in 2003
  • Wasn't athletic, all intellectual power, poker a good fit
  • Deceived Mom to fund his PayPal account to fund poker account
  • Started with $20 and lost it all, devastated
  • Second $20 he tried to make it work playing 10 cent blinds
  • Did hand analysis on 2+2 forums
  • He was playing tight, but too passively, not getting enough money into the pot
  • First became profitable limit player, then profitable no-limit player
  • Turned $20 into $20,000 over two and a half years
  • No innate talent for poker 
  • Never plays poker anymore, edge is too small now
  • Lives in New York City, comes from Southern California
  • Poker has advanced so much, so sophisticated today, very hard to win now
  • "Game Theory Optimal" -- everyone knows the correct line now, everyone knows the math
  • Poker has become an efficient market now [smart comment, he's right]
  • Lost the passion for poker ... no fun chasing bad players online [even worse to do it offline when face to face]
  • Variance in poker also very high
  • Knew nothing about the stock market until college
  • Best friend talked about trading and investing, interest piqued
  • Natural transition from poker to trading
  • Got interested in 2008 2009, Great Financial Crisis
  • Started out as a gold bug, feared hyperinflation
  • Bought physical gold coins with his $20K, paid 8% spread [I'm chuckling, but it's good to be suckered at first, I believe]
  • Still a big libertarian
  • He's able to debunk himself quickly, fortunately
  • Sold his gold coins for breakeven
  • Second stage he was a value investor -- read Ben Graham, Peter Lynch
  • Bought Apple, Wells Fargo, Baidu, Dow Chemical all at the lows during the crash
  • Realized he didn't have the patience to hold all this stuff
  • Turned $20K into $30K, got account over the pattern day trader rule
  • Third stage: day trader using technical analysis
  • Mom's friend taught him how to read charts and structure trades
  • Read a lot of blogs, sourced his learning from all over
  • Discovered the ARCA pre-market cross in OTC junk stocks
  • Stock closed at $1, offered in pre-market on ARCA at $0.85
  • Would pick off all those $0.85 offers pre-open then sell for $1 at the open
  • This happened from time to time over two years, a few times a month
  • OTC market making is manual ... quotes not honored ... shady stuff
  • Moved to NYC and started prop trading
  • Doesn't want to name prop firm
  • Had been trading every day for two years while in college
  • Started trading club in college
  • Good things and bad things about being in prop firm, but experience invaluable
  • Many prop firms are about "burn and churn" ... get a guy in, get commissions, until he blows up
  • Prop firms would "fine" people ... e.g., couldn't trade odd lots
  • Prop firms can offer capital to scale stategy, proprietary technology to enhance strategy
  • Started meeting seven-figure traders, their strategies not do-able on a retail platform, needed capital and technology of prop firm
  • Compares a good prop firm to a good farm team in baseball [nice analogy]
  • Read Glassdoor about every prop firm you're considering, lots of shady practices
  • Big red flag is if prop firm requires a deposit
  • Careful of groupthink in a prop firm, herd mentality, tunnel vision
  • There's lots of ways to make money trading, not just momentum
  • Wants to catch all-day runners
  • Unusual volume, unusual volatility, unusual attention being paid to it
  • Not intellectually deep, just using intraday chart, price and volume
  • Shorting parabolic microcap stocks, thesis is overextended junk will eventually collapse
  • Trick is timing the turn precisely, how to minimize damage when your timing is off
  • Takes years to hone this skill
  • Follow the order flow, can't just rely on your shorting-microcap-parabolics-play, they dry up
  • Chapter on Jimmy Balodimas in Schwager book made big impression on him
  • "Stepping in Front of Freight Trains" -- fight trend, add to losers, fades huge moves, gave self huge leeway, took quick profits, in short Jimmy did everything "wrong" based on conventional wisdom
  • Peter has developed "trading nihilism" -- process doesn't matter [another smart comment]
  • His firm bought the Flash Crash, risked the firm, risked everything, best day ever. Skill or luck? Was it wrong? 
  • No mathematical framework in trading that you have in poker
  • The market never repeats itself like a poker or blackjack hand does [yes, exactly]
  • Throwing the book out from time to time, not following your rules, it's all guts and intuition
  • Some people just have conviction, don't care about price action
  • He was consistently profitable at first, but made no money [just like "winning" with tight, passive poker play]
  • He's a very emotional person, but makes emotion work for him
  • Feels the fire and allows his greed to take over -- results in best or worst days
  • Fannie Mae his biggest loss ever, most popular blog post
  • Shorted AVXL, one of his best trades ever
  • When he loses money, he wants to sleep in the next day
  • When the wheels fall off, self-doubt creeps in, needs to take a break
  • Has had worries that he'll never trade again
  • October 2016 the worst month in an otherwise good year
  • Can't get out in these microcap stocks, you get stuck, 1x loss become 3x loss
  • Built muscle memory for trading certain stocks, which betrayed him when trading OTC stocks
  • Lived in NYC for four years, 26 yo now
  • Used to keep detailed journal, made detailed plans, did detailed trading reviews -- now he's relaxed, doesn't do any of this, just wings it [sounds familiar]
  • Try less hard, take the pressure off yourself
  • Trading is not easy, markets constantly changing
  • Thoughts on trading BitCoin: insane volume and volatility, psychology same as crazy stocks
  • Exchange security is everything, you get hacked and lose everything, you're just not safe
  • Multiple exchanges with multiple rules, none of them have good infrastructure and security and no oversight, don't get involved with this, way too risky
  • peterkto.blogspot.com
  • Twitter: @peterkto

Notes for Chat with Traders, Episode 101

Added on by C. Maoxian.

Episode 101 ... Siam Kidd (113:27)

  • "Sitting in my Tesla"
  • "I love Elon Musk"
  • 0-60 in 2.8 seconds, he says
  • British
  • 30 years old now, stone broke at age 25
  • Was pilot in Air Force, station commander can earn 80-90K GBP after 20 years in, realized he had to get out
  • Joined Air Force at age 18
  • Had been trading for seven years (since 18), first four years of trading a horror story
  • "Billy Big Balls Syndrome" -- he'd go on a streak, get overconfident
  • Online gambling and trading the only ways he could figure how to make "easy" money
  • Martingale strategy using online roulette, thought he had cracked the system [funny]
  • Revenge gambled his maxed-out Virgin credit card on online roulette, lost it all
  • Moved on to trading where he "did considerably worse" [he has a sense of humor]
  • Opened 2,000 GBP account, lost it within one day
  • Blew his 2,000 GBP Air Force income every month for four years, all off one minute chart  
  • Girlfriend was supportive of his leaving the Air Force, trusted him to dig himself out [she must be an angel]
  • Left Air Force with no safety net, ten grand in savings, started trading full time
  • Made 30% per month for the first few months, then lost half his capital in one month
  • Shopping in Lidl, could choose cheese or mayo, couldn't have both, rock bottom
  • Got 16K admin role at some staffing company, had to pay the bills, completely demoralizing
  • Still trading his 2,000 account, went back to the drawing board
  • Risk management finally clicked after year seven, went back to the daily charts
  • "Triple R" ... risk reward ratio must be 1 to 3 and preferably 1 to 8
  • Van Tharp book a huge help
  • Wish he had had a mentor who knew what he/she was doing, something more than just googling for answers
  • Made every mistake he could: strategy hopping, buying black boxes, scalping, day trading
  • No good or bad forms of trading, all about risk management
  • New traders should never day trade
  • "Boring trading is good trading"
  • Second guessing yourself with every new five minute candlestick
  • Making more decisions than you need to when intraday trading
  • Be super selective, don't take many trades
  • Only 100K traders in the UK, 95% of them losing money hand over fist
  • Smart traders know how retail traders think and take advantage of them
  • Stop running is rampant among pro traders and institutions, they seek out the retail orders
  • Scouring the internet for "systems" ... that's a real rat race
  • Markets only trend 15% of the time, chop the rest
  • Trades currencies now, looks at 20 different pairs
  • He's flat almost all the time, small wins, small losses, and a very occasional huge win
  • Tries to catch reversals, so he gets stopped out a lot
  • He will put orders out into space at "support or resistance" and hopes to get hit
  • Get the best Triple R from this kind of entry 
  • His win rate is 32%
  • Didn't want to stare at charts all day long
  • Max risk for him is 0.25% per trade
  • When trade goes in his favor, he scales in, adds .75% and then between .25% and .50%
  • Thought Trump would win and markets would tumble, he didn't anticipate rebound and rally
  • He looks for "coiling" ... volatility drops dramatically, range contracts ... "market compression"
  • Places "fishing nets" above and below
  • Gets shorts in during stop runs above [and I presume longs in during stop runs below]
  • "It's just a numbers game."  All about managing risk-reward
  • Catch a thousand+ pip trade once or twice is year, you're set
  • Has a lot of physical gold and silver as a hedge
  • Make things mechanical, don't scare yourself out
  • Uses two moving averages to manage his stop losses (8 EMA 21 EMA), keeps it simple
  • Uses round numbers and .50 levels, trails below 8 EMA and these levels
  • 21 EMA gives you enough space to catch the trends
  • Spends less than five minutes a day trading, adjusting stop losses using 21 EMA
  • You can do 10,000 hours of chart time and "still be shit at it" ... will take a lot longer time than that if you're not focused
  • Read everything that Van Tharp has ever written
  • People quit trading because it just takes too much time to do (screen time)
  • Uses three screens
  • If he has to think about it longer than three seconds, he won't take the trade
  • Once you're back from holiday, trade very small until you get your market sense back
  • Business is the best "asset class" there is ... best risk/reward there is
  • Has a stake in 15 different businesses now (says he's down to seven now)
  • You need a lot of capital to make money trading ... making 30% on a 10 grand account, even every month, doesn't mean anything
  • You don't want to be rich through compounding because you'll be too old to enjoy it
  • If you run a business, get out of the weeds (don't get bogged down in the details)
  • His first two or three businesses failed miserably
  • Bought silver in bulk, made under 20 grand profit on 1.4MM in turnover ... horrible time-adjusted return
  • Took M&A course for 7,000 GBP in Mallorca ... shockingly it wasn't a scam
  • "All business owners are mugs." 
  • BIMBO ... buy in management buy out
  • Has a very negative outlook on the world
  • HFT now seeping into the currency markets, already licked the equity markets
  • Don't try to make money trading unless you already have a large amount of money to trade
  • Never think trading will get you out of the financial hole you're in
  • Get your trading record audited so it's "proper legit" ... then easier to raise capital
  • Find 3,000 people who pay you seven quid a month regularly (with a product or service), then sell it for 2MM 
  • "Never deliver shit"
  • Dollar shave club dot com a great example
  • Passionate views on schooling system, did a TedX Talk on topic
  • Kids being killed mentally by schools
  • Work 40 hours a week for 40 years and get a pension at 40% of what you made
  • Kids now have "bugger-all skills"
  • Has five-month-old child, doesn't want creativity beaten out of him
  • Wants to create just one school that adopts his philosophy
  • Wants kids playing with robotics, 3D printing, augmented reality from Day One
  • He's not a fan of trigonometry [I'm chuckling]
  • Long summer holidays from school all about the Harvest (not relevant anymore)
  • Will need 10MM quid to build his school, doesn't want any external funding
  • "I'm a simple bloke with average qualities from Norwich"
  • Sir Ken Robinson, big fan of him
  • He's not naturally a Big Thinker
  • Do Review Apply ... Air Force saying [reminds me of Netto]
  • Goal setting is silly, focus on your habits instead
  • Think and Grow Rich, by Napoleon Hill ... big fan of the book
  • Everyone thinks small, you should think big
  • You're swimming in an ocean of opportunity
  • Always think bigger, not "I have to buy a house," but "I have to buy a village"
  • Humans always adapt, always "up-skill"
  • But rate of technological change has increased so much, will create future shock for humans
  • Recommends the book, Abundance by Peter Diamandis
  • "Sorry for rambling on"
  • Says some nice things to Aaron in parting
  • Has YouTube videos
  • Twitter: @SiamKidd

Reasons Not To Use a Real-Time Market Scanner

Added on by C. Maoxian.

This section from @tagrtrades recent blog post caught my eye:

I’m slowly trying to move from a scalper to a bigger picture trader. The biggest catalyst to this change was letting the subscription to my intraday scanning service lapse and focus on my pre selected watch list. Sure I miss trades, but I know the trigger points I’m looking for and don’t find myself shooting from the hip nearly as much as I have in the past. I’m also trying to look at charts outside of just the 1-5min timeframe I’ve done for years. Pulling back and getting a clear hourly view has helped me look for areas where I can target for more than just a few cents and get more % out of each trade.

I've had a few thoughts about the pitfalls of using a real-time market scanner:

  • Information Overload

Even when you really fine-tune your scanner, it's still spitting out dozens of things to look at every day. There's just too much to look at. I have what I consider to be an incredibly rigorous set of criteria that has to be met to qualify as an "Unusual Suspect," and still I get at least a dozen candidates every day (today I got 18). If you're looking at everything, you're looking at nothing. The human brain can only focus on a few things.

  • Pavlovian Response

Every time the scanner dings, you get excited and think about making a trade. If you're looking at an intraday time frame like the three minute chart, you're going to start overtrading. You'll be generating a lot of commissions and very little profit, if any.

  • Liquidity Issues

I use the scanner to find "Unusual Suspects" in real time. They are generally low float, micro-cap junk stocks that are on a tear, (or they are bigger stocks that have been hit with news, good or bad (earnings, FDA decisions, etc.)).

The trouble with the low float, micro-cap junk is that after the initial burst of activity, volume dries up and there's no way to exit your position in a graceful way, even if you're on the right side of the market. You get stuck. And I mean stuck at a profit. It isn't as simple as crossing the spread and getting out. If you have 10,000 shares of a dollar stock, or more likely tens of thousands of shares, you just can't exit without tipping your hand, and they'll move the market away from you fast. It's frustrating. 

  • Dependency Issues

It's possible that you may shape your whole trading strategy around the scanner and grow overly dependent on it. I like to think that everyone should strive to be able to trade profitably while still using an old 14" cracked laptop on a dial-up connection from the Australian Outback.

  • Unnecessary Expense

I've always thought that your broker should supply you with a first-rate market scanner, gratis. My broker, IB, does have a pretty good market scanner, but it's nothing like Trade-Ideas, not even in the same league. Schwab probably uses the old CyberTrader technology for their scanner, but I really don't know. Fido, Schwab, TD, IB, etc. should all license the Trade Ideas technology and offer it to their "pro" users for free.

I might think of some more things later and update the post, but that's it for now.

 

Impressions After Sending My Son To Nerd Camp

Added on by C. Maoxian.

My son is doing a three-week-long robotics camp this summer in Maryland, organized by Hopkins' Center for Talented Youth. I just sent him to the camp yesterday and wanted to record my impressions before I forget them.

I estimate that 90 out of 100 campers are ethnically Chinese. Another 5% are Indian ("subcontinent, not Injun," as my friend Carl likes to say) and 4% are Jewish. This leaves a sad and beleaguered 1% of WASP attendees. The lopsidedness was shocking.

It makes me suspect that the Center for Talented Youth isn't interested in identifying exceptionally smart kids from all backgrounds, but instead is filled with bright kids who happen to have pushy parents who are trying to get their little darlings an edge, at any cost. Anybody with money can sign their kids up for prep courses or get their kids tutors who can help them pass "above grade level" tests. I thought CTY was all about finding weirdly brilliant kids, untutored, of any race, from all over the country, and all kinds of different circumstances. Looking around the campus on drop-off day, I was wrong.

I think Chinese parents must see CTY as some kind of backdoor into the Ivy League, and they might be right that it is, for now. But the overwhelming number of ethnically Chinese kids in the program makes me think that Hopkins is going to have to start limiting them in some way, a quota system perhaps, not far in the future. Striking a balance is going to be a very tricky thing. 

Notes for Chat with Traders, Episode 102

Added on by C. Maoxian.

Episode 102 ... Eugene Soltes (86:41)

  • His book, Why They Do It: Inside the Mind of the White-Collar Criminal
  • [Is Soltes another spelling of Soltys? (a Polish Jewish name)]
  • Professor at Harvard Business School .. finance, accounting, eight years on faculty
  • Had aspirations to be a trader
  • Econ undergrad, Masters in statistics
  • Worked at UBS, exotic options
  • Got a PhD, Great Financial Crisis hit, went into academics
  • MSNBC show called "Lockup" inspired him
  • Wanted to hear from white collar criminals, not violent criminals
  • Wrote to former Enron and Tyco executives in jail
  • Wanted to understand their perspective
  • Steven Richards, Global Head of Sales of Computer Associates, wrote thoughtful letter in reply
  • "Subtle fraud" ... backdating contracts to prior quarter, eight CA execs went to prison
  • Understanding the psychology of fraud
  • 90%+ of people he wrote to, responded
  • "the challenging part of their lives" .. he means being imprisoned, Soltes big on euphemisms
  • Spent a lot of time with Bernie Madoff, mastermind of largest Ponzi scheme in history
  • Bernie came from nothing and built an innovative brokerage firm
  • Madoff former Nasdaq chairman, highly respected and admired, SEC frequently called him for advice
  • Madoff one of the first to purchase order flow
  • Allen Stanford was $5BB fraud, big but a fraction of Bernie's
  • Madoff knew many of his victims ... all close within the Jewish community
  • Madoff rationalization for the Ponzi scheme, kept doubling down on a "capital violation" -- what a nut
  • $50BB+ in money under management at Bernie's fund, over a decade of no activity, just Ponzi payouts
  • Said he was earning 8-12%, any redemption he met with fund inflows
  • Very few redemptions because the stated returns were so amazing
  • People begged Madoff to get into the fund
  • 2008 the jig was up, redemptions exceeded inflows
  • Any sophisticated investor could instantly see it was a fraud, the returns were completely unrealistic
  • A lot of people looked the other way, wanted to participate in fraud not realizing it was a Ponzi
  • All his false positions were in tiny, illiquid markets ... just made no sense given his size, obviously ridiculous to anyone who spent ten seconds with the numbers
  • Can buy Madoff bogus statements on eBay now
  • Bernie just made a "series of mistakes," a charming guy, very smart and clever
  • Regulators overlooked all the red flags
  • Feeder funds aggregated small investors' money, sent to Bernie
  • Suing investors who took money out of the fund to pay people whose money was left in the fund
  • 2006 SEC deposed him about front-running his brokerage business orders; he wasn't doing this
  • Was so inconceivable he was a fraud (highly respected), regulators didn't look hard enough at him
  • Bernie and sons decided to alert regulators in the end
  • First impression of Bernie: cordial, whip smart, great memory
  • Bernie is "distantly aware" of what he did wrong
  • Madoff unusually calm in prison, taking it in stride [because he's a sociopath]
  • Michael Rand, chief accounting officer, at Beazer Homes
  • Housing boom, housing bust
  • Cookie Jar Accounting ... not over-reporting earnings, but under-reporting earnings, "over-reserving"
  • Unusual case where Rand was *under-reporting* earnings during housing boom
  • Five years in prison for under-reporting earnings
  • Managing the Street's expectations
  • Shop around for estimates that work best for you
  • Pension assumptions also all over the map, underfund pensions to maintain earnings
  • Insider trading -- using confidential information to make trades
  • Capital One employees correlated their credit card database with company sales, e.g., Chipotle sales boom, made trades based on their analysis, caught and went to jail
  • Two credit card companies do sell their aggregated data to hedge funds
  • Satellite data of store parking lots, car counts -- valuable data
  • Private helicopters fly over oil reserve fields to make estimates -- valuable data
  • Expensive data sources give these insights ... info legitimately acquired
  • Challenge to identify victims of insider trading
  • McKinsey exec Rajat Gupta tipped another Raj info he learned at Goldman Sachs board meeting
  • Received "friendship" from Raj, "fuzzy" benefit, no money, still convicted
  • Perpetrators very distant from victims so they don't feel bad about it
  • Prison is nasty ... dirty, cold, and loud ... rich guys still suffer that
  • Every white collar criminal he interviewed in prison was not remorseful, only troubled by missing family events
  • Nav Singh Sarao, flashing and spoofing very common
  • Tom Hayes, LIBOR scandal ... individuals as scapegoats for institutional problems
  • www.eugenesoltes.com
  • Twitter: @eugenesoltes

Notes for Chat with Traders, Episode 103

Added on by C. Maoxian.

Episode 103 ... Dave Bergstrom (55:32)

  • Realized he didn't want to go to law school halfway through undergrad
  • Father worked for Del Monte foods
  • Thought he could get rich quick by trading
  • [Sounds like a southerner or Texan?]
  • Got into trading around, just after, Great Financial Crisis
  • Always been a hustler, used to sell counterfeit sports jerseys, saved some money
  • Dad gave him $2,000 
  • Loved to draw lines on charts when he started
  • Traded options using technical analysis when he started
  • Would make money then give it all back
  • Need to trade consistently to see if you're able to "escape randomness" 
  • Lives in Florida, works for HFT firm, initially a trading assistant, lucked out getting the job
  • Taught himself how to program in Excel at first
  • Looking for edges in the data
  • Learning process went on for years
  • Need to test everything, can't just say something is "bullish" or "bearish," can't be subjective
  • Read "Evidence-based Technical Analysis
  • Moved away from chart patterns, too tough to program and test
  • Technical analysis not concrete enough
  • To move from trading assistant to trader, he needed to know how to program
  • Learning to program the best trade he has ever made
  • Programming is a super power, find the data and test it instantly
  • Read textbooks, watched YouTube videos, used Coursera
  • C++ the language to learn
  • Talked to HFT firm's programmers all the time, lucky he could study on the job
  • First learn how to read in data and build a technical indicator from O,H,L,C data
  • Look at several different resources to help things click
  • Find people you can ask questions of when you get stuck
  • Aaron recommends "Stack Exchange" to find answers to questions; Dave uses it "daily"
  • First language you should learn is Python -- clean, simple language, lots of free libraries
  • Machine learning background preferred
  • "Fitness Function" -- run a search program for 2.5 profit factor, for example
  • Think of "edge" as positive expectation, "positive expectancy"
  • Doesn't want to give away "secret sauce"
  • Every rule in a strategy requires a minimum number of trades (hundreds) to test
  • Allow law of large numbers to play out, must flip the coin a thousand times
  • Split up in and out of sample data (default 35% out of sample)
  • Two things he likes to look at: volume and volatility
  • Three key points that turned his trading around, he had unrealistic expectations [other two?]
  • Learned about Monte Carlo simulations, recalculate the equity curve for each shuffle
  • Must create realistic expectations in the beginning
  • Where do you expect to be in the next 'n' trades? What's the distribution?
  • Simulate variable win rates, don't just stick with one
  • "Randomness happens"
  • Three laws that he trades by:
  1. Risk to reward must be asymmetric, prefers trend following to mean reversion
  2. All bets mean the same thing to your bottom line, bet sizing must be consistent for the math to play out
  3. Make the law of large numbers work for you, edge must play out over thousands of trades
  • Discretionary traders who size up on certain trades are doing themselves a disservice
  • Trading should be boring, never exciting
  • Why bet five times your usual size on the eighth coin flip?
  • Dangerous to get an existing idea to trade more by dropping to a lower time frame, for example
  • Transaction costs for retail accounts make it impossible for law of large numbers to work out
  • Latency aribtrage has a bad rap
  • Trading is tough, HFT a scapegoat (but he's biased)
  • HFT beneficial, they do nothing predatory
  • Heyday of HFT over, very difficult now, strategies exposed, people jump from shop to shop
  • Has software he will license to the public, trading strategy search 
  • www.buildalpha.com
  • Twitter: @Dburgh