Notes for Chat with Traders, Episode 126

Added on by C. Maoxian.

Episode 126 ... "Jonathan" (69:55)

  • Division 1 baseball scholarship to college in Louisiana
  • Got injured (hurt back), professional baseball career not possible
  • Lost scholarship, didn't know if he could stay in school
  • Back still nags him today
  • Uncle was a Wall Street guy, worked for Shearson Lehman
  • Uncle had a nice house, nice car, nice boat ... that attracted him
  • Had friends who had moved to NYC ... visited ... loved it, moved there, age 20
  • Spent a lot of time in the New York Public Library trying to educate himself
  • Did odd jobs, but had some savings 
  • Read the Jack Schwager Market Wizards books at library
  • Met a guy (won't name names) in 2004 through family friends who had worked for Steve Cohen, retired at age 35, working from home
  • Guy took him under his wing, acted as mentor
  • Jonathan sat with him at his trading desk, for over a year he did this
  • Mentor from India, born poor, but he made it big in America ... saw Jonathan's passion, competitive drive
  • At first Jonathan was incredibly intimidated
  • Mentor traded futures, 250 contracts at a clip
  • Mentor did stat arb ... a quant
  • Mentor taught Jonathan to be open minded, you can learn something new every day
  • Jonathan's first account was $10,000, piggybacked off of the mentor's trades, did well
  • Mentor wanted Jonathan to finish his college degree, so he moved home to Dallas and got degree in economics / quantitative finance
  • Mentor discouraged him from going to a prop firm, get a degree instead, work for a hedge fund
  • Many prop firms in New York City were Churn and Burn outfits
  • Took out student loans and used money to trade futures and lost all of it ($35,000)
  • Traded too big with his student loan money and blew up
  • Most people who blow up, quit, but not him
  • Sent resume out blind to many hedge funds ... 92 hedge funds ... got three interviews
  • Paradigm Capital in Ft. Worth hired him as intern
  • Thought he blew the interview, lots of tough math questions
  • What is 24 times 86? He froze up, started sweating, took him five to seven minutes to answer
  • Paradigm traded credit default swaps, he knew nothing about them
  • Promoted from intern to assistant trader to trader to head trader, within six months (in 2008)
  • Paradigm did well between 2008 and 2013 ... all discretionary, no modeling
  • Learned MatLab, started building models, also used Bloomberg Terminal to build stuff
  • European sovereign credit crisis was a great opportunity, worked 3AM to 6PM, seven days a week
  • Paradigm was $5BB at its biggest, trading book had $3BB ... [not a garage band hedge fund]
  • When he joined it was $2BB
  • Left Paradigm in 2013 ... he had made partner, had equity in the fund, started butting heads with the boss
  • "The bacon is all in the year-end bonus." 
  • He took equity in the fund instead of a year-end bonus
  • European regulators "banned" speculation in European CDS ... liquidity vanished
  • Wife encouraged him to quit, trade from home [she must be an angel]
  • Started trading 2014 on his own with $250,000 ... all discretionary trading
  • Made $60K in first month, thought this is easy!
  • Lost $80K in second month, oops, needed to create a systematic approach
  • Didn't have Bloomberg Terminal at home
  • Taught himself "R" language and built a system, sort of a hybrid, still uses some discretion
  • Still executes all trades manually
  • Mentor recommended Market Delta platform
  • Found patterns in the data ... uses Volume Profile, spots order flow stuck at extremes
  • Not a fan of derivatives of price (moving averages, lagging indicators)
  • Fan of re-tests ... people stuck getting out at "breakeven," easy to see on Footprint charts
  • Numbers don't lie, your eyeballing stuff lies
  • Brains are pattern recognition machines, sees patterns everywhere
  • Have to teach your system "market context"
  • Found his entries and exits better when he does it manually
  • Patient, he always waits for a signal
  • But there are times he gets a signal and ignores it
  • He only trades E-mini (ES) futures and crude oil (CL) futures ... most liquid markets
  • Doesn't like headline risk of trading FX
  • Specializing in one market is a great thing, just need to master one
  • Has six monitors in home office
  • Don't complicate things, keep your approach simple
  • He knows nothing about candlesticks and MACD and stochastics, etc.
  • Trading isn't rocket science
  • Given his results, has been approached by people about starting a hedge fund, but he has no interest
  • Too many regulations to start a hedge fund ... just a headache
  • Wife encouraged him to get Twitter account [she must be an angel]
  • Twitter: @HF_Trader