Filtering by Tag: trading

Selected Excerpts from Linda Raschke's Book, 'Trading Sardines'

Added on by C. Maoxian.

Honor Thy Stop

Added on by C. Maoxian.

Another great Chat With Traders episode, this time with Nishant Porbanderwalla, a prop trader with Kershner in Texas … lots of great bits, especially his insights on patience and confidence, you should listen to it all closely, but this was my favorite bit:

“I spoke with a senior trader and he said if you have a stop, you respect your stop and get out. If you still like it, take some time, and get in again. I learned that the hard way.”

The original text from Buzzy:

Click to enlarge



Diagnostic Criteria: Trading Disorder

Added on by C. Maoxian.

* For informational purposes only *

A. Persistent and recurrent problematic trading behavior leading to clinically significant impairment or

distress, as indicated by the individual exhibiting four (or more) of the following in a 12­-month period:

a. Needs to trade with increasing amounts of money in order to achieve the desired excitement.

b. Is restless or irritable when attempting to cut down or stop trading.

c. Has made repeated unsuccessful efforts to control, cut back, or stop trading.

d. Is often preoccupied with trading (e.g., having persistent thoughts of reliving past trading

experiences, handicapping or planning the next venture, thinking of ways to get money with

which to trade).

e. Often trades when feeling distressed (e.g., helpless, guilty, anxious, depressed).

f. After losing money trading, often returns another day to get even (“chasing” one’s losses).

g. Lies to conceal the extent of involvement with trading.

h. Has jeopardized or lost a significant relationship, job, or educational or career opportunity

because of trading.

i. Relies on others to provide money to relieve desperate financial situations caused by trading.

B. The trading behavior is not better explained by a manic episode.

Specify if:

Episodic: Meeting diagnostic criteria at more than one time point, with symptoms subsiding

between periods of trading disorder for at least several months.

Persistent: Experiencing continuous symptoms, to meet diagnostic criteria for multiple years.

Specify if:

In early remission: After full criteria for trading disorder were previously met, none of the criteria

for trading disorder have been met for at least 3 months but for less than 12 months.

In sustained remission: After full criteria for trading disorder were previously met, none of the

criteria for trading disorder have been met during a period of 12 months or longer.

Specify current severity:

Mild: 4–5 criteria met.

Moderate: 6–7 criteria met.

Severe: 8–9 criteria met.

Office Art

Added on by C. Maoxian.

I had the classic Al Ross (Abraham Roth) cartoon (from December 1981) framed for my spare bedroom, er, home office. The framer did a great job with it.

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Stabilizing Transactions

Added on by C. Maoxian.

From The IPO Decision by Jason Draho:

“Short covering: The underwriter can take an initial short position in the stock by overselling the IPO. Short covering in the open market creates additional demand that supports the price when there is selling pressure. The short position can alternatively be covered by exercising the overallotment option (OAO). An OAO is a standard feature of IPOs and it grants the underwriter the option to purchase additional shares from the issuer and resell them to investors at the offer price. The typical OAO is for 15 percent of the offer size and is exercisable for up to 30 calendar days after the offer date. The underwriter can completely hedge the upside risk if the short position does not exceed the size of the OAO, yet still maintain buying power to support the price when there is a sell imbalance.

Share repurchases by the underwriter in the open market are referred to as syndicate covering transactions and are subject to the same Regulation M disclosure requirements as penalty bids. In practice, investors are not informed that a particular trade is a short-covering transaction. The underwriter only has to include a statement in the prospectus indicating that it may engage in stabilizing transactions in conjunction with the offering of securities.”

And the same is true for every following offering of securities, although “Stabilizing is prohibited in an at-the-market offering.“

Trading Wisdom

Added on by C. Maoxian.

You have to figure out if you’re trading to win or trading not to lose. You need to trade to win. A bird in the hand is not worth two in the bush. You don’t have an edge. Every trade is a coin flip. Your only edge is trade management: cutting losses short and letting winners run. Don’t double down. “… quite a few participants felt that some sort of doubling down, or Martingale betting strategy, was optimal, wherein the gambler increases the size of his wagers after losses “ Keep your bet size consistent and in line with your bankroll. You have to be able to lose and lose and lose and lose and lose and keep your bet size consistent. You want to bet bigger to “make it back,” and you want to get revenge, that’s only human nature. Recognize the urge and resist it. Hide your P&L to conceal both your losses (which are known, but cumulative) and gains (which are unknown).

When I was a kid I worked as a photocopy boy in an H&R Block office. They offered something to customers called the “Rapid Refund,” which was a high interest loan on a tax refund. People would pay the $20, $30 whatever fee to get their $100 tax refund a month earlier than normal. This struck me and the lesson it taught is forever in my mind as I trade.

“… individuals’ usual tendency to attribute winning performance internally and losing performance externally“

I have no idea why the academics call it the “disposition effect,” but it’s natural for human beings to cut their profits short and let their losses run … it’s also human to attempt to add to a loser to dig yourself out of a hole. The struggle against your own natural tendencies is real and all-important.

Trying to find something that works, you’re going to go down a thousand dead-end roads. Be willing to give up on your cherished ideas when they prove to be worthless. Every one of your brilliant ideas has already been tested and discarded by somebody who is smarter, richer, and faster than you. Don’t be naive. You might think for years that VWAP or Fibonacci or Elliott Wave or whatever is the end all be all, so you won’t be able to drop the idea even when you find no value in it. You have to be able to cut your losses in the idea realm too. Sunk cost fallacy is real.

From Tom Basso: “When you find the proper level [of dollar risk] to trade for you, everything will seems easier and less stressful. If you are just starting out, start with as small a size as you can. As you are successful with trading and are starting to notice a long run of sticking with your strategy, having discipline, and feeling comfortable with the process, you can always dial it up a little at that point. The more experience you have, the more size you can tolerate and still feel comfortable that you are right-sized. Err on the conservative side.”

From Jack Schwager’s interview with Stevie Cohen:

“Q: Has that been something you were always able to do—that is, turn on a dime when you think you're wrong?

A: You better be able to do that. This is not a perfect game. I compile statistics on my traders. My best trader makes money only 63 percent or the time. Most traders make money only in the 50 to 55 percent range. That means you're going to be wrong a lot. If that's the case, you better make sure your losses are as small as they can be, and that your winners are bigger.”

(I’ll add more when inspired.)

Techniques Employed by Manipulative Short Sellers

Added on by C. Maoxian.

Found this comical section among the Risk Factors in some Chinese company’s filings:

Techniques employed by manipulative short sellers in Chinese small-cap stocks may drive down the market price of our common stock.

 

Short selling is the practice of selling securities that the seller does not own but rather has borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from the difference in the sale price of the borrowed securities and the purchase price of the replacement shares. As it is therefore in the short seller’s best interests for the price of the stock to decline, there have been incidents of short sellers publishing, or arranging to publish negative opinions in order to create negative market momentum. While traditionally these disclosed shorts have been limited in their ability to access mainstream business media or to otherwise create negative market rumors, the rise of the Internet and technological advancements regarding document creation, videotaping and publication by weblog (“blogging”) have allowed many disclosed shorts to publicly attack a company’s credibility, strategy and veracity by means of so-called research reports that mimic the type of investment analysis performed by large Wall Street firms and independent research analysts. These short attacks have, in the past, resulted in the selling of shares in the market, on occasion on a large scale and broad base. Issuers with business operations based in the PRC, that have limited trading volumes and that are susceptible to higher volatility levels than U.S. domestic large-cap stocks can be particularly vulnerable to such short attacks.

These short seller publications are not regulated by any governmental, self-regulatory organization or other official authority in the U.S., are not subject to the certification requirements imposed by the SEC in Regulation Analyst Certification and, accordingly, the opinions they express may be based on distortion of the actual facts or, in some cases, fabrication of the facts. In light of the limited risks involved in publishing such information, and the enormous profit that can be made from running just one successful short attack, unless the short sellers become subject to significant penalties, it is more likely than not that disclosed shorts will continue to issue such reports.

 

While we intend to strongly defend our public filings against any such short seller attacks, oftentimes we are constrained, either by principles of freedom of speech, applicable state law (often called Anti-SLAPP statutes), or issues of commercial confidentiality, in the manner in which we can proceed against the relevant short seller. You should be aware that in light of the relative freedom to operate that such persons enjoy – oftentimes blogging from outside the U.S. with little or no assets or identity requirements – should we be targeted for such an attack and the rumors not dismissed by market participants, our stock will likely suffer from a temporary, or possibly long term, decline in market price.

Market Value of Publicly Held Shares

Added on by C. Maoxian.

If you’re a small cap short seller, this is one of the key things you have to understand:

(D) Market Value of Publicly Held Shares

A failure to meet the continued listing requirement for Market Value of Publicly Held Shares shall be determined to exist only if the deficiency continues for a period of 30 consecutive business days. Upon such failure, the Company shall be notified promptly and shall have a period of 180 calendar days from such notification to achieve compliance. Compliance can be achieved by meeting the applicable standard for a minimum of 10 consecutive business days during the 180 day compliance period , unless Staff exercises its discretion to extend this 10 day period as discussed in Rule 5810(c)(3)(F).

Here’s Nasdaq’s Continued Listing Guide (pdf) from January 2019. The market value standard is currently $15 million. Once you know the size of the company’s common share float, you can quickly figure out what price “they” are trying to maintain for 10 consecutive days. Then you act accordingly.

How To Stick To Your Trading Plan

Added on by C. Maoxian.

If you find yourself changing your plan in the middle of a trade, you’re probably trading too large, i.e., the dollar risk that you’ve chosen to trade is not a comfortable amount to lose. You have to figure out, through trial and error, how much you’re happy to lose. This is the secret to sticking to your trading plan.

Say you start out risking $1,000 a trade (the distance between your entry and your stop) and you find yourself pulling or moving the stop, or adding to the position so you can adjust the stop to lose the originally planned amount (a.k.a., averaging a loser), then you know you’re risking too much, trading too large, and you’re not able to stick to the plan. Try risking $750 the next time and see if the same thing happens. If the problem persists, keep cutting your dollar risk until you get to the level where you stick to your planned loss.

Maybe you discover that it’s $100 where you’re finally comfortable with the risk. There’s no shame in trading small. In fact, it’s trading smart because you finally know the amount of dollar risk where you’ll stick to your plan, and you’ll see the gains begin to accumulate over time. As you gain confidence, you can increase your dollar risk little by little, until you find you’re uncomfortable again (by not sticking to the plan), then bring it back down to the last dollar amount where you never monkeyed with the stop or were tempted to add to a loser.

Trading Psychology: Painful versus Hurtful

Added on by C. Maoxian.

I learned the following idea from Jeff Davis, who is a wise man and a veteran trader.

When you’re trading, it’s important to distinguish between things that are hurtful and things that are painful. For example, if you don’t take a trade that goes in your favor, that’s hurtful but not painful. If you’re in a trade and get stopped out at breakeven, only to watch it go in your favor, that’s hurtful but not painful.

Painful is when you actually take a loss, there is real harm done (even when it’s a planned, controlled loss). Missed profits are not painful. You don’t want to equate missed profits with actual losses in your mind. You have to be very careful about this. Your mind will play all sorts of tricks on you, so you have to stay right on top of it.

So the next time you get tricked out of a position (or “juked” out as my buddy Smash likes to say), quickly ask yourself, was that truly painful or merely hurtful?

Multiple Time Frame Analysis

Added on by C. Maoxian.

If you want to trade stocks successfully, you have to have a deep understanding of this image. Price patterns are identical regardless of time frame. Be clear about the time frame that you’re trading, and then zoom in and out in time to understand how those patterns relate.

Thanks, Ben-wa

Thanks, Ben-wa

Master List of Day Trading Chat Rooms and Other Services

Added on by C. Maoxian.

Listed alphabetically ... new ones added as I discover them so check back.

(This is a work in progress. I will undoubtedly rearrange / categorize them at some point.)

If you know of one(s) that I haven't listed here, please let me know about it, and I'll add them.

Great Videos from Linda Raschke

Added on by C. Maoxian.

Linda Raschke did this series of videos for Futures Magazine back in 2013 and every one of them is pure gold. (Great story in the final segment about Linda's cat making some amazing hotkey trades.) 

Bonus ... I found another good one (of course good traders are made not born, but I believe it does help to be born with a certain temperament):

Double bonus ... so much gold in the following three short videos, every word is precious ... if you don't get it, listen over and over and over until you do: 

Bitcoin Sell Setup Finally Appears on 24-hour Chart

Added on by C. Maoxian.

The waves are very clear in the Bitcoin (as they are in most speculative manias) ... if Bitcoin breaks below the 16,000 level, then the targets that come into play are 10,900, 8,800, and 3,600. Since these targets are based on the 24-hour chart, it will take weeks for them to play out, but that's my take on things.

Price could push above wave C without triggering below 16,000, possibly setting up a higher wave C, but unless the major wave 5 is "invalidated" (price moving above it), this looks very bearish to me.

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Averaging Down Down Down

Added on by C. Maoxian.

Madaz shared some nice footage of his live trading in $DPW on December 13, 2017. I've cued the video to the point where he is trying to buy a dip, but his timing is off, and he ends up adding every ten cents (averaging down) to his position and then instantly scratches the trade at the first opportunity.

I've often suspected that this is how Madaz battles his way out when he finds himself on the wrong side of the market, but this is the first live footage I've seen that proves it. You don't have to watch the whole video, just those three or so minutes.

Here are the details on the initial entry, adds, and sale (times approximate):

9:33:22 Buys 5000 shares @ $5.80 ($29,000 total)
9:33:39 Buys 5000 shares @ $5.77 ($5.785 average) ($57,850 total)
9:33:51 Buys 5000 shares @ $5.70 ($5.755263 average) ($86,329 total)
9:33:58 Buys 5000 shares @ $5.60 ($5.716448 average) ($114,329 total)
9:34:07 Buys 5000 shares @ $5.50 ($5.673158 average) ($141,829 total)
9:34:55 Buys 5000 shares @ $5.50 ($5.644298 average) ($169,328 total)
(States $5.50 as his uncle point, will cut loss below there, total loss would be around $5,000 if he were able to sell 30,000 @ $5.49)
9:37:00 Sells 30,000 at $5.70 (scratches the trade with ~$1800 gain)

Obviously you need nerves of steel to attempt this kind of trading. Also the reflexes required to enter orders at this speed are impressive.  In the end he's risking around $5,000 on this one trade, which is a number you should keep in mind when reviewing his total daily P&L which he faithfully posts on Twitter. He's generous to share these live trading videos and should be followed closely. 

Configurable Buttons at Interactive Brokers

Added on by C. Maoxian.

Took me about six months to set up my buttons the way I like them in Interactive Brokers' Trader Workstation (TWS). Here are all the things you have to figure out ... useful ones are Add Target Limit Order, Buy, Sell, Duplicate, Increase and Decrease (size): Modify, and Presets. 

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