Lots of recordings of this great song, but I like Helen Merrill's version best (with Clifford Brown on trumpet). She comes closest to capturing the crazy ex-lover thing ... the sort of shriek at 1:30, amazing stuff. No hugs, I understand.
Notes for Chat with Traders, Episode 11
Episode 11 ... Zach Hurwitz (123:31)
- 10 AM to Noon, no calls, no appointments for Zach
- Tufts, class of 2008, transitioned from English major to Econ major
- Started trading during a volatile time
- 2008, 2009, 2010 ... algos began impacting the markets
- Retail guys need both screen time and coding time
- Lost all his initial trading stake in six weeks in 2008
- Had a visceral connection with chart patterns
- Two classes that helped him with trading: AP English and Drama
- In 2010 introduced to quant trader, "David," randomly met
- Lives in Ohio, middle of nowhere, just got lucky meeting "David"
- His analyst says "trust the process" [Zach goes to psychotherapy?]
- [Zach tends to ramble on at length, but he's likable....]
- David tip: some days you have to be the mouse (detail oriented), some days the eagle (visionary), some days the donkey (do grunt work)
- No trader wants to admit he's a beginner
- Non-traders think day trading is glamorous, but they're wrong
- Trading is "quiet, lonely struggle ... and it's hard" [I like it]
- Poisonous self-talk during dark hours of trading
- A trader is the boss, the employee and the janitor, all in one
- Have to learn to identify when you are being ridiculous
- You can't learn to trade if you can't spend 40 hours a week on it
- Risk management, position sizing ... these can be learned
- Trading psychology, controlling yourself, is the thing you can't really learn
- Step one is being honest with yourself
- A trading coach is not a cheerleader
- We are in charge of deceiving ourselves
- Spending 20 hours a day six days a week to make $40K (40% on 100K), you feel like a jerk
- VWAP is his holy grail, the thing that made sense to him, would have quit in 2011 if he hadn't found it
- Zach is 28 years old now
- Zerohedge and Brian Shannon of Alphatrends turned him on to VWAP
- VWAP was available on the ThinkOrSwim platform so he could explore it
- VWAP -- Volume Weighted Average Price ... like the ultimate "moving average"
- VWAP originally built to benchmark execution quality
- All indicators are arbitrary
- ["Let me go off on a little tangent here...."]
- Chat with Traders podcast is a killer resource
- It's easier to learn from watching a developing athlete, not a pro
- Good traders like good athletes, they make it look easy
- VWAP looks like a moving average and acts like a pivot
- VWAP responsive in a morning, dull in middle of the day, then picks up again at end of day (because it's volume weighted :) )
- VWAP gives you your bias for the day
- ["Forgive me for the meandering and tangentials..."]
- VWAP will lead you to trade the most liquid names
- People who want to trade stocks "in play" should be slapped in the face [who, moi?]
- Mentions Mitch Hedberg ... Zach sounds a bit like a non-stoned Mitch, no?
- Most people fly around as an eagle, spend a minute as a mouse, and never get around to being the donkey
- VWAP best for intraday, mega-cap traders
- Zach is now a systematic trade, no longer discretionary
- Trading is lonely and difficult, it's invaluable to have a trading comrade
- ["I'll turn this into a four hour podcast!"]
- Not much good, free VWAP information out there ... not many people using it every day
- Brian Shannon is excellent, a wonderful educator, and a nice guy
- Zach uses ThinkOrSwim, likes it, but is not paid for referrals ... just use the demo account
- Your family and friends will think you are just playing video games, but day trading is incredibly hard, needs to be respected
- "You're clicking buttons just like every other schmo out there"
- Most people don't pay attention -- they don't pay attention to others, themselves or the market
- Give up on your unrealistic dreams of the Bugatti ... focus on your realistic dreams
- Stop worrying about where you enter a trade, just get in if you think it's going higher
- He uses shorter term 14 period RSI in conjunction with VWAP, but only for confirmation
- You want a consistent approach
- You want to take what you know works, and have it put into code
- finviz dot com has a good filter ... start there
- ThinkOrSwim has great beginning coding language
- If an English major like him can learn to code, so can you
- Ten years ago you'd have to know MatLab, not so today, barriers to entry have fallen
- If you think everything is going to fall into your lap, you're going to blow up
- Failing traders have not mastered even one thing, they bounce around
- Trading is a predatory business ... you're a baby duckling and there are hawks out there
- Find earnest, honest, real people to talk to about trading [I know of one or two on Twitter]
- You don't want to be a jack of all trades, master of none
- "If you want to be here for the good days, you have to be here for all the days" -- Ben Lichtenstein
- Discretionary traders are all bald ... they drive themselves crazy
- Recommends Reminiscences of a Stock Operator, all the Market Wizards books
- "I'm not just trying to blow smoke up your skirt" [when singing Aaron's praises]
- Make your eagle vision a reality by being the mouse and donkey
- Are you life-changing rich by quadrupling your account? No, so stop trying to do that
- Lower the stakes for yourself !
- Nobody is your overseer as a trader ... you have to control yourself
- More traders collapse mentally than financially
- "You choose your tuition in the market"
- When you don't feel bad about losing trades, you've won
- Don't make it harder on yourself than it has to be
- ["Thank you for indulging my meandering ... babbling for two hours"]
- Twitter: @ZachHurwitz
Like Workin' Without No Pay
The great Melvin Taylor ...
Take a Dive Off River Street
I'm a sucker for this kind of harmonizing, but these pretty white brothers have a great sound ... a dark song for sure, but only if you listen to the lyrics:
She Knows Who and What's To Blame
One of the greatest smoker's voices of all time, Lee Hazlewood .. the second song is no good, but She Comes Running is a classic.
Notes for Chat with Traders, Episode 58
Episode 58 ... Paul Singh (54:01)
- Started trading in college
- 40 years old now
- Went to law school in 1990s
- Took $5,000 to $200,000 during dot com boom
- Worst time to learn how to trade since you could just blindly buy and make money
- $200,000 went to zero in the dot com bust
- Blew up another $5,000 account a little later
- Third attempt in 2004, 2005 with $5,000 ... things started to click, he got more serious
- Have to persevere ... helps if you love it ... never give up
- Working as a lawyer then
- Commodities boom next to play ... recognized it from dot com boom experience
- 2011 started trading full time, stopped lawyering
- Waited until he had enough money, patiently built a large stake, before he went full time
- His wife works, she has a good job, they had a lot of savings, good safety net
- Needed mid six figures as trading stake to be comfortable going full time
- Biggest mistake people make is trying to trade without a proper trading stake
- Don't give up your paycheck until you have built a significant trading stake
- Can never be worried about daily expenses when you're trading
- Take the amount you think you need to be comfortable trading full time and double it
- Trading full time is boring, esp. swing trading (holding several days to several months)
- Have to prevent yourself from "filling your day" by watching every tick
- Swing trading all about after-hours homework, market hours just about executing the trade
- Trading is more than stock picking
- Three parts to trading:
- Stock picking the least important part,
- Risk management, which is fairly easy,
- Trade management, which is the hard part
- Risk management is understanding probability and risk versus reward
- Trade management separates winning and losing traders -- the psychological game
- Trade management is where you need to work really hard, controlling emotions
- Lightbulb moment: doesn't matter what stock you pick, with proper risk and trade management, can be profitable
- Has basket of 10 to 15 set-ups he trades regularly
- Pays close attention to money flow across broad market and sectors
- Doesn't have a favorite set-up
- Whatever is working today is his favorite set-up, have to be adaptable
- Set-ups stop working
- Breakouts, breakout-pullbacks, moving averages, re-mounts -- fall in and out of usefulness
- He exclusively trades stocks -- have to master one domain
- Used to do options, futures, etc. but has dropped all that ... just stocks now
- Hated to have to trade around the clock ... likes defined hours of stocks
- Got interested in pre-market trading
- The more experience you have, the fewer indicators you use
- Experts learn to simplify, tune things out
- New painters paint lots of lines ... not true of experienced painters
- "Set it and forget it" -- don't micromanage positions
- Don't watch every tick, don't switch up timeframes and see "new" things
- Day trading gets his mind off his swing trading
- Easier to part-time swing trade than full-time swing trade since mind occupied elsewhere
- Taking a quick profit is human nature, hardwired, but the antithesis of good trading
- You can't be a successful trader with 1:1 risk reward
- First thing he does is a market analysis, looking for market leaders
- Focuses on money flows across sectors
- Builds watchlist of 50-150 stocks to stalk
- Tries to narrow it down to 5-15 stocks in the evening or morning
- Then writes a plan for each stock: entry range, stop range, target range -- in Evernote
- Sizes positons based on those levels in advance
- Doing position sizing in advance makes it so he has no anxiety, just pulls trigger given plan
- Common mistake traders make is not taking into account the natural volatility of a stock
- [They set their stops too tight]
- Bad idea to place stops at obvious support and resistance, everyone is there ... it will be run
- Take smaller position to be able to hold through stop gunning, then add once the stop gunning has passed
- Used to look at ATR and volatility measures for stop placement, but now just eyeballs it
- Pattern recognition comes after time, have to put in the hours
- "John Tudor Jones" ;-)
- His wife can't tell if he's had a winning or losing day [she must be an angel]
- People have goals without a plan
- Focus on one thing and master it
- Gets up at 4AM (lives on west coast)
- Does a detailed monthly review of his trades
- www.bullsonwallstreet.com
- themarketspeculator.blogspot.com
- www.pauljsingh.com
- Twitter: @PaulJSingh
Notes for Chat with Traders, Episode 126
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
Notes for Chat with Traders, Episode 129
Episode 129 ... Victor Haghani (42:49)
- Father was a goods trader (Sephardic Jew born in Iran?)
- Went to University in London (LSE)
- His dad said go for the less bureaucratic firm (why he chose Salomon over JP Morgan)
- John Merriwether asked him to become a trader, government bonds arb desk
- Youngest trader on the desk
- He had been in fixed income research at Salomon Brothers
- Merriwether left Salomon in 1992, Haghani left in late 1992 ... founded LTCM
- Started LTCM's London office
- Worked for 13 bank consortium after LTCM failed in 1998 ... helped liquidate portfolio
- JWM Partners hedge fund ... also helped start that
- Founded Elm Partners five years ago ... "active index investing"
- Lowenstein's "When Genius Failed" -- a good read, but not 100% accurate
- Dunbar's book is also OK
- Buy the Harvard Business School case studies on LTCM, by Andre Perold
- We're a product of our experiences
- Haghani wrote paper on biased coin flip
- Gave 61 subjects (financial professionals) $25, coin biased 60% heads, could keep whatever they made after 30 minutes of flipping, capped at $250
- [Sounds similar to Van Tharp's old experiment that he has given hundreds of times]
- [Van Tharp gave subjects bag of ten marbles: Seven 1R losers, one 5R loser, two 10R winners. Subjects got 40 marble pulls and a $100,000 bankroll. Expectancy is 0.8R (positive) but most people end up broke because their bet size is too large and they revenge trade]
- People bet a lot on tails :-) ... usually after a streak of heads [laughing]
- People believe random things have some sort of predictability (human experience versus math)
- People got bored of betting on heads [laughing again]
- 1/3 of people went bust betting on a 60:40 biased coin
- 1/5 reached max payout ... kids who could flip really fast with smaller bet size mainly
- 1/2 won $80
- Using simple rule of only betting 15% of bankroll would give 95% chance of hitting max payout within 30 minutes
- "Suboptimal behavior"
- Nearly everyone voluntarily bet their whole stake at some point
- Those all-in bets *always* happened after someone took a loss on an outsized bet, classic need to "get it back"
- People who busted didn't want to talk about it
- A whole range of bet sizes works (8 or 9% to 20%) to hit max payout within 30 minutes
- Kelly Criterion number (optimal bet) was 20%
- Optimal solution is very complicated, but just use heuristics (common sense)
- Without the cap, expected value would be $3,000,000, 4% return on every flip (betting 20% of bankroll)
- St. Petersburg Paradox ... expected value versus expected utility
- People won't bother to play even if they have positive expected payout
- Have to understand your own risk aversion
- Betting 50% gives negative expected utility (with 60:40 coin)
- Bet sizing is not simple, not secondary ... it's incredibly important [I say it's *everything*]
- LTCM trade sizing was all screwed up (position sizes were way too big)
- Global equities should have a positive expected return above the risk-free rate or inflation, trouble is the Sharpe Ratio
- Thorp inspired the coin-flipping experiment
- Haghani believes there are some rare people who can beat the market, trouble is finding them, identifying them in time
- Past returns are not indicative of future returns (because we don't have enough data)
- How do you identify the biased coin after only 30 flips? You can't, it takes 143 flips
- Need to find an investor or trader with 143 year track record
- "I don't have very much on the wisdom front"
- www.elmfunds.com
- Not on Twitter, "haven't figured it out"
You Hang Your Head and Pray
From 2006 ... dummy falling from the balcony a gag ... Folds is solidly Gen X and lives in California.
Notes for Chat with Traders, Episode 132
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