No changes this month ... still the seven longs in place: two from 2015 (Amazon and NVIDIA), three from 2016 (Apple, Google, and Netflix), and two from 2017 (Facebook and Tesla).
You Were Sweet To Offer Your Hand
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.