You Were Sweet To Offer Your Hand

Added on by C. Maoxian.

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

Added on by C. Maoxian.

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

Take a Dive Off River Street

Added on by C. Maoxian.

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: 

Notes for Chat with Traders, Episode 58

Added on by C. Maoxian.

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:
  1. Stock picking the least important part,
  2. Risk management, which is fairly easy,
  3. 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

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

Notes for Chat with Traders, Episode 129

Added on by C. Maoxian.

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"