10 August 2020

How To Become The Trader That You Say You Want To Be



I’m a professional trader.

Well, I am now.

It still feels a bit weird to say, but it's true.

15 years ago, I was an institutional, international equities broker at a major Wall Street investment bank. Which, unfortunately, meant that I was sitting in a declining business. You don’t believe me? That’s ok… it IS somewhat unbelievable. Allow me to explain a bit.

When I first went to Wall Street for a summer internship in the summer of 1997 [no age comments please]...many customers still paid 6 cents per share to trade stocks on an agency basis… in international anyway. Agency means the broker just executes the trade without exposing any of its own capital to “facilitate” the trade. That means if a customer bought or sold 1,000,000 shares of Nokia back then, the commission cost to the customer was $60,000… which went straight to the broker’s bottom line.



When I joined the international desk as a full-time associate in 1998, that commission number had already fallen to 5 cents… or $50,000 to the broker for the same trade. That’s a 16.67% decline in revenue… for the exact same business transaction. The only way to mitigate a fall of that magnitude is to substantially increase the number of shares being traded. In the case mentioned, that meant a size increase from 1,000,000 shares to 1,200,000 to make the same money… which wasn’t exactly a cakewalk.

It got worse from there.

By the time I left to become an independent proprietary trader in 2005, my biggest customers [and i covered some of the largest in the firm] were consistently paying less than 1 cent per share to trade. So, using that same trade in Nokia, at 1 penny per share, the customer was paying $10,000… or an 83% fall from 1997 rates. This, of course, also meant revenue had fallen about that much because I promise you volume had not increased enough to offset the fall in commissions.

How would you like to have that as a business?

Yeah… pretty much what I thought.

At any rate, I saw it coming… “so I kept on stomping” right off the street. Over the past 15 years, I’ve built myself into a high performing (meaning profitable) professional trader—on my own terms.

I’ve lost and made millions of dollars trading a variety of markets. Fortunately for me, the latter number is the larger of the 2, so I’m profitable.

I’ve been a consultant for several small, but fast-growing money management firms.

I've ridden the emotional waves of trading to ridiculous highs and near devastating lows.

In other words, I’ve been at this long enough to have “seen it all.” Or certainly most of it.
And I can say with ZERO hyperbole or exaggeration that short term trading is the best money making opportunity available anywhere.

Practice

I spend time with the market every single day that it’s open.

At the time of this writing, I probably average somewhere in the ballpark of 5-20 trades per day. Note: my intraday trading strategy uses scalping with tiny stops as a risk management tool, thus to achieve my daily goal most days, my activity (number of trades) has to be higher than what might make sense to you.

Even back when I was working 9–5… actually, who am I kidding… more like 6am to midnight... I would still cram in 2–3 hours of screen time every day.

Over the years, and as people around me have watched my career evolve from cranky employee in a declining industry to professional private trader, many have shared their own desire to start trading and leave the “rat race.” They always ask the same question: “How did you get to where you are today?”

My answer? By studying charts. A lot.

And no, I don’t mean mindlessly sitting in front of the tv while I “study.”

I remember reading a book many years ago about how much screen time a trader needs to become proficient. The kind of proficient that allows you to understand the tilt [likely direction] of a stock chart at a glance. The author of that book suggested spending at least an hour a day with your charts. I chuckled because even then with a demanding day gig I got in at least 2 hours per day during the week… and far more on most weekends.

When I tell people how much time I spent (and spend) with charts, most don’t believe me. They insist I’m doing the math wrong — which is fair, seeing as I’m no math genius. But no, I got this right: about 20 hours per week on average… every week… of every year… for the last 20 years plus… puts me just north of 20,000 hours of screen time.

Here’s what I learned from that much screen time... Trading is a skill. And just like any other skill, you can get better... but only through 1 thing...

Practice.

And not just any practice… Deliberate practice.

Deliberate practice is a very specific kind of practice. The best way to describe it is as focused practice. It’s done consistently with great intensity and with limited distraction.

The kind of practice that you only get with discipline.

Focused, intense, disciplined practice can yield incredible results.

But to be honest, I haven’t always understood discipline the way that I do now.

I knew it instinctively, but I wasn't very accepting. Years ago, I didn’t really reflect on my habits and extract the powerful lessons there for the harvesting. I was pulled by pure curiosity.

Even after I read the incredible book Talent Is Overrated by Geoffrey Colvin, I wasn't fully convinced.

It wasn’t until the past 4 years, through meditation and writing (and being forced to reflect and verbalize so much of my own personal material as part of it) that I realized just how profound “deliberate practice” really is.

What I’ve also realized is that, whenever I talk with people about trading, or how they can get started trading for themselves or how they can improve the trading they’re already doing. I now see that we’re never really talking about trading… trading is fairly simple when it comes right down to it... What we’re really almost always talking about is discipline.

Discipline

People tend to struggle with discipline.

You don’t know discipline until you’ve done something every single day for an entire year straight.

Most people in life can’t do that with anything — and never do, which is why the ability to make use of discipline is so uncommon. But truly, “learning” discipline is not that difficult. It really comes down to one simple act, and nothing more: did you do what you said you were going to do today, or not?

Yes or no?

Where most people fail is not in being physically or mentally or even emotionally incapable of performing a task, but rather thinking that today, “just one day,” doesn’t matter.

“It’s just one day,” they say to themselves. “I’ll do it tomorrow.”

And then tomorrow comes, and the same excuse is used again, and again.

But you don’t know discipline until you’ve forced yourself to meet that goal for the day, every day, no matter what for an extended period of time. Even if you’re exhausted and your eyes are burning because you’re sleep-deprived. Even if all your friends are going to a party and you’re left with your work. Even if it means locking yourself in your home office, turning off your phone and getting it done.

I didn’t become a professional trader by getting a degree in “trading” (I do have a couple of advanced degrees, but none are the cause of my trading success).

Nor did become a professional trader because I “knew someone” or got lucky.

I became the trader that I am today by trading every day. At first via “mental trades.” Then through simulated trades. And finally through small live trades.

Win, lose or draw, I kept trading… 

Kept coming back. 

Kept showing up.

What I learned from so many trades per day for the past 20 years is that you get to where you want to be in life by doing. That’s it. Not by talking. Not by thinking. Not by brainstorming. Not by daydreaming. Not by wondering. Not by experimenting, or testing the waters.

By doing.

So... Did you do what you said you were going to do today?

26 July 2020

Meet Ass-umption

The Donkey Also Known As Ass-umption

Over the course of my time in the markets, I’ve heard quite a few assumptions that people make about simple trading for themselves.  I cover many of these in Frequently Asked Simple Trading Questions [F.A.S.T.Q.] posts, but I thought I’d go through a couple of them here.


Impossible

Many people subscribe to the silliness that says markets are irrational… random even.  Remember this… all markets trend… on all time frames.  Even chaotic data will exhibit trend behavior [see 46 second, silent video below]. If you can get inside the price behavior [correctly mind you] of your chosen timeframe properly, you can make money.


Overnight Riches

There are those who get into the markets looking to make “big” money overnight... And assume that the market is the right place to make that happen… again, quickly. Maybe there’s a big bill due… or maybe you want to take a nice vacation… buy a nice car [or whip as the young people say… or used to say]… To be clear, it’s absolutely possible to make money quickly... "overnight" even... but it's also highly unlikely that you will.  That's just the nature of markets.


High Win % Required

If I see another super high win % trading "system" come across my feed, I may go crazy... again. Here’s another nugget for you… If your expectancy [difference between how much you make when you win vs how much you lose when you lose] is positive, it doesn’t matter what your win % is.  I’ve made money with a win % as low as 19% over a given period, so I know this to be true.


There’s always a gang of assumptions that people tend to make about trading.  Once examined closely, many of them crumble like dried out plants [that haven’t been watered sufficiently].  Don’t find yourself believing those mistaken assumptions as if they’re evergreen.


22 July 2020

Language Intimidation


"Poker is a skill game pretending to be a chance game."
-- James Altucher

========================

I often say that trading is similar to poker...and it is.
  • A key to both is risk management
  • There is the potential for both tremendous upside and downside
  • Decisions must be made with imperfect information based on probabilistic outcomes and finally on this shortlist
  • Emotional control is the ultimate Holy Grail
As I may have mentioned once or twice, much of my trading method is a result of applying the logic of poker to trading. If you're unfamiliar with poker, the goal is to create asymmetric outcomes... in other words, lose just a little when you lose and win substantially more when you win.
“It's not whether you're right or wrong, but how much money you make when you're right and how much you lose when you're wrong.” 
--George Soros
I retaught myself to play poker by looking up poker hands on the internet, learning a bit about the probabilities of getting particular hands, and then playing on my mobile phone... incessantly.

And I got pretty good.

Ultimately, I took a grubstake of $500.00 and turned it into a little over $20mm in about 2 months before I had to update that phone. [Fortunately, I took a screenshot before that RIMM decided to mandate said update.]  

Cash of $18.29M and At Table $3.36M

After that, I incorporated many of the elements of that poker strategy into my existing trading approach. 

I'd say it's been successful.

At any rate, I tell that story because I was watching a bit of the WSOP recently and found myself getting a bit anxious. Not because I didn't know the cards the same way... nor because I was unsure about whether to fold, call or raise based on what was on the board.

No, I started to question my understanding because I didn't know all the "cool" terminology.

Because I didn't know a back raise from a catch-up... a dead hand from a dead blind.

I started to wonder if the poker game on my phone was rigged in my favor.

And then it hit me.

That's the exact problem many new traders face. They worry so much about the fancy terminology that they often forget what's really going on.

Here's the rub... if you buy Stock A, Stock A moves up, you sell Stock A, you make money. Similarly, if you buy Stock A, Stock A goes down, and you sell, then you lose money.

The exact same thing happens in the opposite direction. If you're short a stock and that stock falls allowing you to buy it back, you make money. If it goes up when you're short and you cover higher, you lose money.

My point is this... don't let the fancy talk intimidate you.

Trading is simple... treat it as such.

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