Me Management
New traders everywhere (and more established ones too) place almost all their attention on searching for the holy grail of trading. How to “beat” the market. How to get the perfect triggers that guarantee winners all the time.
Years of studying global economics (We all know where Ben the Benank went wrong(yeah right)). Read about the fundamental structure and every nuance of every detail of the derivative/asset you participate (compete) in, understand the importance of the open interest and the options skew. Then there is technical analysis….Pass your STA exam understand everything to the nth degree regarding Ichimoku, Tom Demark, Golden crosses, upside hammers, hanging afterbirth (Not sure about that one(may need to consult candlestick guru @FuturesTechs)). Head n Shoulders. Gap fills. Oscillators. Bollinger Bands. Stochastic, fast & slow plus everything in-between.
Almost there. Fundamental analysis, what drives supply & demand.
Statistical analysis and back testing, forward testing on sim, beta testing live. Run worst case scenarios through Bloomberg’s portfolio analytics & VaR. Understand your performance measurement – you’ve calculated your back test & forward test using not only Sharpe ratio but coz you’re so smart (maybe smug too) you’ve used Sortino too!
Now all we need to do is apply our faultless knowledge of programming in to the API connected to our trading platform. More IF statements than you shake an optical mouse at. Every single base covered. You even understand the infrastructure required for your platform to connect to the exchange and most optimal performance you can achieve. Throttling this & that.
Oh and to top it off you’ve got a copy of Sun Tzu’s “Art of War”
I might be being a little controversial here, but, sometimes you can just know too much to be any good.
You know who you are!
Turn on your system and wait for that funny kerching sound to start telling you your filled.
Many clichés on Twitter. Some are actually so very regularly posted, in many instances its because they are so true!
One of my favourites is Mike Tyson’s. “Everyone has a plan till they get punched the face”
Regardless of how many bases you’ve covered with your text book knowledge of trading. How many of you love reading the books about success stories of the big hitters? Goose bumps when you read about they built winning positions and everything went to plan. Models n Bottles. Yeeeeeah. Great fun to read but you’ll never be a successful trader by learning from the “what I did right” section. Mistakes, you only get better or good and maybe successful by learning from mistakes, whether they are yours or someone else’s. For me the most useful books are the ones that tell me how they lost it all. I want to know/remember what not to do!
Regardless of all the science, trading, be it scalping dax or building top down global macro portfolio is nothing more than a game. Don’t think you’re doing anything smarter than that geek on those empire type tactical games. There is one obvious and huge difference tho. The end result of losing in the trading game usually means you will not be able to pay your bills. The psychological impact of that fact has seen many a smart trader leave the industry at best and at worst leave their senses entirely!
Yes self realization is postdictive. You can’t be expected to perform under the pressure that trading your own money brings without the honest understanding of your emotions. You need to be self aware enough to manage yourself properly. What response do you have when you get the punch in the face? How severe is the punch in the face? How frequent is the punch in the face?
I used to be an emotional so and so. Couldn’t take the grin off my face when winning had to replace my screens when I wasn’t. It was hard work but very helpful to learn to measure my temperament. Treat every single position exit the same. Then focus on the next idea.
I know I’m a terrible loser in sport, I have countless broken squash rackets serve as a reminder! So I now, in hindsight know, that the majority of my career ending performances over the past decade occurred due to an inability to accept the small loss when I new I should have. As I have got older and become less competitive I think it has improved my ability to say “no, I’m clearly wrong. Cut it”.
My dad can be a real misery guts……everything has to be perfect. He doesn’t mean too but he always seems to see the things that should have been, could have been done better. Holidays, restaurants, concerts, Spurs performances you name it. Its something that I accept has been past on to me. So when setting out trade ideas in the past I’d think It shouldn’t go wrong, ever! Invariably when it does go wrong I’d just sit there cursing until risk got me out coz I didn’t have anything left! Now as part of my money management outlooks I assume that my first entry will not be the perfect trade. I will never be picking the turn, top or bottom. I will pick the entry that gives me the cheapest stops. If I think “it” goes up I wont just buy the first price I see once I’m logged in. I work out where/why I think my idea will change. Then look to front run that level. This does mean I miss plenty of opportunities but I’m comfortable thanks to my experience that there will be more opportunities to make money. I appreciate that they will only appear with a clear unbiased head and an ability to go in either direction.
Then there is my size management. If I become jittery or impatient I know I have too many on. Cut the position and take a walk away from the screens without feeling stressed.
Something that has helped here is that I have activity in so many markets. This way I do not micro trade, which is a huge benefit when you participate in stirs. You stare at them too long & you become a conspiracy theorist. I don’t give a flying f… about RSJ or Winton any more. I recognise these algos will always be steps ahead of me, they are constantly tweaked to current market conditions. So I’ll let them do their thing and accept it, leave the shouting at exchanges to others. I’ll just be more patient with my entry and exit.
I know sometimes I get a bit uppity and start front running my own ideas out of boredom or a lack of that patience. When that happens I have the next day off from trading in the office. I log in from home place small orders in my systems & watch passively in a more relaxed environment for a day.
In my head timing is more important than getting direction correct. So knowing this stops me from being stubborn as well. I can accept that my idea is right but I got in too early cant afford to hold here cut and start again. We all know Mr Corzine’s view of the Greek government bond market would eventually be the right call. Too much too early. The markets can remain irrational longer than you can remain solvent. Another popular twitter cliché/saying, another so so right.
Just remember, one traders lifting the offer and looking for follow through is another traders fading the rally looking for a sharp pull back. Whilst one relies on precise points of entry and exit in an outright another uses levels approximately looking for pace of momentum change. You can’t know what suits you until you can afford to expose yourself to each way of winning and see how you react when punched in the face.
So don’t go criticizing anyone else’s ways and methods. Find your mind, think about it all the time. Recognize your moods and include them in your diary (you do keep a trading diary don’t you?). I’m not saying this works for anyone else. I just know it helps me. I will always make poor decisions and lose money when I probably shouldn’t. I sometimes create more complex trading positions to express quite a simple binary idea, it gives me a false sense of security. That helps me stay rational in my thought process and keeps me alive.
That is the most important thing to me, it keeps me happy and feel progressive positive & optimistic.
K. I. S. S.
Lee
Top Trading Tips…from the expert
“Sell the forward spread and buy protection on the tightening move.
Use indices to add existing to position,
Go long risk on some belly tranches especially where defaults may realise
And buy protection on HY and crossover in rallies
And turn the position over to monetize volatility.”
The LW
series of unfortunate events
Fooled by Randomnessness
Some events that created panic price action during my trading career….big gap between 2005 to 2009 where i did some learning.
Ecb first rate hike. Did this unannounced, unscheduled in the evening after banks in Europe had closed books for the night. Bunds dropped like a stone on thin volume. With only locals in the market you can imagine it was messy.
Trader telephoned a Dow Jones reporter for confirmation of a story he’d heard regarding U.S. launching attack in Kosovo….Trader fabricated a rumor to see if the reporter would do anything. Minutes later a story was on the news wire about imminent attack and bonds spiked.
Graduate bank trader plays fantasy futures with bunds thinking he is on the Simulator. Kept selling in HUMONGOUS size till he got bored and went off to get breakfast. It was reported the next day in mainstream news Said Bank dropped 10’s of millions. His actions suppressed the bund whilst all other bonds were rallying quite significantly for the morning.
One month after 9/11 a private jet crashed into a building in Milan causing fatalities. Squawks reported on this and everyone feared another terrorist attack had occurred. The markets jumped to risk on mode in an instant. It wasn’t terrorism, it was a very sad tragic accident.
In 2003 yahoo posted the non farm payroll number 3 minutes early. It was a tremendous beat and bonds dropped like a stone before the official release. Imagine thinking “i got a couple of minutes before the figure, I’ll cover my long bond position” Doh!
Bloomberg posted the ECB rate move as a hike when they actually cut. I witnessed a few trying to beat the market on the Euribor getting hurt on that one.
How about the broker who put the SnP price he wanted to sell at in the Volume box and the volume in the price box ……Sell 1200 @ 30….ouch
The Flash crash in may 2010…..my biggest one day loss(hopefully ever) Rumor that some algo had sell on Proctor and Gamble that triggered this.
Then there is how much free money was scalped from implied spread function not kicking in until an outright price was registered on hard exchange opens. Eurex and Liffe I know about, not sure if this happened on U.S. exchanges.
During 2005 I was making my money Queuing the schatz, scalping a tick or hedging in bunds or bor. It was easy money and I got cocky.
Increasing size, always having a full order book up and down the ladder until 7/7….
When the news hit that the bombs had gone off I was filled in through the schatz book on the offers, I had my limit position on short average 8 full ticks offside. In blind panic i clipped to lift the offer and get out. Missed the price and was left on the bid, so i chased up the next price. Got them and got filled on the bid below, had to take a full tick loss on that too!
I’ve spoken to many experienced and successful traders about my situation that day and they all pretty much said the same thing. “you were pretty unlucky”
Since reading Taleb’s Book Fooled by Randomness I appreciate that it was more stupid than unlucky to put myself in that position.
Was the market correct in its reaction to each event? Each situation was very different, spoofs, incorrect fundamental data, poor timing of data release, Geopolitical events. All caused panic, led to people hitting bids lifting offers indiscriminately. These are not manipulated prices in illiquid instruments the market trades were it trades based on the supply and demand.
Whether the information that moved the market is fake or not doesn’t matter, you have to be prepared for any eventuality and ensure that you are not “unlucky”. No position should be allowed to totally wipe you out regardless of the event. Put yourself in a position to profit from these freak occurrences and accept that they happen.
We are after all, going through the biggest and longest freak occurrence in market history…..I mean who isn’t prepping for the mother of all equity crashes? Can’t fight the fed.
Maybe the AP hack tweet in itself was an act of terrorism, it rocked the investment world temporarily, but we all have to admit ….We are a tad wiser for it and need to ensure we are protected from a copy cat.
L
Trading Tunes
Inspired by @finansakrobat I have decided to create my own finance/trading playlist. Not such a whizz at reading instructions so instead of embeding them from youtube I’ve just posted the links.
PS I will post a trading book list later this month, but realized i hadn’t read some of these books in over 5 years so felt it wise to scramble through them. Anyway here is my trading song list, some links bleeding obvious but some tenuous….. I’m sure you’ll all get them!
10cc – Wall Street Shuffle http://youtu.be/kDK2ywWI4t0
Thom York – Black Swan http://youtu.be/Hg8Vq6w0JSE
Wir – Footsi Footsi http://youtu.be/7KommoatTDo
Pink Floyd – Money http://youtu.be/uGxbeQ9u8zk
Badly Drawn Boy – Pissing In The Wind http://youtu.be/qj44stHz49g
Eric B & Rakim – Paid In Full http://youtu.be/uIk_NNUxRD8
DJ Shadow – Number Song http://youtu.be/MRVG_ktfMHU
Sasha – Boiler Room http://youtu.be/5a_Qxd4ECTo
Chris De Burgh – Patricia The Stripper http://youtu.be/Zs970lwHn2E
Duran Duran – Is There something I should I Know http://youtu.be/3M0hogZyRyU
Be Lucky
L
Has the Long end run out of Flight To Quality appeal?
You the Twitterati I have respect for (well most of you). I know quite a lot of the tweeps I follow are very well informed and fully understanding of all the smart stuff. So please reply to my post as I think I will benefit from your input (NOT on my grammmer or speling tho please(I know thats poor))
The events of the past few days have frustrated me. I knew what the market should do in this instance. (These “black swan” events are not really black swans, more “known unknowns” these days). So I didn’t lose any money. I’m frustrated because I didn’t really make any money. Why? those who follow me on twitter would’ve seen my “Don’t buy teds mantra” So why didn’t I sell them. I knew front Euribor would under-perform Schatz, Bobl, and Bund. It really should’ve been a simple case of buy Eurex German bonds and sell white and red bor strips. The nature of the move was different to all those other serious shock events.
Every rumbling of human waste hitting the fan led to a big jump in bond prices. Reducing interest rates on the AAA rated whilst everything else gets left behind well that’s my recollection anyway. I’m not a @ the market kinda guy, I like to be filled longs on the bid shorts on the offer as much as possible unless puking for big losses….then Somehow I manage to sell longs out below bid and cover shorts above the offer. (You know the feeling).
What caught me out over the #Cypriout shenanigans was the lack of FTQ buying of bonds. Yes we did open a full 100 ticks higher Monday morning but then spent the rest of the day drifting off. We didn’t revisit those highs till late Tuesday after it was clear that Cyprus was going to reject the deal. Even when we did it was with very little conviction. So it was up to the short end to really get sold hard for the curve shape and ted performance to move as expected.
Why did this occur? I know very little about Swaps, FRAS, CTD’s, off the runs and all that clever underlying stuff. I like to keep it simple.
All the other times long end rates were much higher so there was room to go. Maybe the (if there is such a thing) great rotation is about to happen. No one wants to be holding long end bonds at these rates even if Cyprus is about to join Russia!!!! (SandP will still make a new all time high come Friday).
With The Dow At An All-Time High, Citi Unveils HUGE, Ultra-Bullish Bet On America
With The Dow At An All-Time High, Citi Unveils HUGE, Ultra-Bullish Bet On America
The Dow has made brand new highs for 9 straight trading days.
And rather than make people nervous, it seems to be sucking in even more bulls, creating even more optimism.
In a new note out this evening, Citi macro strategist Jeremy Hale unveils a series of new trades, several of which can be characterized as: GO AMERICA.
Here are some of the big ones, with our summary of his rationale in bullets:
Sell US Treasuries
- This is simple. Because Citi has an optimistic take on the US economy, interest rates are likely to rise, slamming Treasuries.
- It’s not impossible that we could see another 1994-style bond selloff/yield spike.
Long the dollar vs. G10 currencies
- US economic outperformance is now associated with a strong dollar. The dollar will do well against a basket of currencies, which includes the Swiss Franc, the British Pound, the Japanese Yen, and the Norwegian Kroner.
- Fed may turn less accommodative this year, which will help further.
Go long US equities vs. corporate credit
- Companies are starting to lever up and take actions that are pro shareholder (dividends, buybacks, etc.)
- Equity markets are still just generally cheap.
There’s no doubt that the bulls are on parade.
This comes after Morgan Stanley’s big call about an “inflection point” for the US economy.
Heck, even Richard Russell is a bull.
There’s a feeling that (and this is especially so after today’s retail sales report) that the US economy is bulletproof, the Fed isn’t going to screw it up, and things won’t be too bad in Washington, beyond what everyone expected. Risk on.
curvededge 