The Stealthy Sisters of Spin and Speculation (Part 2)
Posted by Mark on August 31, 2015 at 06:31 | Last modified: October 14, 2015 11:34I believe people often mistake Spin for responsible investing/trading. I suspect the same may be said about Speculation.
Mr. Know It All has admitted to consistent losses from day trading futures. I believe he does this to pass the time. He is retired and where other people pay for golf memberships or for tennis lessons, he pays to day trade.
A part of me does not believe trading/investing should ever be something done just to pass the time. If asked point blank, I don’t think Mr. Know It All would admit this either. [I hope] He would say he enjoys day trading and if he loses a little money on a consistent basis then he can afford it. I noticed early on that when people asked questions about trading/investing, Mr. Know It All was quick to stick his nose in [to an amusing extent] and give answers. Perhaps his day trading makes him feel qualified to seek this ego boost coming in the form of appreciation for his “knowledge.”
Yet, because he’s a consistent loser I regard Mr. Know It All as the last person who should ever be answering questions. What he does is clearly not trading as a business: consistent losses would make for a horrible business model! What he does is clearly not responsible trading/investing, either: consistent losses could land someone in the poorhouse!
I think most people interested to incorporate trading/investing into their lives are at least looking for supplemental income and at most seeking permanent long-term income replacement. I doubt any newbie is looking “just to pass the time” if the very activity done for the purpose of making money would do nothing more than generate small losses on a regular basis. Why listen to anyone who is doing just that, then?
Categories: Trader Ego | Comments (2) | PermalinkA Losing Thesis (Part 2)
Posted by Mark on August 25, 2015 at 07:58 | Last modified: October 14, 2015 10:30I realized this week how little discussion I have seen lately about trading losses.
Because I believe one of the best ways to improve as a trader is to discuss and study losses, I am a bit surprised more people aren’t doing this. I’m quite sure not everyone around me is realizing windfall trading profits. Is it a matter of ego where people feel ashamed/embarrassed to talk about losses since many regard losing as failure? Maybe people feel angry or depressed and don’t want to rub the sore spot? I talk freely about my losses and you will rarely hear me expressing heroic victory over a win unless I am being sarcastic.
Perhaps people aren’t talking about losses because they aren’t doing any significant trading. I mentioned the woman from August 11 who is currently out of the market. Everyone from that Tuesday Meetup mentioned a full-time job. Mr. Know It All, the day trader from the Wednesday Meetup, is retired so he probably isn’t devoting 40+ hours/week. I know a few others from that Meetup work full-time and hope to learn enough about investing to supplement income. Everyone in my option trading group has a separate full-time job.
It’s quite clear from my experience that the vast majority of traders do so part-time. The level of commitment among part-timers ranges from serious/intense to intermittent/zero. When trading part-time, it’s easy to close a position or two and not be trading at all.
One other thing is quite clear to me as well: people doing no trading are not developing as traders. Luck aside, if they want to make consistent money in the markets then they need to consistently work and develop the craft. I believe only the serious part-timers have a good chance to fare well so the rest might as well disappear when the going gets rough to live more comfortably, right?
Categories: Trader Ego | Comments (1) | PermalinkA Losing Thesis (Part 1)
Posted by Mark on August 19, 2015 at 07:33 | Last modified: October 14, 2015 10:22At the end of last week, someone posted the following in a trading forum I follow:
> Where r all the SMART traders when the market is going down ???
I have also realized this on multiple occasions: on-line forums tend to get very quiet when the market moves lower.
I believe the participants are either in pain from losing money or not trading and therefore have nothing to contribute.
If they are not trading then I would guess they are not making consistent money overall. The market goes up and down and I have to trade in both environments. Only in Fantasyland would I ever be able to choose just one because I would always make money. My guess is traders like this are losing money overall because finding the perfect trading system is very, very difficult. If these traders are net positive then they are probably not making a whole lot.
If these traders are losing money then hopefully they haven’t been trading too large and are soon (or already have) to be knocked out of the game altogether.
I think part of the market cycle is that people win for extended periods and get “fooled by randomness:” we think we have great skill, we become overconfident, and we ratchet up our position size. When the market eventually acts nasty as it periodically does, we get beaten down hard. The losses are such a blow to our egos that we walk quietly into the night never to speak of it again.
This is my explanation for why I hear so many people talking about winning trades but very few talking about losing ones.
I’m categorizing this under Wisdom but please take it with a grain of salt. I don’t think any definitive answers are knowable here. This is my thesis based on psychology teachings and my subjective history of observations over the years.
Categories: Trader Ego, Wisdom | Comments (4) | PermalinkMeetup Update (Part 3)
Posted by Mark on August 17, 2015 at 04:40 | Last modified: October 12, 2015 15:34As previously discussed, the Tuesday Meetup included some boisterous, opinionated discussion along with a “professional quant” in attendance. Nothing there was actionable.
While I enjoy and recommend the Wednesday Meetup, I did not find that content actionable, either. While the title includes the words “investment academy,” this Meetup is an order of magnitude less specific than helping people to trade profitably. I do not fault the organizers since they cater to beginners. They did say on Wednesday one directive is to foster collaboration among the group, however. I will keep my eyes open over the next few events to see if we move any closer to fulfilling this actionable promise.
I have organized a small option trading group that meets every week. We have roughly six regular participants and a Yahoo! Group. I posted extensively about my losing weekly calendar and one other member posted about a losing monthly trade. Nobody else mentioned any losing trades. I thought back over the last few weeks and realized that while I post about my losing trades often, rarely does anybody else.
At the Wednesday Meetup, Mr. Know It All said he lost money that day in response to my direct questioning. Thinking such a wide-ranging market day would be good for day trading, I asked for details. He spoke for a couple minutes and then quickly changed the subject. Why he lost could have been precisely the kind of actionable information I seek but alas, that was not to be forthcoming.
On Tuesday night, I didn’t hear any meaningful discussion about losses aside from the Forex guy who is on a crusade. Contrary to my thesis, this might not be a reflection of inflated egos but it does make me wonder whether anybody is actually trading. The woman in attendance who I found to be extremely amusing said she was flat right now awaiting further direction by the market.
I will continue with my thesis on losses in the next post.
Categories: Trader Ego | Comments (2) | PermalinkMeetup Update (Part 2)
Posted by Mark on August 15, 2015 at 07:19 | Last modified: October 12, 2015 15:32In the last post I mentioned that neither Meetup I attended this week provided any actionable ideas.
A discussion awaits about what “actionable” really means. For now, consider it “capable of generating trading profits.”
Tuesday evening involved a number of attendees sitting around at a bar eating and drinking. My beer was outstanding but neither that nor the buzz that followed were actionable.
Perhaps the closest thing to actionable was one guy’s experience about losing money trading Forex. He is now on a crusade to make sure everyone knows what a scam Forex is for the retail trader. His experience mirrored what I have studied about Forex so I think his advice to avoid Forex is indirectly actionable. By avoiding Forex we may avoid losses, which is akin to making money.
Much unactionable debate was had about the state of the economy, future direction of markets, and other fundamental information. I would argue that none of this provides market edge. Predictions are uncertain bets or wagers that belong in the gambling domain. People can be right if lady luck chooses to shine on them. If you believe otherwise then I would refer you to any number of intelligent minds who make incorrect predictions daily on CNBC.
Like fundamental analysis, most black box trading systems are not actionable. One attendee on Tuesday talked about a trading model he develops and sells. Since I have yet to write on this topic, I’ll reference this article as a reason to steer clear. On Tuesday I asked my new friend how his model has been validated (that’s a financial engineering term).
“By the testimonials of our customers,” he said.
Ha!
In the con-artistry game, most testimonials are confederates of the bad guy. Welcome to the world of finance. Personally, I would not consider his product actionable unless I tested it myself. That would require more resources than I have available at this time.
I will continue in the next post.
Categories: Networking | Comments (5) | PermalinkMeetup Update (Part 1)
Posted by Mark on August 14, 2015 at 06:59 | Last modified: August 17, 2015 12:56I attended two trader Meetups this week. Combined with a wacky market over the first three days, I walked away with some interesting impressions.
For the fourth time out of five weeks, I realized a loss Wednesday on my weekly calendar trade. The market was way down in the morning but rebounded to close almost flat. Had I simply checked in at EOD, I would have been fine! Unfortunately, on a weekly trade I can’t do that. The weekly trades force me to pay close attention to the market intraday and I expect to have days like Wednesday where the ride will feel like a Cedar Point roller coaster. I had one beer at the Meetup on Tuesday evening. By the close on Wednesday, I felt like I needed two more.
I actually recommend one of the two Meetups I attended this week. This was the third event and I wrote about it a couple months ago. If only to give them props, here is the comment I posted on their site yesterday:
> The organizers provide free refreshments and a free raffle,
> they are polished presenters, they field difficult audience
> members/questions… they’re not annoying with any sort of
> hard sell… after three Meetups so far, I’m flat-out
> impressed. Keep up the good work, guys! I’ll continue to
> make the 50-minute drive.
Having said all that, the Meetup does share something in common with the one I attended on Tuesday: I found nothing actionable at either one.
This is very unfortunate. Common sense may be to say if I am attending a trading Meetup then I hope to take away some trading ideas. Because I go for other reasons (e.g. social, networking), I’m really okay either way. I’m quite sure the Meetup organizers would consider the inclusion of actionable information an improvement to their programs, though, and for that reason I believe this is something worth further discussion.
Categories: About Me | Comments (2) | PermalinkRUT Weekly Calendar Trade #15
Posted by Mark on August 4, 2015 at 07:39 | Last modified: August 6, 2015 11:24On July 21, I bought a JulWk5 1255 calendar for $7.37.
With the market trading lower near the expiration breakeven, I rolled half to 1230 on July 24 for a $0.50 debit. This cut NPD from 18 to 3-4.
Less than four hours later, the market was at 1227 so I rolled the other 1255 calendar down to 1235. This was a mistake: I should have rolled to 1230 but it really did not make a difference. I now had a 1235/1230 double calendar to be closed either at 15% loss or if an expiration breakeven was hit.
Shortly after the open on expiration Monday, the market traded under 1213. I closed the double calendar for a max loss of 19.4%.
They say in trading, one has to be able to accept losses. This is now three in a row.
From a few who are now supposedly in their second year doing this trade, I hear it’s not out of the ordinary to have three consecutive losses once or twice per year. I’m trying to give this trade a fair shot so while now bordering on apathetic (not good) with regard to my outlook for this trade, I will keep plugging away.
Categories: Accountability | Comments (0) | PermalinkRUT Weekly Calendar Trade #14 (Part 2)
Posted by Mark on August 3, 2015 at 06:13 | Last modified: August 6, 2015 11:24Today I conclude discussion of weekly trade #14.
Around 11:05 AM ET on expiration Tuesday, the market dropped quickly from 1255.80 to just under 1255. I did not really want to roll the second 1270 calendar to 1255. Because the trade had only 2+ more days and because I might be down over $100 on expiration Tuesday with a max potential profit at expiration of $400 or less (usually closer to $1000 at trade inception), I did not want to roll the other 1270 to 1255. I was guestimating on post-adjustment max potential profit. I find it difficult to model these positions and track the PnL. It was the heat of the moment too.
A couple minutes later, RUT sank below 1253 and I placed an order to close (not roll) the 1270 for $6.70. By 11:10 I had caved $0.50 and still was not filled. I wondered whether I should even be trying to chase at this point because: RUT had breached the lower BB (I’ve really learned this is a bad time to trade but it’s when my emotions run hottest compelling me to trade). Also, I noticed the bid/ask on the calendar was close to $3.60. If I waited then the market would calm down, bid/ask spreads would narrow, and I’d get a better fill. I therefore canceled the trade.
As the market drifted a bit lower, I felt I just had to get the damn thing off. I put in a 4-legged order for the remaining double calendar and caved $0.40 over 2+ minutes. I got filled 0.10 off the then mark for a loss of $74 (4.71%) with the market at 1252.37.
At 10:00 ET on expiration Thursday, the JulWk4 1255 put calendar was trading at 8.40/9.60 at 10:00 ET. By 11:30, it was 9.36/10.27 as of 11:30 ET. I would have gotten the full 10% profit had I rolled the second 1270 calendar to 1255.
Once again, I failed to follow the trading plan. The trading plan says nothing about how I feel about a trade, where the BBs are, how wide the bid/ask is, etc. This time, as previously discussed, what should have been a winner was closed at a loss.
This trade was a big confidence zapper.
Categories: Accountability | Comments (0) | Permalink