I’d like to answer some questions.

[MarkBrown]

i only trade es nothing else and i am all by myself, the last thing i need is a team to deal with. i love hft and big money firms cause i know what they do and exploit that edge.

however i did have multiple mentors along the way and was blessed they needed my talents as a automation programmer. some say they paid me to steal their edges, i kinda think of myself as a edge collector.

 

[garachen]

Thank you for the opportunity. I would like if you could expand on the following:

I trade a lot and I talk to other traders all day every day who also trade a lot.

It is well known that you become similar to who you hang out with, but it is not always that easy, from my point of view, to find those people. How did you go about this particular, in my opinion very important, aspect of becoming a well to do professional trader?

That is true. Before trading on my own I was at some pretty successful places and had a good handle on both stat arb and capital structure arb. Didn’t use either one at first but it is important to understand what to try to look for and what alpha is supposed to look like.

Now I employ lots of traders and I’m constantly interviewing so I have a pretty good idea of what every other firm is doing. This is more to say if you hit me with a trading question I’ll probably have a good idea of what things have potential.

 

[garachen]

Hi garachen,

Thanks for checking in. I've read a few of your posts earlier with interest.



Interesting statement. Care to elaborate?



Makes sense. The opportunity cost is huge. That's why I personally would not recommend anyone to pursue (day) trading.

However, your latter paragraph, and I believe I heard you say something similar earlier, does not make sense to me. How could anyone expect to be consistently making money in such a short time period without a mentor?

In a corporate environment or where you receive training/mentoring I imagine it may be different.

But as an amateur entering this business I imagine 6 months is barely enough to start getting an overview of the markets and the various approaches.

I guess you probably shouldn’t start until you know what you are doing. But I’ll stand by the 6 month test. After you have a pretty clear idea of what path to follow, that’s a reasonable time to get there. Getting ‘mentored’ shouldn’t be more than a 1-2 hour conversation with someone who knows what they are doing.

 

[garachen]

I have a question related to taxes and trading in 2020.

to keep things simple I'll use round numbers

let's say on Jan 1 2020 the account balance is $100K

due to panic selling, by april the portfolio is now worth only $80K

I deposit an additional $20K to bring the portfolio back up to $100K.

then with some saavy trading by Dec 31 2020 I have realized $20K in gains and the account is worth $120K.

it's a disappointing year because i grew the account $20K essentially due to depositing new money, and yet I'm hit with a tax bill for the $20K in capital gains, making it a net loss in the year.

Am I missing something? I don't think I should have to pay those capital gains.

This is too general. The answer is product and accounting method specific.
Stocks mark to market. No tax
Stocks specific identification - negative 0 positive tax all possible.
Futures no tax
Crypto - very complicated because you can do LIFO or fifo so can be anything.

deposit has nothing to do with it. Tax will be the same with it without deposit.

 

[unconventional wisdom]

This is too general. The answer is product and accounting method specific.
Stocks mark to market. No tax
Stocks specific identification - negative 0 positive tax all possible.
Futures no tax
Crypto - very complicated because you can do LIFO or fifo so can be anything.

deposit has nothing to do with it. Tax will be the same with it without deposit.

thanks for the reply! i love trading- taxes not so much.

 

[garachen]

thanks for the reply! i love trading- taxes not so much.

I agree completely. I’m usually working on taxes for 10 months each year. It’s truly terrible. Getting massively taxed in CA and threatened with a wealth tax too to fund a bunch of programs which clearly don’t work just adds to the excitement. I grew up here so I love CA weather but I’m looking to move.

I’ll tell you the general idea of a trick I read about a long time ago and use currently.

(Using round numbers). For charitable giving say I buy $1m total of 20 different sticks. Pretend half go up 500k-> 750k. Half go down 500k -> 250k so I make 0. At year + 1 day you donate (not sell) the winners. At year - day you sell the losers and collect short term capital loss. So with $0 earned you’ve created 250k in valuable short term losses and a tax deduction of 750k.

 

[zghorner]

I ‘retired’ from this site a few years ago but like to check in the first two weeks of each year to see if there’s anything new being discussed.

My very brief introduction is that I quit my job and started trading full time in 2006 with 100k capital. I first broke $1m in total trading profits by late 2007. I invested more in tech and trading relationships over the next decade and for the most part things have gone well. I trade a lot and I talk to other traders all day every day who also trade a lot.

This forum is pretty funny. Mostly noisy but every so often there’s a million dollar piece of information that someone will just randomly and inadvertently post. Much fewer now but it’s still fun to look.

I’d like to take a few interesting trading questions if that appeals to anyone. I didn’t see a current thread that immediately jumped out to me.

I know a lot about most trading things. Probably the least about equity options but if it’s a good question I definitely know someone I can get an answer from.

I’ll start off with what I see as the biggest hurdles retail traders face when starting.
1) lack of specialization. There’s really not a thing called ‘trading ES’ for an individual. ES is a team effort. Individuals should start with something very narrow like summer Natural gas time spreads (not a recommendation). That’s a product thats manageable by an individual who then after several months of consistent profits might expand to winter NG spreads. Product selection is important.

2) fees matter. If you don’t know your fees or what other people might be paying then you just don’t care enough.

3) Low goals / expectations. Trading is not a means to ‘support’ a family. I’m not even sure I could actually think of a worse way to accomplish that goal. Trading is all or nothing. As a potentially successful trader you will need to be quite smart. Your opportunity cost for not taking a job or starting a different type of business is enormous and you’ve traded it for a high risk high reward binary option. As time drags on that option premium you pay gets more and more expensive. In almost every case, if you aren’t making money 8-9/10 days by 6 months in you really need to quit trying and do something else. It’s very unlikely that trying more will bring a different result.

4) realize that even as things go even more electronic and people complain about HFT - hft profits are measured in a small percentage of a trading increment. The big / massive edge is still mostly manual or also in signal based trading in specific environments. There’s a lot of edge in opaque markets so if you feel like you are really in the weeds of things like delivery schedules, regulation impact, etc there’s a good chance you are doing something correct. Find things the algos can’t do.

A question concerning equity options,

Those making it big trading options, do they tend to place more one way directional bets...example long calls OR long puts, to capitalize on big moves...or do they tend to use multi leg strategies/safer more conservative approaches?

This is a cool thread man don't let the haters run you off.

 

[garachen]

By BIG on options I’m not sure if you mean citadel / optiver / SIG crowd or some more hedge fund focused group.

low risk market broad market making on options is extremely competitive and very low latency and high volume dependent. That gives a core income and sense of market in order to start to take actual market risk and be consistently very profitable.

the hedge fund approach without access to that continual market making flow usually involves a decent amount of chatter (actual talking) and looking for vol dislocations.

I’m sure there are other approaches but that’s what I’ve seen predominate.
I’m not qualified to say what is not possible in options.

 

[garachen]

i only trade es nothing else and i am all by myself, the last thing i need is a team to deal with. i love hft and big money firms cause i know what they do and exploit that edge.

however i did have multiple mentors along the way and was blessed they needed my talents as a automation programmer. some say they paid me to steal their edges, i kinda think of myself as a edge collector.

I guess I know a few ES traders who started early enough that they can still make it trading on their own. But the career path has been. 5-10m solo 20ish years ago. 100+ m with team of 8-12. 2-3 million solo again after retiring with way more capital than they had before.

so I’m not bullish on the trajectory and I don’t think it’s a viable starting point for people nowadays.

 

[Market_Diver]

I ‘retired’ from this site a few years ago but like to check in the first two weeks of each year to see if there’s anything new being discussed.

My very brief introduction is that I quit my job and started trading full time in 2006 with 100k capital. I first broke $1m in total trading profits by late 2007. I invested more in tech and trading relationships over the next decade and for the most part things have gone well. I trade a lot and I talk to other traders all day every day who also trade a lot.

This forum is pretty funny. Mostly noisy but every so often there’s a million dollar piece of information that someone will just randomly and inadvertently post. Much fewer now but it’s still fun to look.

I’d like to take a few interesting trading questions if that appeals to anyone. I didn’t see a current thread that immediately jumped out to me.

I know a lot about most trading things. Probably the least about equity options but if it’s a good question I definitely know someone I can get an answer from.

I’ll start off with what I see as the biggest hurdles retail traders face when starting.
1) lack of specialization. There’s really not a thing called ‘trading ES’ for an individual. ES is a team effort. Individuals should start with something very narrow like summer Natural gas time spreads (not a recommendation). That’s a product thats manageable by an individual who then after several months of consistent profits might expand to winter NG spreads. Product selection is important.

2) fees matter. If you don’t know your fees or what other people might be paying then you just don’t care enough.

3) Low goals / expectations. Trading is not a means to ‘support’ a family. I’m not even sure I could actually think of a worse way to accomplish that goal. Trading is all or nothing. As a potentially successful trader you will need to be quite smart. Your opportunity cost for not taking a job or starting a different type of business is enormous and you’ve traded it for a high risk high reward binary option. As time drags on that option premium you pay gets more and more expensive. In almost every case, if you aren’t making money 8-9/10 days by 6 months in you really need to quit trying and do something else. It’s very unlikely that trying more will bring a different result.

4) realize that even as things go even more electronic and people complain about HFT - hft profits are measured in a small percentage of a trading increment. The big / massive edge is still mostly manual or also in signal based trading in specific environments. There’s a lot of edge in opaque markets so if you feel like you are really in the weeds of things like delivery schedules, regulation impact, etc there’s a good chance you are doing something correct. Find things the algos can’t do.

Thanks for the post Garachen, I have a couple of questions.

1. I assume you are trading manually and not automated. And probably you are running a scanner to obtain trade signals. Am I correct?

2. Do you use indicators, price action or fundamental analysis? Mind to give a rough idea without revealing your 'secret sauce'?

Thanks again.