I’d like to answer some questions.

[jtrader33]

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.

Good to see you back. Whether you realize it or not, I think many have benefitted from your past contributions (myself included), so thank you. As a one man shop, it's hard not to get greedy with a slew of questions here, so I'll do my best to show some restraint. Here's a couple if you find them interesting enough to comment on:

1) You've mentioned in the past stepping into provide liquidity during dislocations when algos get turned off. How do you determine that they've been turned off? How do you determine where to place your bids/offers?

2) If you had your mind erased of everything except for the basics of financial markets, how would you go about product selection and the resulting trading strategy? Or would you go about selecting products with a strategy in mind?

 

[garachen]

Best to see them is when moves are several standard deviations. CL last year -40. It was clear to see algos start to turn off around +10. And subsequent market action made it very apparent that going negative was a near certainty. If you can play back that day that would be a good start.

product before strategy. With no data and just my eyes... with sufficient money I’d look at PA, PL, HG. Otherwise either bond future correlations and correlation breakdowns or gasoil.

the trading strategy follows from product selection quite naturally.

 

[Laissez Faire]

If forced to in that situation I’d try reaching out to people on linked in. To start conversations.

As the industry is virtually non-existent here, I don't think it's worthwhile for me to try, but maybe for US residents. I've talked personally to one of the 'big guys' in trading here in Norway and one which actually ran a hedge fund, but he says trading is virtually non-existent here, except a few private individuals who wish to stay below the radar, unless you yourself have something to bring to the table.

I've been in contact with a few people on this site too who I believe to be profitable and some of them very profitable too, but none are interested in mentoring anyone or giving away any secrets beyond some guidance and good advice. And that's of course completely understandable.

 

[jtrader33]

Best to see them is when moves are several standard deviations. CL last year -40. It was clear to see algos start to turn off around +10. And subsequent market action made it very apparent that going negative was a near certainty. If you can play back that day that would be a good start.

product before strategy. With no data and just my eyes... with sufficient money I’d look at PA, PL, HG. Otherwise either bond future correlations and correlation breakdowns or gasoil.

the trading strategy follows from product selection quite naturally.

Appreciate it. I think there's enough in your posting history to figure out which approaches you'd apply to the above.

I'll hazard a couple add'l fun questions while the thread is quiet:

Is this still going or can you reveal more detail?

https://www.elitetrader.com/et/threads/spreadprofessor-clients-thanks.286592/page-4#post-4028886

It must get increasingly difficult for you to keep capital employed as profits accumulate - any interesting assets or outside businesses that you like or are involved with?

 

[garachen]

Crypto and opportunity zones.
Holding excess cash is starting to carry big risk.

I’m sure whatever I was doing in 2014 I’m not doing now... so I’d tell you if I remembered. Could have been something with Platts. But I’d have to review my posts for context which is kind of boring.

 

[InAllHonesty]

I have questions.

1) What’s the amount of leverage (contracts) you can realistically use before algos will actively hunt you?

I’m well capitalised. Not far from giving up the day job and going full time.

Below 10 contracts I can freely trade intraday. Whenever I’ve tried to trade 20+ I feel like I’m being terminated by algos.

2) Better edge - 2 sigma dev or tape reading?

3) Your posts are blocked for me. Can you enable access?

Thanks in advance, if you take the time.

 

[garachen]

I have questions.

1) What’s the amount of leverage (contracts) you can realistically use before algos will actively hunt you?

I’m well capitalised. Not far from giving up the day job and going full time.

Below 10 contracts I can freely trade intraday. Whenever I’ve tried to trade 20+ I feel like I’m being terminated by algos.

2) Better edge - 2 sigma dev or tape reading?

3) Your posts are blocked for me. Can you enable access?

Thanks in advance, if you take the time.

1) extremely product specific. PA feels uncomfortable with more than 1 lot. It will move things. Other products I’ve done max order of 49,999. (Talking futures). If you are placing passively and you have an order by order feed then I’d just pick something in the middle. A lot of times it’s just better to cross for entry and exit. I could discuss why for a very long time. If algos detect you crossing they will probably help move stuff in your direction anyways.

2). I’m not sure of what the question is. But your edge should match your capitalization.
3). Don’t know why that would be. Or how to undo it. I do have a trigger finger on the ignore button. But you aren’t on it.

 

[garachen]

Greetings and thank you for offering your time and insight to the forum.


" 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. "

I am also having difficulty understanding your meaning by this statement. This also goes against what Ive been told. I would say it may take 6 months to just figure out what style and instrument and market you understand and are comfortable with, fine tuning your strategy and being profitable 8/10 days would be a tremendous accomplishment or luck rather than an expectation, no?

I would say it will require peers and mentors and a very large bankroll or just dumb luck to even get to this point of chosing not to quit after 6 months, basically if youre making money at six months youre either getting really lucky or being very well guided, or am I wrong?

I know youve already discussed it some but if you dont mind could you elaborate further?

For example, you mentioned learning a language, although language evolves it doesnt do so as fast as markets. What might have been working yesterday may not work tomorrow. For example, "hello" doesn't turn into "goodbye" or lose all its meaning the next day.

Every trader Ive met that Ive respected has told me trading doesnt have a finish line where you "arrive", so you are saying this is incorrect and you should be consistent 80/90% at six months?

Are you saying if you are at a firm with their best and brightest helping you while trading and risking someone else's capital and strategies you should be able to to find 8 or 9/ 10 consistency within six months?

Although, 100k is nothing to sneeze at and Im guessing it wasnt your rent money youre original post makes it seem like you started all on your own and did 1000% your first year, or am I reading that wrong?

Greatly appreciate your contribution and I have been flirting with quitting for a while, pretty much before I even started most people said it was impossible. so appreciate your insight

I was on my own during that time and joined with a friend shortly after. No new capital.

I don’t care much for the voodoo spirituality linked trading descriptions. It’s a job. It takes a toll like other jobs. You learn like other jobs..

some perspective. Pretend you are a new hire at Jump or HRT or Tower as a jr trader. A) how much ‘training’ do you think highly compensated people are going to be giving you B) how long do you hang around while not making money. I don’t have direct knowledge of A because I don’t work there but I’ve seen enough to make a pretty good guess on that answer. And B I know for sure. There’s not a significant amount of ‘magic’ in the corporate structure that you couldn’t have learned in 2-3 decent conversations outside the structure. In regards to finding something profitable. The things you’d look for would be different but the effort is about the same.

 

[Stockboy]

fair enough. and I appreciate the honesty.

Wow, so yes you are affirming you started on your own and within a year had made 1000% returns. IMHO to newer traders Id advise that either you are just brilliant top .0000001 percentile, (even smarter than Isaac Newton who lost his shirt in the market) or was something like winning the lottery? like buying XYZ at the bottom last spring and just holding till selling the top, hopefully you didnt buy the top and sell the bottom the next trade. This is cool but not something any one should expect.

Unfortunately, trading whether discretionary or even algorithmic is unlike any other job. The toll it takes can be described almost as voodoo, for example even the best ball kickers in history dont have to worry about the goal being moved as their running to kick the ball.

If I was a new hire at a firm Id expect them to actually pay me a salary while they were teaching me something actually valuable not something 2-3 conversations with quants or old school wall street cowboys could teach me. If I was spending most my time crunching numbers and nerding out on new math strategies.

I guess its doable if your just so rich you can just hang and "intern" but there is probably a reason most algo and HFT firms offer a salary. Also, to be fair 2020 was not the best year for every algo trader, I know someone who has been trading very profitable for a good while and he mentioned his algos lost money in 2020. So, yeah I dont believe in the math magic voodoo either, at least not yet maybe as the tech progresses.

If I was at a discretionary prop firm, Id be willing to do the commission only thing if the education, access to technology/information, and mentorship there was worthwhile, again not sure how many people can just "hang".

I appreciate your contribution but guess we'll just have to disagree, for a brand new retail trader that in 6 months you should either be 80%+ winning days or not cut out for trading. If your at a huge fund with enormous bankroll, experience and strategies behind you, mabye. but only if youre lucky. But do agree on opportunity costs etc.

Thanks for offering your insight

 

[Magic]

Garachen, really grateful for your contributions in years past. I got into trading on the wrong path (TA, useless stuff). But shifted gears after studying successful people and started seeking out what the market tends to give risk premium for.

After finding a few minor tailwinds like levering up diversified basket of +ev positions and doing basic optimization in places with tailwinds (index vol, overloaded SN vol), I have done ok but nowhere near tapping into a convex return profile up into a respectable ceiling of at least a few $mm which is kind of the goal of sinking time into this field.

I had the good fortune to stumble upon one trade that’s fairly capacity constrained but has huge expectancy so I know what is possible, but don’t have a good idea how to find more of these types. Mediocre coding skills, passable discipline/intuition. Lucky enough to be surrounded by several individuals way more talented than I am, but of course they can only share so much.

I suppose I don’t know the right questions to ask from here. Absent any new ideas I will just keep capital deployed on small edges and try to hone my skills at scaling in against moves that get a bit out of control. Better than passive investments; but it isn’t a real edge. Any general thoughts? Always appreciate getting input from those more experienced.