Quote from dv4632:
Some posts in the Combine thread reminded me of something, and was going to reply there but figured I'd stick it here since this is a serious trading thread and is kind of "Mav's thead" now too. Somewhat off topic but since this thread has slowed down lately I figure it won't be disruptive.
Hey Mav, been meaning to ask you about this for a while. I remember you saying somewhere that you paid your way through college by trading. I'm curious if you could talk a little bit about that. What kind of trading were you doing, what instruments/timeframes, etc? Was this as a retail trader as in the Tim Sykes story, or were you prop? Are things much different now than they were then?
Been meaning to ask about this and those posts jogged my memory. I'm always interested in success stories. As a side note I've been thinking it would be cool if Schwager followed up hedge fund Market Wizards with a retail trader edition.
Hi dv, I've discussed this a few times on here in the past, mainly as a cautionary tale. Like most kids in college, I was broke. I traded equity options starting with a few hundred bucks and built that up to a quarter of a million dollars at it's peak. Obviously, it was NOT skill. I didn't know what I didn't know. It was a combination of being in a bull market and having ZERO fear! Great combination btw if you can find it. LOL.
I basically figured out the earnings volatility cycles in implied vols. Nothing new under the sun. Just that vols get depressed 4 to 6 weeks after earnings and tend to climb higher from there into the report. I traded a handful of tech stocks. I timed the implied vol cycles and was lucky that stocks almost always went up going into their earnings. I also stayed away from the big movers. I played the same 3 stocks over and over.
The irony of this story is that I lost a lot of that money, a huge chunk to be fair, while studying for my series 7 and getting ready to move to NY. I didn't lose the money trading, but rather making HUGE "investments" in some long term option plays on some CRAP small cap stocks. Talk about getting away from what was working. LOL.
Fortunately I was able to pay my way through school and live on the profits for 5 years and move to NY. But that money went quick. The funny thing about this story is that it illustrates how EASY it is for beginners to make money. I know that sounds counter intuitive, but it's true. When you first start trading, you have no market memory. You don't remember any bad trades you made or how the market did this or that to you. It's analogous to your first date with a girl. If you end up marrying that girl and having 3 kids with her, it will never be as good as the beginning when bad memories are non existent and all that lays before you is nothing but upside potential.
It's only after years of trading do guys try to get back to that "first date" so to speak with the market. But you never can. Just as you will never have that spark again with your wife of 30 years that you had on your first date.
The number one rule of trading is to protect your capital at all costs. And I failed to do that after my first run. I have said it too many times on this forum, making money is actually pretty easy trading. It's the keeping it part that is challenging. Jesse Livermore alluded to this in his final suicide note in 1941. When he told his wife he failed at trading, he didn't mean he was not successful. He was hugely successful. He made more money then all but the richest few men in the world. He started with nothing and made a king's ransom several times. No, what he was referring to in that note was his inability to "protect" his capital. He knew that was the cardinal rule of trading, always protect your capital. And at the end, he did not do that.
So while it was fun to experience the late 90's bull market, it taught me a lot of lessons. But there was no magic formula. No special wheel. And yes, this was all done in a retail account. The next chapter of this story is called, "prop firms blow up, and quite often at that". LOL
