The trader who never was

V

Virtual_trader

Background:

I graduated from college just a few months ago with a finance degree. I joined a prop firm soon after.

During my time at the prop firm, I had a whole new view on the market. The value investing mentality that professors educated me with became obsolete. I now know that the right way to capitalize on the market is not investing, but trading. Determined to be a trader, I worked hard at the prop firm, trying to learn as much scalping as I can by doing many trades. Unfortunately in this market, hard work doesn’t always lead to success. I was terminated after a few months. My dream of becoming a prop trader was shattered.

Without money and without a job, I know I am not at the best financial position to trade, especially when I am carrying a significant amount of debt from student loan. I felt like giving up trading and move on, but something told me that if I stick around long enough, I am going to succeed. Maybe it’s my overly optimistic inner child telling me this or maybe it is just the bitter taste of defeat too much for me to bear. Either way, I don’t want to admit defeat. I don’t want to surrender.

So I will continue my journey in www.virtualstockexchange.com and I will post all my trades and I hope I could elicit some advices from you all. Thanks!

The starting value of my portfolio is $500,000 with 50% margin

Friday, November 8, 2002:

Shorted 9000 QQQ at $25.65
Reasons:
-50bp cut in interest rate precursor a weaker than expected economy
-Island reversal top on Nov. 4th and Nov. 6th
Stop Loss set at $26.10 to allow around $0.50 fluctuation
The stock ended at $25.07 at the end of the day with my position still open


Monday, November 11, 2002:

Shorted 9000 more of QQQ @ $24.76
Reasons:
-To average up my winning trade
-Gap down in the morning to $24.95
-War threat
-Broken support for Nasdaq @ 1366 &1354/1350
Stop Loss set at $25.20, which is the average price of the 18000 shares of stock shorted
When the stock hit $24.45, stop loss reduced to $24.95, which is the price when it gap down
The stock ended at $24.30 @ the end of the day with my position still opened


Tuesday, November 12, 2002:

Increased stop loss to $25.10 to allow more room for fluctuation as Nasdaq rebound driving up QQQ to $24.80
($26.50 previous high - $24.30 current low)/3 + $24.30 = $25.03 is the target price for the next pull back

Shorted 1000 shares of QLGC at the market $38.64
Reasons:
-Downgraded by 3 firms in three consecutive days
-Short term down trend
Stop loss set @ $39.00 to allow $0.36 fluctuation

Stop loss filled @ $39.02. Loss $0.38/share
Total Loss on QLGC: -380

Stop loss for QQQ was filled @ $25.14. Gain $0.065/share
Total Gain on QQQ: $1170


Wednesday November 13, 2002:

Shorted 3000 shares of GM at Market @ $33.30
Shorted 15000 shares of GM at Market @ $33.30
Reasons:
-Iraq would probably reject UN resolution. War would cause oil price to increase, automobile sale would decline
-General trend is down
Stop Loss set @ $34.00 to allow $0.70 fluctuation
Covered @ $33.95 due to Iraq agree on the UN resolution
Total Loss on GM: –16,170

Long 20000 shares QQQ at Market @ $25.20
Reason:
-Iraq agreed on UN resolution
-Nasdaq has been strong
-I believe at $24.00 is just a dip before it trend up again
Stop loss at $24.00, which is at the dip
 
What a good idea to trade an account far in excess of anything you might actually trade. The buying power, the staying power, will teach you so much!

I look forward to monitoring your journy.
 
When you were at the prop firm, is there anything you can isolate about your trading habits that caused you to fail (not permanetly of course)?

I notice that a lot of your trades have reasoning behind them (Iraq, war concerns, interest rate cuts), however I have found out (through the use of real money), that what we predict and what the market does are usually 50/50 shots. I could say the market will go down tomorrow and have a 50% chance of being correct.

I wish you the best and would like to say that I have found substantial improvement in my own trading by trading what is happening and having a solid idea when I want to get out via the time-frame I am trading.

My general experience is that my best trades will go in my direction almost immediately and the one's that don't should usually be closed out as soon as possible.

Good luck to you!
 
Quote from aphexcoil:


I notice that a lot of your trades have reasoning behind them (Iraq, war concerns, interest rate cuts), however I have found out (through the use of real money), that what we predict and what the market does are usually 50/50 shots. I could say the market will go down tomorrow and have a 50% chance of being correct.
More...

I have to agree. In general, isn't it reasonable to think all this stuff is already discounted in the price? I think it is more like background noise that might influence your direction but is not tradeable by itself. Mike Steinhardt has a theory that you trade this kind of stuff only whne you feel the market is not reflecting it. Tough to do, as it takes lots of experience and helps to have contacts at major trading desks.

How did you trade at the prop firm? What were your results? I would add don't let it discourage you as lots of top traders go through rough patches, particularly in the beginning. Good luck.
 
At that prop firm, there are 2 kinds of traders. One is the rebate trader who would give up on gross profit to get rebates from ECNs doing bid/offer. They traded ERICR and PALM and could make around $1000 in rebate a day. Unfortunately, after the reverse split of these stocks, their volume has significantly decreased and they weren’t suitable for rebate trading anymore. Right now, there isn’t any stock for rebate trading. The other kind of trader is the scalper. They would get 1 to 5 pennies, depends on the stock’s fluctuation.

For me, I was trying to learn scalping. I would long a stock every time the S&P future has a higher peak than the previous peak on a 1 min chart. It worked when the market is bullish, but then I would be buying the top when the market is choppy. A method I know was catching the bounce, but I seldom use it because it seems risky, but then that is how most traders make their money from scalping. It didn’t work for me, because I don’t have the guts to do it. And when I did it, tends to go 2 or more cents against me, which is stop loss. I could almost breakeven with the market, but after the ECN and the SOES fees, I would be down. If I were trading 100 shares lot, my average loss would be $60/day.

In the QQQ short transaction, I added in my short position the next day when it gap down, which led to a lower average cost, making the breakeven price (stop loss) lower. I wonder if that is a wise thing to do, since I have heard some trader said that the right thing to do is average up, instead of average down.
 
I think your money management is more important than your reason for entering a trade. You should post what your exit will be when you enter a trade - not necessarily a price (although it might be), but the condition that will trigger your exit. If you don't know where you are getting out (or under what circumstances), you probably won't be profitable in the long run. If you are going to allow yourself to change your exit point, I think you should define the conditions that will lead to the change before you enter the trade. Otherwise, exit when you said you would. Good luck.

PS
Most of your reasons for entering a trade seem to be based on fundamentals (perhaps this is a remnant of your formal training). For me, technicals and price action work better than fundamentals for short term trading.
 
I have used up my buying power on the 20,000 shares QQQ long position, so I didn’t make any trade today. I just stayed at home and watch the position develop. Luckily, it didn’t hit my stop loss today and I am in the “money”. I am going to let it run to see what happens. I have adjusted my stop loss higher to $0.10 above my breakeven point. So if it comes back down, I would get compensated for the transaction.

Stop Loss set at $25.30, which is $0.10 above my breakeven point. Also, it is the middle of the gap up indicated on the chart below. If the gap up is filled, it is an indication of weakness and I should get out.


Eldredge:

I have never received any formal training from the firm. All they taught was the basic bid/ask and the cost structure of the ECNs & SOES. Technical analysis wasn’t used because everyone was scalping for just a couple of pennies. They base their long/short decision on level II only.

Right now I am trying to do some swing trading and everything is new to me. I found TA to be very helpful and I will use it to determine my entries and exits.
 

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Just a quick comment on your trade share sizes. You mentioned you're planning on using $500k w/ 50% margin.

One of my difficulties in transitioning from paper trading to real money trading was that I also used large $ sizes for paper trading. When it came time to move to real $ trading, I was not mentally geared to trade in smaller lot sizes - thus, if I had to do it over, I would only trade in the lot sizes that I would expect to trade real $ in.

My strategy development approach now is to paper trade (or demo trade) at my initial real dollar trading share size. Once real trading begins for each strategy, I gradually bump up share size / trade (based on max loss/trade criteria). This is a rigorous approach, but it makes me accountable to myself for positive results before taking on higher risk.

My gut feel is that if you're trading on a $500k paper account, when it comes time to "live" trade, you'll have a tendency to be bored or frustrated with the small share sizes you should be trading in and you'll ramp up on risk exposure too quickly.....

Swish
 
I started an account on the virtualstockexchange today. It was interesting, but wasn't possible to daytrade. Took about an hour for market orders to get executed, and confirmed. I ended up buying three times as much as I meant to, because the orders didn't show, so I re-sent them.
 
I guess it is a good day today. Nasdaq closed above the 1400 psychological level. My long QQQ position is showing some more paper profit, which is enough to cover my loss on my previous transaction where I shorted GM. I am tempted to close the position and cash in on the gain, but something tells me to sit tight and just watch.

Looking at the chart, I can see that QQQ closed higher at $26.36 today, but the volume is particularly low, so I don’t know if the up trend will continue. On the other hand, traders usually don’t like to hold their position over the weekend, so any long position should have been closed and drove the market lower. Seeing the Nasdaq edge higher really shows the confidence that the traders have on the market. Anyway, since the trend hasn’t been broken and it didn’t hit my stop loss, I am going to sit tight.
 

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