What to do with my life?

[MrMuppet]

I've been trading for 5 years. The first three years I doubled my money following a value investor approach, and then i suffered a large loss on a very concentrated bet.

Over the past two years I started to become profitable, implementing options to express my mostly fundamental views on direction and volatility on individual companies. Occasionally I'll put on a technical trade if I believe the r/r is attractive, although these are much smaller positions.

I know IB has a nice graph showing a trader's NAV over time, but I dont think td Ameritrade has that. I may have to switch over to IB.

Ok dude, here's the thing:

Besides SLE, nobody here has a clue. Especially the clowns who mix 5% - 20% asset allocation per trade with risk per trade. Don't listen to them, honestly. It just discourages you.

I was in the same situation a long time ago. No Ivy league degree, no math background, no conections, no rich dad who played golf with a hedge fund manager, no programming skills, but an insane hunger to trade. Market Wizzards was my bible, Paul Rotter my god and I inhaled every single bit of information about trading 24/7.

Here are my tips:

- Think long and hard about what SLE has asked you. Do you want to trade for a hedge fund? I extend here: Do you want to work for a hedge fund or do you want to trade?
Beause working for a hedge fund cannot be compared to what you are doing right now. Most likely you'll be pushing paper from left to right and be a slave for a long time until you get your own book.
Really, be careful what you wish for. If you really want to trade and don't just belong to the club, you would not want to work for a fund.

- Document your performance! I'm not really talking about getting your performance certified - which doesn't hurt, but is expensive and not necessary when you can show account statements - I am talking about documenting your trades.
When I started out, I wrote down a presentation of every trade for myself, so I could learn faster. I noted market sentiment, important levels in the major markets (ES, Gold, EURUSD, ZN), technicals of the market I traded (FX at that time), my trade idea and what I did well and not so well after the trade
That was incredibly useful when it came to acquiring my first gig and also later when I got my hands on OPM.

In the end, nobody is interested in your past performance. But potential investors want to know if you are a lucky maniac or if you do have a sound approach that works. So having a couple of hundred pages of documented trades is incredibly useful when it comes to explaining what you are actually doing, especially when you trade discretionary.

- Consider discretionary prop firms. I heard good things about SMB capital, in addition Mike Bellafiore is a really nice guy. Today they are pretty big in social media so I don't know if they still make huge $$, but it doesn't hurt sending an eMail to Bellafiore and ask for his opinion. He always wrote back to me, so perhaps you are lucky and he can open up some doors for you.


- Consider opening your own shop. That's what I opted for in the end. I was sick of dealing with the attitudes in the industry and I also did not want to have some bullshit deal with a prop firm. I had some long term HNI friends who were my customers back then when I was a trainee, who trusted me and backed me with mid 6 figures. I had a side job to cover my bills, took 0/30 the first year and eased into 2/25 later. I have no customers, no other outside business and I rarely ever take new investors.
So if you're capable of making 30-50% per year consistently (which isn't so hard when you know what you're doing and don't need to trade billions) and you have 400K AUM, you make 120-200k profits and keep 30% of that. It's not necessarily boats and whoes money, but it's a good start.

I've always been pretty niche, so my returns are high and scalability is low, but when you trade the big names like NVDA and MU you can easily trade 8 digit AUM. Think 2% management fee p.a. and 25% profit split. You'll have a good life and you can do what you love....but you won't be part of "the club".


- MOST IMPORTANT: Do not rush it! You'll eventually get there, I promise. As long as you keep up the hard work and the love for trading and the consistency of your results, you have nothing to fear. There is more money than sanity out there and all you need is one or two profitable years with other peoples money...and you will be snowed under money!

The only thing that can really break your neck is a reckless trade that has blow up potential. Because if I wanted to invest with you, the last thing I want to see is 11 months consistency and 1 month pandemonium with 70% drawdown potential...especially with options.
Try to trade as if you already had investors and stick to a 20% hard stop/shut down threshold.


Keep it up and good luck

 

[nickynoes]

It is 2% because statistically, that is where your chances of blowing your account is close to zero. Some traders suggest using just 1% limit on losses. The 2% limit on losses is huge if you have multiple positions. Say you have 5 positions which all turned out losers, that is a 10% drawdown on your account like from the get go! Risk management should be job number 1 if you want to be a top trader. Blowing up your account because of excessive risk, will not make you a better trader.

I am not disagreeing with anything you say, but you must realize that there are so many different systems and strategies with completely different statistics prompting them to use different position sizing and money management rules that simply saying 1-2% maximum is just way too generic and frankly dumbing down the entire science and subject of position sizing.

Please read this book https://www.vantharp.com/definitive-guide-to-position-sizing-strategies and then tell me that everyone should only risk 2% per trade "because statistically, that is where your chances of blowing your account is close to zero."

 

[nickynoes]

I don't necessarily want to work for a hedge fund. If I can find a discretionary prop trading firm that accepts me, I would be happy to work there and just be paid on performance.

Try doing one of the trading challenges then, like the gauntlet. To get into the good firms you need a valid track record. Preferably trading for another prop firm.

 

[srinir]

My edge has largely been fundamental, but want to develop skills in technicals, sentiment, etc.

Where I have been most profitable has been in situations where market sentiment is at an extreme, and where I have a differing opinion and can express that opinion fairly cheaply.

Probably my proudest trade this year was shorting NVDA at $260. Implied vol was at historic lows, management was promoting the GPU as the future leader in AI, sell-side analysts were upgrading the stock due to AI excitement, etc. I also thought it was interesting to see how many chip stocks were selling off and NVDA - which had a historical technical correlation with some of those stocks - suddenly diverged.

I believed that there was serious competition in the AI space, and I also believed management was downplaying the excess second hand GPU inventory used for crypto-mining. I bought a bunch of long term put options, and went long the equity to hedge my initial delta position. I didn't re-hedge as the stock fell.

Similar story with MU: Relatively cheap implied vol, bulls thought memory prices were going to up forever, yet capacity expansion in the industry was expanding rapidly, there were also signs of demand destruction. One of my favorite Stanley Druckenmiller quotes involves trading cyclical stocks (something along the lines of: buy when capacity expansion shrinks, sell when it expands).

Have you considered studying for CFA in the mean time? Your mindset is more geared towards buyside firm, rather than Prop firms.

 

[Turveyd]

Reducing the size / risk of each trade isn't going to make more money, it's going to make less, this advice comes from losers who are trying to lose slower in the hope they stop losing at some stage, your past that, so ignore and move on.

 

[trickshot]

Reducing the size / risk of each trade isn't going to make more money, it's going to make less, this advice comes from losers who are trying to lose slower in the hope they stop losing at some stage, your past that, so ignore and move on.

You completely missed the point. Its not about making more money or less money, its about capital preservation.

You can have an edge and still blow up with bad position sizing/money management, for example a trader with an incredible 80% win rate can still blow up if he risks 20% on every single trade, all it takes is an unfortunate series of losses and his account will be cut down to near nothing. Remember it only takes 11% to get back to breakeven if a trader is down 10%, you need to double your account to recover from a 50% loss.

Proper position sizing matters regardless of edge, its simply incorrect to say that people who advocate proper position sizing are all losers.

 

[smallfil]

I am not disagreeing with anything you say, but you must realize that there are so many different systems and strategies with completely different statistics prompting them to use different position sizing and money management rules that simply saying 1-2% maximum is just way too generic and frankly dumbing down the entire science and subject of position sizing.

Please read this book https://www.vantharp.com/definitive-guide-to-position-sizing-strategies and then tell me that everyone should only risk 2% per trade "because statistically, that is where your chances of blowing your account is close to zero."

The goal is to preserve your capital. It takes just one big whack to blow up your account. You can lose 5 trades in a row and if you have say have 10% committed to each position then, you
have suffered a 50% total drawdown and have already lost half your monies.

 

[smallfil]

You completely missed the point. Its not about making more money or less money, its about capital preservation.

You can have an edge and still blow up with bad position sizing/money management, for example a trader with an incredible 80% win rate can still blow up if he risks 20% on every single trade, all it takes is an unfortunate series of losses and his account will be cut down to near nothing. Remember it only takes 11% to get back to breakeven if a trader is down 10%, you need to double your account to recover from a 50% loss.

Proper position sizing matters regardless of edge, its simply incorrect to say that people who advocate proper position sizing are all losers.

The biggest losers are the ones calling others losers! Elitetrader is full of egotistical BS artists and trolls. Not worried about them because like Optionsellers.com who had atleast, $100 million in the stockmarket lose it all in one bad trade. These guys have no clue whatsoever.

 

[newwurldmn]

Apply for research analyst positions. Fundamental analysis isn’t dead despite what all the press articles say.

Getting a PM seat is a difficult job and is a career goal. It’s like asking to be CEO right out of college.

 

[rvince99]

Position sizing should not be based on any generic rule, but rather the statistics of your system.

And your criterion. What are you trying to do in the markets? (And if the answer is just "to make money," then you're hanging out, and likely the hurt express is headed your way).