How a Japanese Trader Made $40 million in a trade! CIS

My Twitter: https://twitter.com/tpavlik

Bloomberg story
http://www.bloomberg.com/news/article…
“One document showed he had traded $14 billion worth of Japanese equities in 2013 — about half of 1 percent of all the share transactions done by individuals on the Tokyo Stock Exchange that year.”

““Of course I’m happy about today, but you win some and you lose a lot, too,” he said, explaining the Greek financial crisis had cost him about $6 million.”
THE TRADE:
“The latest trade began on Aug. 12, when CIS noticed a shift in equity markets he hadn’t seen for a while. Shares in the major indexes were struggling to recover from sell-offs. He started shorting Nikkei futures: 200 contracts the first day and another 1,300 over the following week and a half.
The stakes were enormous. With 1,500 contracts at a notional value of about $160,000 each, his bet against the Nikkei was about $240 million. For every 100 yen move in the index, he stood to make or lose $1.25 million.
The market was mostly flat over the next few days; CIS bided his time playing video games. On Friday Aug. 21, the Nikkei dipped. Then on Monday, the index plunged the most in two years, and the futures fell more than 1,000 points to 18,410. By the close at 3 p.m. in Tokyo, his profit stood at about $13 million.”
CIS trader twitter handle
https://twitter.com/cissan_9984

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Marty Schwartz and Mr Top Step Video

Mr Top Step, Danny Riley (Twitter)was nice enough to share this interview and Q and A with famed trader and Market Wizard, Marty Schwartz.

Before I go into the summary and what I learned from the interview, Danny O’Reilly points out that ideas should be shared by dedicating this video to Charlie D. Charlie was a floor trader that taught a lot of other new traders unselfishly and did very well for himself. I also agree with this.  I see those willing to share, whether its on their blogs or twitter accounts, get a ton out of helping others. I don’t know if it is karma but I appreciated the message.

The video runs one hour and is well worth your time. I’ve already watched it twice! Without further ado, here are some notes and key takeaways:

Marty Schwartz on: not being outworked by anybody, his trading, sucker plays (when the chart looks the best), being prepared the night before with levels, the emotions of trading (fading emotions), etc…

“The problem is when the opportunity presents itself, you usually are carrying some bad inventory or you are pissing in your pants”  –I found this quite funny and on point. Most traders take risk and seldom are out entirely from the market. So in a bigger correction, when the time is ripe to go for the kill and get long, what holds traders back is their bad inventory (stocks with unrealized losses) or their fear (Ebola, Greek Exit, FED rate increase etc…).

“Am I craving the action or do I really want to win and be successful? Until you can answer that you should save your money.” –If you play Black jack and count cards there are times when the count is not favorable. Do you walk around and find another table, go to the bathroom or do you keep playing even when the odds are not in your favor? It’s quite the same in the stock market. Avoiding the sub optimal times in the market is a big battle for traders who love trading and love taking on risk.

Marty Schwartz said he could train 100 traders and only one or two would come out successfully. WHY? Its because you have to find something that compliments YOUR OWN style. –I’ve seen traders on Twitter with very good track records but followers unable to replicate the results even shadowing their trades. Why? Because its not their style and they are only picking a few trades instead of all of them. Either way, the point is to develop your own style of trading.

The mathematics of draw downs. Losing one third of your capital, you now must gain back around 50 % to get back to even. –Study this table of the mathematics of drawdowns by @SJosephBurns

Options premiums on puts have more premium than calls. Schwarz sells options on the S&P 500 300 + points OTM on puts and calls around 80-100 points OTM

Firewalls: Currently short 2180 calls but long 2200 calls on back spread so he can adjust and diminishes the margin requirement he needs to post.

“Oscillators precede price. You must use them over and over again until you can really tee it up.”–This is a marathon, not a sprint. For Schwartz, the market gives him a feeling with his methodology. He is not systematic but is self described as a synthesizer, taking in all of the information and trying to setup lower risk entries with high rewards.

“The key to being a great trader is to be flexible.” Schwartz can switch from long to short over a news event or something he sees. He talked about a story where one trader followed him into a trade and then shortly after flipped the position and went the opposite way. He owed nothing to that other trader, caveat emptor.

“Willing your position to win (adding to losers or pyramiding), does not lead to happiness.”–A lot of self development teaches you to just believe in yourself and your goals will come true but the market cannot be willed by one person, so willing your way to success is a chance at blowing up.

Here is the video. I hope you enjoy it as much as I did.  

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Trend Following Turtles System Programmed

I have been trying out CQG so that I can look into what they offer. So far, it’s a bit annoying relearning all of the basics that I am so used to i.e. manipulating charts, the symbol methodology and market subscriptions, watchlists etc… But, one advantage is that it appears CQG is a total solution; charting, backtesting & research  and execution. The integrated client is expensive at around $500 per month and they make you pay for data if you want real historical data. Or you can plug in your own third party data.

I found this video on the Turtles’ Trend Following System that is a good primer if you have looked into trend following or read a book about the Turtles historic success.

Do you use CQG? Have you used it before and found something better for your style of trading? Do you trade similar to the Turtle’s trend following system, breakout system or have you looked into it?

Let me know what you think in the comments section below. Happy Trading.

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Life (Trading) Parable

Life (trading) Parable: A woman moved to India to study with a guru in order to know everything in the universe. The guru supplied her with stacks of books and left her alone so she could study.

Every morning, the guru returned to the cave to monitor the woman’s progress. In his hand, he carried a heavy wooden cane.

Each morning, he asked her the same question: “Have you learned everything there is to know yet?” Each morning, her answer was the same. “No,” she said, “I haven’t.” The guru would then strike her over the head with his cane.

This scenario repeated itself for months. One day the guru entered the cave, asked the same question, heard the same answer, and raised his cane to hit her in the same way, but the woman grabbed the cane from the guru, stopping his assault in midair.

Relieved to end the daily batterings but fearing reprisal, the woman looked up at the guru. To her surprise, the guru smiled. “Congratulations,” he said, “you have graduated. You now know everything you need to know.”
“How’s that?” the woman asked.

“You have learned that you will never learn everything there is to know,” he replied. “And you have learned how to stop the pain.”

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As traders, one of the most important lessons you can ever learn is how to stop the pain. Go to a Casino and sit at a Blackjack table long enough and you will eventually hear a sad story about a losing player that keeps coming back. He boldly says that “the casino has been built on money that was won from me,” as if that is a badge of honor. Clearly this man did not know how to make the pain stop.

When a trade is going against you, you have options. You can immediately start reducing size or you can take the trade off. You do not have to sit there and watch money leave your account. You don’t even have to trade later in the day or even the next day. There will be opportunities next week or next month. Learning to stop the pain is indeed an invaluable lesson. Patience is of course a virtue.

As traders, we have to accept that we cannot know everything. We cannot follow every single stock. We cannot beat ourselves up for not buying the hot IPO that just won’t stop going up (thanks GPRO, you are giving traders serious regret ;] ). We lie to ourselves, “I knew I should have bought that!” We cannot take advantage of every opportunity. We cannot sell the tops and buy the bottoms with consistency. We cannot know everything about trading. Face it.

GPRO: Causing Traders Regret since 2014
GPRO: Causing Traders Regret since 2014

I’ve read over 100 trading books. I cannot estimate how many scholarly papers and news articles I’ve read but I’m way up there too. I’ve interacted with other traders on social media. I’ve worked for a mutual fund and hedge fund. And guess what… I will never discover the holy grail of trading. I will never “perfect” this craft. I need to be okay with that if I am to be successful and happy trading.

Many of us traders love the pursuit. It’s fun to wake up and try to be 1 percent better than we were yesterday. It’s what man has always done. It’s fantastic we found something to keep us engaged and mentally stimulated. It’s fascinating to study the market from all the different perspectives. But in the end we need to be humble to the markets. We need to respect the money, the process and not break our own rules. If we can do this over a long enough period of time the success will come.

 

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A Broad Market Overview for the Weekend

I’m not a big fan of the fundamentals in my trading strategy. However, it is important sometimes to step back and get the broader view. In the past two weeks traders (and I) have been surprised and hurt by the sharp sell off and increased volatility. As a result, they searched for answers, “WHY?!”

It’s not all bad, the trend is still up. Christmas is coming up and surely some retailers will excel. Oil is down and might sport a “2” for a gallon at pumps which has to be great for the consumer. There are always opportunities on the horizon. Top calling has been a bad game to be in for many years and I continue to think that will be the case going forward. Have a plan, trade with the risk managed.

When volatility increases, trade smaller otherwise you risk getting stopped on the swings.

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7 Things Real Million Dollar Traders Do

I have been lucky enough to work with and network with some amazing traders. Here are 7 things these winners do in the market to pull out millions.

1. They are patient with their setups and exits.
If what they are looking for is not there, it’s just not there. No need to argue with yourself and put on a small position or get sucked into coming into a position too early. They have seen enough moves to know when to get in and they are very patient for the right setup.
If a position has moved against them, they aren’t freaking out. Sometimes they trade around a loser as long as overall risk parameters are still in place and there is a real opportunity in the chart and not revenge trading or trading to “get back to even.”

2. They move on very quickly from losses.
There is nothing to revenge or avenge against, since they pull money out of the market. There is nothing to get back from that one stock they lost with. They have the tools, skills and confidence to not fret over the losses. It happens and is part of the plan.

3. They are contrarian.
Yes, that means when everyone sees an obvious chart pattern that sucks in the shorts and scares out the retail money for the imminent crash, they are long in size. Sorry, but if CNBC knows about it, it’s not likely to happen. They know when to trade against the sentiment and emotions of the market. It’s not hard to understand, if you do the same things everyone else does, you will get the same results as everyone else. You must be different to outperform.

4. Their emotions are in check.
Sure they can celebrate a win or a streak and be proud of their trading results but compared to newer traders swearing at their screens, or turning away because positions are moving against them and they have no exit plan, these big time winners know that controlling your emotions is huge in this game. There’s no room for an emotional error.

5. They have winners that greatly outpace their losers.
If you are scalping ES futures for 1-2 points and then take a 10 point loser your risk reward is skewed heavily out of your favor. You need to have big winners and hold onto them in this game. If you find yourself taking small winners and holding onto losers stop and regroup. Maybe the emotions are beating you into thinking you are winning taking these small profits, but over the long haul you will lose unless your win rate is extremely high. Reading Market Wizards, you find the same optionality across many different types of trading masters.

6. They adapt to what the market is showing them.
If the market is less favorable, they might still find trades but do it in smaller size. When volatility is increasing, most of them are trading smaller. The huge momentum winners of 2013 got whacked. People who only knew that one trade are now just figuring out that they need other types of trades. Big time traders adapt to what the market is showing them.

7. They are humble and generous.
The people that think they are something special get wiped out. Keeping the ego down is necessary. If you do your homework and approach these traders in the right way, and respect their time, they are more than willing to share a few things with you or answer a (relevant) question or two.

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