Episode 126 ... "Jonathan" (69:55)

Division 1 baseball scholarship to college in Louisiana
Got injured (hurt back), professional baseball career not possible
Lost scholarship, didn't know if he could stay in school
Back still nags him today
Uncle was a Wall Street guy, worked for Shearson Lehman
Uncle had a nice house, nice car, nice boat ... that attracted him
Had friends who had moved to NYC ... visited ... loved it, moved there, age 20
Spent a lot of time in the New York Public Library trying to educate himself
Did odd jobs, but had some savings
Read the Jack Schwager Market Wizards books at library
Met a guy (won't name names) in 2004 through family friends who had worked for Steve Cohen, retired at age 35, working from home
Guy took him under his wing, acted as mentor
Jonathan sat with him at his trading desk, for over a year he did this
Mentor from India, born poor, but he made it big in America ... saw Jonathan's passion, competitive drive
At first Jonathan was incredibly intimidated
Mentor traded futures, 250 contracts at a clip
Mentor did stat arb ... a quant
Mentor taught Jonathan to be open minded, you can learn something new every day
Jonathan's first account was $10,000, piggybacked off of the mentor's trades, did well
Mentor wanted Jonathan to finish his college degree, so he moved home to Dallas and got degree in economics / quantitative finance
Mentor discouraged him from going to a prop firm, get a degree instead, work for a hedge fund
Many prop firms in New York City were Churn and Burn outfits
Took out student loans and used money to trade futures and lost all of it ($35,000)
Traded too big with his student loan money and blew up
Most people who blow up, quit, but not him
Sent resume out blind to many hedge funds ... 92 hedge funds ... got three interviews
Paradigm Capital in Ft. Worth hired him as intern
Thought he blew the interview, lots of tough math questions
What is 24 times 86? He froze up, started sweating, took him five to seven minutes to answer
Paradigm traded credit default swaps, he knew nothing about them
Promoted from intern to assistant trader to trader to head trader, within six months (in 2008)
Paradigm did well between 2008 and 2013 ... all discretionary, no modeling
Learned MatLab, started building models, also used Bloomberg Terminal to build stuff
European sovereign credit crisis was a great opportunity, worked 3AM to 6PM, seven days a week
Paradigm was $5BB at its biggest, trading book had $3BB ... [not a garage band hedge fund]
When he joined it was $2BB
Left Paradigm in 2013 ... he had made partner, had equity in the fund, started butting heads with the boss
"The bacon is all in the year-end bonus."
He took equity in the fund instead of a year-end bonus
European regulators "banned" speculation in European CDS ... liquidity vanished
Wife encouraged him to quit, trade from home [she must be an angel]
Started trading 2014 on his own with $250,000 ... all discretionary trading
Made $60K in first month, thought this is easy!
Lost $80K in second month, oops, needed to create a systematic approach
Didn't have Bloomberg Terminal at home
Taught himself "R" language and built a system, sort of a hybrid, still uses some discretion
Still executes all trades manually
Mentor recommended Market Delta platform
Found patterns in the data ... uses Volume Profile, spots order flow stuck at extremes
Not a fan of derivatives of price (moving averages, lagging indicators)
Fan of re-tests ... people stuck getting out at "breakeven," easy to see on Footprint charts
Numbers don't lie, your eyeballing stuff lies
Brains are pattern recognition machines, sees patterns everywhere
Have to teach your system "market context"
Found his entries and exits better when he does it manually
Patient, he always waits for a signal
But there are times he gets a signal and ignores it
He only trades E-mini (ES) futures and crude oil (CL) futures ... most liquid markets
Doesn't like headline risk of trading FX
Specializing in one market is a great thing, just need to master one
Has six monitors in home office
Don't complicate things, keep your approach simple
He knows nothing about candlesticks and MACD and stochastics, etc.
Trading isn't rocket science
Given his results, has been approached by people about starting a hedge fund, but he has no interest
Too many regulations to start a hedge fund ... just a headache
Wife encouraged him to get Twitter account [she must be an angel]
Twitter: @HF_Trader