Episode 128 ... Andy Kershner (49:55)

Geologist by training
Ski bumming, early 1990s
[Has a laconic speaking style, a native Texan]
Started trading options out of the library with his buddy with $5,000
Dyslexic friend, Scott Dyer?, in Texas, great at pattern recognition, "savant-ish"
Top 100 IBD names, trade options on them ... all pre-internet
Turned $5,000 into $1,500, couldn't get the prices they saw on the screen
SOES came into being, little guy finally had a chance to get quoted prices
Went to Cornerstone Securities, which became ProTrader, in 1996
David Jamail, David Birch -- founders of Cornerstone?
ProTrader started with 12 seats in Austin, 500 day traders across branch offices at their peak
Sold ProTrader to Instinet in 2001, kept proprietary trading group
He lives and breathes trading
Cornerstone willing to hire savant buddy, but not him, he was a "trainwreck waiting to happen"
Worked part-time jobs, was friends with all the ProTrader traders in Austin
Made one trade a day on the side at first
Markets change, strategies changes, but habits don't change
Once he was on his own and loaned enough capital, he made 100K a month "forever"
80% of his trades were scratches or small losses, 20% were big winners
He's from the era when there was a human on the other side of the trade (mid-1990s)
Computer models today are always searching for stops, no more human involvement
His biggest strength/weakness: he can take a lot of pain
Big numbers don't bother him
Trade according to your psychology, do what works well for you, and is repeatable
Find an edge and see how large you can do it without changing what you do
Best traders trade 100,000 shares exactly the same way they trade 1,000 shares
[He means the decision-making process, not the actual execution which is different]
If you're sitting in a seat all day, you might as well being doing some size
He ladders in and out of positions now
Risks 1.5 to make 3.5 to 4 ... 50:50 odds he's right
Will triple his size when he thinks he can win big
Lots of styles work: scalpers, swing traders, high win rates, low win rates ... it can all work
Have to discover what you're good at, amount of risk you're willing to take
Develop good habits: journaling, reviewing, preparing
Strategies don't matter, good habits matter
Exercise and rest important
Review at end of day, what you got right and wrong, journaling
May 23, 2017 ... his MOMO position, wanted out 46-48, didn't happen .. tanked to 38, sold 41
Lost 90K more on that trade than he expected, gave it too much room [charts below]
He didn't have his game plan structured well enough, too much thinking on his feet
Have to do what you think you have to do ... making and losing money doesn't matter
Fades overextended moves, laddering in, both on the upside and downside
Where people are getting stopped out, that's where you should step in
Trades 100% US equities and loses money consistently trading options [he has a sense of humor]
When you know that you're wrong, get out
He ladders in equal-sized usually ... position sized by liquidity and confidence
Find 3-4 : 1 RR winners, win ratio a little better than 50%
Add to your winners, not your losers
Teaches people good habits for six weeks at his firm, then they go live
Looks for people who have overcome adversity, people who can act with limited information
Engineers tend to be bad discretionary traders
Common mistake new traders make is thinking it's easy
Only 2 out of 10 of the carefully chosen, great people he takes in make it, takes years to make it
Need your finances in order before you start, need your working spouse to float you for those *years*
Recommends reading Reminiscences of a Stock Operator, Market Wizard books
Find the best short-term trader you can find, and go work for him (her)
Shortcut your process
He talked to all the best traders at first in Austin and cut learning process from five years to one month
Good trading goes against basic human instincts -- fight or flight, have to do the opposite
Good trading requires extreme discipline
Don't keep doing the same thing if it's not working
If you're overly emotional, look into automated trading
Do you care about being right or making money?
Software eating the world, everything is getting automated, incl. trading and investing
AI is only a tool, still need smart humans to employ it
Generally uses Python to build models
www.kershnertrading.com
www.cloudquant.com