Episode 98 ... Peter To (80:04)

2004 started playing online poker, 15 years old
Inspired by Chris Moneymaker winning WSOP in 2003
Wasn't athletic, all intellectual power, poker a good fit
Deceived Mom to fund his PayPal account to fund poker account
Started with $20 and lost it all, devastated
Second $20 he tried to make it work playing 10 cent blinds
Did hand analysis on 2+2 forums
He was playing tight, but too passively, not getting enough money into the pot
First became profitable limit player, then profitable no-limit player
Turned $20 into $20,000 over two and a half years
No innate talent for poker
Never plays poker anymore, edge is too small now
Lives in New York City, comes from Southern California
Poker has advanced so much, so sophisticated today, very hard to win now
"Game Theory Optimal" -- everyone knows the correct line now, everyone knows the math
Poker has become an efficient market now [smart comment, he's right]
Lost the passion for poker ... no fun chasing bad players online [even worse to do it offline when face to face]
Variance in poker also very high
Knew nothing about the stock market until college
Best friend talked about trading and investing, interest piqued
Natural transition from poker to trading
Got interested in 2008 2009, Great Financial Crisis
Started out as a gold bug, feared hyperinflation
Bought physical gold coins with his $20K, paid 8% spread [I'm chuckling, but it's good to be suckered at first, I believe]
Still a big libertarian
He's able to debunk himself quickly, fortunately
Sold his gold coins for breakeven
Second stage he was a value investor -- read Ben Graham, Peter Lynch
Bought Apple, Wells Fargo, Baidu, Dow Chemical all at the lows during the crash
Realized he didn't have the patience to hold all this stuff
Turned $20K into $30K, got account over the pattern day trader rule
Third stage: day trader using technical analysis
Mom's friend taught him how to read charts and structure trades
Read a lot of blogs, sourced his learning from all over
Discovered the ARCA pre-market cross in OTC junk stocks
Stock closed at $1, offered in pre-market on ARCA at $0.85
Would pick off all those $0.85 offers pre-open then sell for $1 at the open
This happened from time to time over two years, a few times a month
OTC market making is manual ... quotes not honored ... shady stuff
Moved to NYC and started prop trading
Doesn't want to name prop firm
Had been trading every day for two years while in college
Started trading club in college
Good things and bad things about being in prop firm, but experience invaluable
Many prop firms are about "burn and churn" ... get a guy in, get commissions, until he blows up
Prop firms would "fine" people ... e.g., couldn't trade odd lots
Prop firms can offer capital to scale stategy, proprietary technology to enhance strategy
Started meeting seven-figure traders, their strategies not do-able on a retail platform, needed capital and technology of prop firm
Compares a good prop firm to a good farm team in baseball [nice analogy]
Read Glassdoor about every prop firm you're considering, lots of shady practices
Big red flag is if prop firm requires a deposit
Careful of groupthink in a prop firm, herd mentality, tunnel vision
There's lots of ways to make money trading, not just momentum
Wants to catch all-day runners
Unusual volume, unusual volatility, unusual attention being paid to it
Not intellectually deep, just using intraday chart, price and volume
Shorting parabolic microcap stocks, thesis is overextended junk will eventually collapse
Trick is timing the turn precisely, how to minimize damage when your timing is off
Takes years to hone this skill
Follow the order flow, can't just rely on your shorting-microcap-parabolics-play, they dry up
Chapter on Jimmy Balodimas in Schwager book made big impression on him
"Stepping in Front of Freight Trains" -- fight trend, add to losers, fades huge moves, gave self huge leeway, took quick profits, in short Jimmy did everything "wrong" based on conventional wisdom
Peter has developed "trading nihilism" -- process doesn't matter [another smart comment]
His firm bought the Flash Crash, risked the firm, risked everything, best day ever. Skill or luck? Was it wrong?
No mathematical framework in trading that you have in poker
The market never repeats itself like a poker or blackjack hand does [yes, exactly]
Throwing the book out from time to time, not following your rules, it's all guts and intuition
Some people just have conviction, don't care about price action
He was consistently profitable at first, but made no money [just like "winning" with tight, passive poker play]
He's a very emotional person, but makes emotion work for him
Feels the fire and allows his greed to take over -- results in best or worst days
Fannie Mae his biggest loss ever, most popular blog post
Shorted AVXL, one of his best trades ever
When he loses money, he wants to sleep in the next day
When the wheels fall off, self-doubt creeps in, needs to take a break
Has had worries that he'll never trade again
October 2016 the worst month in an otherwise good year
Can't get out in these microcap stocks, you get stuck, 1x loss become 3x loss
Built muscle memory for trading certain stocks, which betrayed him when trading OTC stocks
Lived in NYC for four years, 26 yo now
Used to keep detailed journal, made detailed plans, did detailed trading reviews -- now he's relaxed, doesn't do any of this, just wings it [sounds familiar]
Try less hard, take the pressure off yourself
Trading is not easy, markets constantly changing
Thoughts on trading BitCoin: insane volume and volatility, psychology same as crazy stocks
Exchange security is everything, you get hacked and lose everything, you're just not safe
Multiple exchanges with multiple rules, none of them have good infrastructure and security and no oversight, don't get involved with this, way too risky
peterkto.blogspot.com
Twitter: @peterkto