Notes for Chat with Traders, Episode 122

Added on May 24, 2017 by C. Maoxian.

Episode 122 -- Doug Cifu (39:38)

Co-founder of Virtu
Formerly a corporate lawyer
Formerly a partner at Paul, Weiss, Rifkind, Wharton & Garrison in NYC for 18 years
Fast talker, sounds like native New Yorker
Private equity firm General Atlantic a client
General Atlantic had idea that exchanges would become electronic, for-profit
He was the lawyer representing GA in all their investments
Met New York Mercantile Exchange (NYMEX) chairman: Vinnie Viola
Vinnie Viola asked him to leave Paul, Weiss and partner with him to found Virtu in 2008
Virtu is an electronic market making firm
"Old school market maker" using latest technology and automation
Vinnie was a local risking his own capital, just wanted to make a tick
Provider of liquidity without customer order flow
Doing one thing, doing it well, and repeating it
Latency arbitrage isn't illegal or immoral
Data centers in New Jersey, data centers in Illinois
Spread Networks: it's not evil, it's just commerce
Evolved to microwave network transmission, even faster
Being faster by a microsecond isn't a sustainable business model
Virtu takes no directional trades, they think they can make a tick
They don't pray for mean reversion
Trading 4.5MM times a day
Bias based on bid side or offer side being stronger, classic market making
The old rewards available to market makers don't exist anymore
For example, specialists got 25 cents a share (the spread) in 1982 on NYSE for holding inventory on blue chips
Wins 51% of time (usually) ... will never disclose scratch percentage [but it's obviously huge]
Michael Lewis running around with his hair on fire
Big barrier to entry to what they do, smaller firms can't succeed
Madison Tyler consolidation in 2011
To be US equities electronic market maker, costs are enormous ($70MM a year), market data, connections
Co-location at data centers, infrastructure, footprint incredibly expensive, wouldn't be profitable for equities alone
Their business is a scale business
Little guys can't make it, must sell out (to Virtu)
Putting out bids and offers is taking risk, so lots of pre-trade risk controls, including human involvement
Hubris is a horrible vice
Virtu went public April 2015
One losing day in five years, operational error, mistake to put that info in, Cifu's fault
Not an arrogant cocky firm ripping people off
We're not swinging for the fences, just hitting singles
Regretted putting "stupid histogram" out there
Guys at ZeroHedge writing crap about it
Michael Lewis's book true of market in 2009 but not 2015, "didn't really know what the hell he was talking about."
Lewis is anti-money, anti-Wall Street ... "he's a capitalist dressed up like a communist"
Lewis wrote fictionalized nonsense
Markets have gotten more efficient, it's *better* than the old days because of firms like Virtu
He was "a reasonably smart young man"
Worked his ass off in high school, got into Columbia, worked ass off there
Got into Columbia Law School, worked ass off, got into Paul Weiss, worked ass off to become a partner
Kept eyes open, learned a lot about a lot of different things, was well rounded
Worked on top-flight deals, big M&A deals, exposed to a lot of stuff
Met Vinnie Viola, became good friends, they worked well together
Need some innate ability, but he's "the dumbest guy at Virtu," must work your ass off
Hire really smart people and empower them
Be modest enough to know what you don't know
No politics at Virtu, flat organization
His success based on hard work, many people helping him out along the way
No clue about financial markets in 2008
Titles are bullshit, don't have them at Virtu
"I'm a smart guy, I can figure it out"
Vinnie took the risk on a "loud-mouthed lawyer" like him
Client used to call him "Dougie Large, the man in charge" (because he's a little overweight)
Twitter: @Dougielarge

Notes for Chat with Traders, Episode 123

Added on May 23, 2017 by C. Maoxian.

Episode 123 -- Darren Reed (107:04)

Great episode, this guy is the real deal.

Former stock broker, former head trader at hedge fund, currently a prop trader
Grew up in South Africa
Went to public school, rugby team was good, wanted to play first team rugby
School bred attitude of grit, though underdogs through teamwork they can beat the rich kids
Dad is airline pilot, started as mechanic, parents immigrated to Australia (Perth)
Loved the team culture, loved competition
Uncle a pastor in Connecticut (Stamford and Greenwich) hooked him up with hedge fund guys
Interned at New York hedge fund just out of university
Felt at home whe he first saw the trading floor, the energy, the competitive spirit
Started in back office, lots of tedious, menial labor (that has since been automated)
Visa issues, had to go back to South Africa, parents said come to Perth
In Perth 2004 -- just good timing, mining boom, vast wealth creation [because of China demand]
First job: retail desk assistant at brokerage firm, did grunt work
"DTR" -- designated trading representative (licensed position to enter orders)
"DMA" -- direct market access
Watching order flow all day tick to tick
Good execution appreciated by brokers, everything automated now though
He held the order book, could feel the order flow, developed a sense of the market
Takes time to develop your craft, later can take advantage when opportunities arise
Algo execution killed the old manual order book
"Making chicken shit look like chicken salad" in sales [love it!]
You must be self-aware
Moved to Sydney, started trading at prop firm
He had success early on which is the *worst* thing that can happen to you
Skills have learning curve, baby learning to walk, surfer falling off board
Profitable at beginning through blind luck, got cocky
Intuitive sense developed through watching trading book
Be at your worst when you're at your smallest
Learning curve as a trader steep, you are losing money, it's hard
He was a one-trick pony, could make money in volatile environment, was lost when volatility died
Froufrou fairy dust theory of why you get hurt repeatedly at first: it's all karma
Doesn't use charts much
Tries to figure out who is trapped, who is under pressure
Read order flow on a tick by tick basis
Australia prop traders futures-based, like Europeans
2008 blew up all the volatility traders
Markets change, advantages get arb'd away
You need a diversified trading group -- different strategies, different products, different time frames
Got a job at Sydney hedge fund, $300MM under management
Took old Darryl's advice: "Get your bum in a good seat and sit tight."
Hedge fund world highly regulated, he hated meetings, crossing t's, wanted to quit and did so
Trader development is serious biz -- handling hopes and dreams of kids
Qualities of good trainers: self-aware, know their strengths and weaknesses, honest transparent people, doesn't cover up weaknesses, you can't "solve" trading or golf, not a glamorous lifestyle, no Ferraris or phoning it in from a yacht [LOL]
Trading is a grind, bloody hard, don't believe the BS
Guys who admit bleeding, re-learning, evolving, they're real, seek them out
Qualities of good trainees: they have grit, bulldogs who won't let go, will take YEARS of struggle and grind; guys who have had hardship are best, they can grind; people who don't let go of their dreams; competitive drive; intelligent but not TOO intelligent; people who are too smart try to figure things out, that's why they fail; empty cups, no experience best; put the work in themselves, don't expect to be told what to do
Not about being given "set-ups," it's about developing skill
"Environment is everything" -- special forces, great teams, lifted by pack in right environment
Trader sitting at home can't replicate prop trading environment
Need little financial encumbrance to start, can't have pressure to make money
Research the prop firm first, ask good questions
Need one or two year profitable track record (can be misleading if sample size small)
Pass the "pub test," no track record but enthusiastic
Mow lawns and wash cars to build a trading stake
Must work your ass off, sitting staring at screens for hours on end, no glamour, incredible grind
Incredibly boring work in a sense, no one talks about this [Twitter as outlet]
Income is incredibly variable, struggle for 50 weeks, make a killing [or get killed] in two weeks
Pressure of being a solo small business, live and die by your own hand, hard struggle day after day
People denigrate competition and achievement now, society getting weaker, why people are struggling, [Yes, western world in decline, standard of living deserves to fall]
Trading not fun and games, bloody hard work
www.CygnetTrading.com.au
Twitter: @LiftTheOffer

Notes for Chat with Traders, Episode 124

Added on May 22, 2017 by C. Maoxian.

Episode 124 -- "madaznfootballr" (72:58)

"Max"
Born in 1989?
Lives in California
Trading for six years
"Scalper"
"Rebelling against societal norms"
Made $5 an hour counting cards in blackjack
Sold stuff on eBay that he found or found mis-priced in stores
Studied structural engineering in college
Couldn't get a job after the Great Financial Crisis
Lots of student loan debt
Even when he did find an engineering job, it was a disappointing one
Colleague showed up in Lotus Elise, made money buying BP after oil spill
Max knew nothing about the stock market then
Opened an E*Trade account with $6,000
DANG first stock he ever bought, looking at 15-minute delayed quotes
Eventually found out about live quotes and E*Trade Pro
One year of trial and error, "completely clueless," no one to guide him
Started googling "hot stocks" and "stock tips" led him to message boards
Learned you must be a completely independent thinker
Almost quit in first year, suffered losses and a "damaged psyche"
Cumulative process, one day everything just clicked
Pattern recognition acquired after a year
In hindsight, he should have paper traded
"Money-hungry kid" deprived of a good career
Would go all-in on lots of trades
Play small until you acquire the necessary skills
He was too impatient in early days
Don't overextend yourself
Trading is not easy, it's true that 90% of traders fail
It's the psychological aspect that makes people fail
Worked as engineer for three years, and snuck trades on the side
Saved five times his salary ($300K total) and made two years of six figure gains before going full time
Traded early in the morning before going to his 9 to 5 job
Traded OTC and penny stocks at first
Naturally impatient person, naturally anxious person
Scalping suits his personality
Gets in and out extremely fast
"Typical" holding period of two to three minutes
"Typical" number of roundtrips per day: twenty
You have to be quick manually and make quick decisions
Hotkeys are huge, without them like bringing knife to gunfight
Has price levels pre-entered (limit orders, I guess)
Always uses limit orders, never market orders
Gets up at 6AM (Pacific time)
Looks for low float, low priced stocks gapping up biggest, "top gapper," large volume
Started with one minute bars but switched to three minute bars
ThinkOrSwim had three minute time intervals as default
The "tape" is main thing he uses to make trades, hard to explain
Spotting "Iceberg" orders ... "bid prop" and "refreshing seller"
Record your screen: Level 2 and Time and Sales and the Chart and re-watch in slow motion
VWAP gained prominence in recent years (2013 2014)
Over / Under VWAP ...
Need to be mentally stable and confident to trade
Meditates and tries to enjoy life to clear his mind
If you have addictive personality, self-control or anger issues -- they will come out in trading
Don't trade during low volume hours, just walk away
Identify if you have an addictive personality
Give back to the community
Comes from very humble beginnings, never been interviewed before
www.madazmoney.com
Twitter: @madaznfootballr

Notes for Chat with Traders, Episode 125

Added on May 22, 2017 by C. Maoxian.

I just discovered this podcast called "Chat with Traders." It looks really interesting and I plan to listen to them all (in reverse order) and share my notes for each one.

Episode 125 -- Matthew Hoyle (58:35)

Dutch?
Born in 1984?
Head hunter
Formerly an options market maker, in Amsterdam
On trading floor for six years
Started at age 13? Is that possible?
Exchange went electronic 2003
Didn't go to university despite opportunity to go to the best (in Holland?)
Went into head hunting in 2003
Makes more money as a head hunter than he did as a trader
Paid seven figures as a trader
"Executive search" is the high end, "experienced hires"
Recruitment is volume-based
Relationship-based business
Doesn't hire for "arcades" (where people bring their own money)
If a head hunter calls you, listen, don't just hang up
People (traders) like to talk about what they're good at
"Manual" trading firms disappearing, everything is automated now
Don't apply for stuff that you're not qualified for
Most firms want to hire fresh grads, *not* experienced people
Mental arithmetic tests used as stress tests
Technology + trading is the key combo ... must be able to program
Don't bother learning Java now, must know scripting languages
Old point and click traders hire coders to automate what they know
Paul Rotter, a classic point and click trader, "The Flipper," retired now
Whole industry is automating, all algo traders now
Experienced manual traders making a bit less money every year now
Strict division in some firms between tech side and trading side
Shortage of C++ programmers so severe they'll take any age
PDT, Renaissance Tech ... they want academics, will take old guys
Perks are nice, but retaining people all about compensation
Formula-based percentage of trading profits
RenTech has zero turnover ... extremely highly paid people
Discretionary bonus models; team-based structure, profit distribution
Pit traders in Chicago haven't vanished entirely, just much smaller numbers
Prop trading within banks did completely disappear for awhile
Hiring is based on volumes first and volatility second
Virtu has only 150 employees worldwide
Volatility high means traders hired, volatility low means tech guys hired (fight latency wars)
Volatility and volumes both low, layoffs hit hard (hedge funds, prop trading)
Banks not as nimble as hedge funds, way overstaffed, full of dead wood
AI is going to be big, lots of demand for people who understand it
A trader with one strategy, a one-trick pony, will never be hired
You have to be passionate in the interview, don't be negative
People will hire you because they think you'll make them money, it's obvious
Do mock interviews! Practice makes perfect. Use Glassdoor to get the questions
"Thank you for inviting me."
www.matthewhoyle.com
Twitter: @MatthewHoyle

Keepin' It Flirty

Added on May 19, 2017 by C. Maoxian.

Still on a Rachael Price and her Giant Mouth kick ... silly silly song, but I love it. God she's good. And the band is growing on me too.

http://wfuv.org * Follow @wfuv: http://ow.ly/flLAg Lake Street Dive performs "Side Pony" live in Studio A. Recorded 1/27/2016. Host: Carmel Holt Audio: Caroline Inzucchi Cameras: Sabrina Sitton, Nick D'Agostino, Kristen Riffert, Joe Riccobene & Emma Carey Editor: Sabrina Sitton & Nick D'Agostino

One Disaster and One Near Disaster

Added on May 18, 2017 by C. Maoxian.

THIS POST HAS MULTIPLE UPDATES SO SCROLL ALL THE WAY DOWN

The day trader I wrote about earlier has had some bad luck of late. Study these two charts closely to learn from his mistakes. APHB CETX

Update: Another near disaster on May 18th ... can you spot what he's doing wrong? GLYC

UPDATE: June 1, 2017 ... MBOT

UPDATE: June 8, 2017 ... ABIL

July 18, 2017 in CAPR

December 4, 2017 ... PXS and ASTC ... same old story, gets stuck in a Flying Pig, doesn't exit for a "small" ten or twenty thousand dollar loss ... I assume he adds to the losing position in an attempt to improve his average (475,898 shares traded in total), but price keeps rising (high in PXS was $12.22!) ... says he was down 98K, made some back when PXS finally broke at 2:45 PM. ASTC same thing, just less dramatic (smaller size probably and smaller move).

December 22, 2017 ... short SGLB ... $39K loss ... nearly half a million shares traded.

December 26, 2017 ... when the "halt resume" washout long fails, this time in FTFT ... ~$44K loss ... over 600,000 shares traded.

Jan. 4, 2018 ... CNET and CPAH ... nearly a million shares traded.

Jan. 5, 2018 ~$58,000 loss, long $CNET ... over half a million shares traded ... fighting it on the other side after a bad loss previous day. Clearly "day after" revenge trading ... ugly but happens to the best of us....

Jan. 9, 2018 $FORD ... this one no doubt caught a lot of Pigs Players off guard ... then why they tried to reverse long after the squeeze to $4, smackdown:

May 7, 2018 ... BLNK a runaway, trapped short, tried to average down down down, just gets more and more stuck, pulls the plug at the top:

May 8, 2018 ... Another large loss, this time from the long side. I assume he did his "halt resume" play here with insane size and it instantly "dumped" on him to the tune of 60-80 cents ... but it's just a guess.

May 11, 2018 ... -27K, wrong side of another runner, HEAR, apparently with "half size," which is fortunate... otherwise the loss would be twice as large.

New one for June 18, 2020 … short UONE with a realized loss of $244,833. Must have averaged down, taken the loss. Tried again though with twice as much size (martingale method), lost again. Tried once more with twice as much size again, lost again. Stopped trading (or the market closed). That’s my guess:

July 20, 2020 … no details again but over a million shares traded so I assume some kind of martingaling occurred … realized loss of $166,000.

July 22, 2020 … 315,000 loss the bulk of it in $MXC … what’s happening is that TheShortBear is posting huge wins every week and I believe Madaz is trying to compete, taking larger than normal risks in an attempt to keep up. He should be aware of this and try to get things back into check.

September 21, 2020 … says intraday loss over $500,000 … he’s taking 10,000 share positions in Tesla, it seems … his competitive zeal to “keep up” with TheShortBear may be making him take unusual risks?

October 9, 2020 … a new record loss, $995,000 in VVPR … got him coming and going it looks like. Pretty vicious jam above the opening range high … then “switching bias” resulted in getting “dumped on.” Possibly while martingaling bet size the entire time.

ETF Trading Portfolio Update -- May 15, 2017

Added on May 14, 2017 by C. Maoxian.

No changes this week.

Funny Not To Care

Added on May 13, 2017 by C. Maoxian.

This lead singer is really good, love her voice, close your eyes so it's not marred by her white girl dancing .. she deserves a better backing band than these hipsters.

Lake Street Dive live at McCabe's 8-28-11. video & audio by Wayne Griffith.

Dissecting a Madaz Play

Added on May 12, 2017 by C. Maoxian.

Madaz shorted $TCCO this morning and I wanted to dissect the trade.

First, we know he was watching $TCCO because it was the number one Up Gapper:

At 9:39 AM he tweeted that he had "nailed" it for $5,200 having shorted "4ish average" and covering $3.50.

Now let's look at a micro timeframe chart here, 10 second bars ... that should read "pre-open high $3.70" not "high $3.70."

Later at 9:54 AM he tweeted that he covered his final 2,000 shares at $3.20 bringing the total gain to $5,800 ... $3.20 is 30 cents below $3.50, times 2,000 shares is $600 additional, that makes sense, I guess.

Here's the chart again with the $3.20 level marked.

Finally, he tweets his P&L, which he does every day, win or lose.

What's revealed in the P&L is that he realized $5,942.85 by shorting $TCCO, generating 10 tickets and trading 66,096 shares. I'm not sure if the shares and tickets numbers mean he bought and sold 33,048 shares or bought and sold 66,096 shares, or 5 buys 5 sales, 8 buys 2 sales, 9 buys 1 sale, etc.? Maybe some kind reader can enlighten me via email (or Twitter).

Let's assume that he bought 33,048 shares and sold 33,048 shares to make the $5,942.85. That's almost exactly 18 cents a share. So we have to assume that he is averaging into the position and averaging out of it, and was able to walk away with 18 cents of profit.

If he simply shorted 33,000 shares at $4 and covered 33,000 shares at $3.50, he would be making over $15,000 on the trade, not $6,000. I'm not sure how much of a difference the final 2,000 shares covered at $3.20 can make.

I'm just thinking aloud here, I'm trying to make sense of this.

A bigger question is *why* did he begin shorting where he did to build a 30,000 share position with a 4ish cost basis? Was he "reading the tape" and built the short based on that? This thing traded up to $4.40 ... if he were short 30,000 shares from 4 and it ran on him, would he get out at $4.40? How much slippage would he suffer? Was he willing to risk $12,000 to make $6,000?

I'm just thinking out loud here, trying to make sense of this. I'll update the post as I continue to think about it, and incorporate any other wise people's thoughts, with credit of course!

Two readers have written in with their comments, both full-time traders with many years of experience:

“As to his trading TCCO today your guess is good as mine as to how those 60k+ shares were distributed within the 10 tickets you mention. What I find odd here is that based on his strategy as explained in his various YouTube videos, he doesn’t short unless price is at or below VWAP and below pre-market highs. Maybe he has some nuances to his strategy that I am not aware of, but this particular TCCO trade is opposite of how he “normally” trades short. If he goes long its almost a reverse mirror image of this TCCO short trade. I believe most of his trades are cleared through ETC.

Based upon one of his recent tweets about getting enough rebates to cover commisions, I am led to believe he probably hits bid/ask for entry/exits about half the time, otherwise why “advertise” you covered your commissions with rebates.

From my viewpoint, if his trades are real, he is scaling in and out hiding share size but what is sketchy to me, based upon experience, is that he is able to move 5k-30k lots without moving price dramatically and getting full fills. The volume in the majority of the low floaters he trades in my opinion can’t absorb the share size he is using and getting filled without adversely moving price. I trade them from time to time but the only way I can get multiple thousand lot fills is to piece it out hiding shares at various price levels and even then I end up not getting full fills and have to cross the book and hit bid/ask to close position.”

“First off, it’s 33,000 in and 33,000 out for his total shares. And yes, his risk to reward is completely skewed. I’m not a fan of how he trades. If he got short on this around 4 and especially because of the super low float he could have just bid whacked 10,000 share blocks and knocked the price down himself easily.

There was no reason to cover where he did. He claims to use the three minute chart and if you take a look at it there was no reason to only get such a small piece of that move. I really think the only reason why and how he has made money is because of the sheer size of his positions.

An answer to your question of why he would short there is because we are familiar with the name and also super low floats. You get to know these things over time and this is textbook: it hit half dollar resistance and pulled, and once these pull it’s over and can be pretty safely shorted.

Especially if you look at that last green candle and how big it is on the three minute chart. It’s going parabolic and that’s a dead giveaway that it will pull back. These stocks are a completely different world, but once you get to know them, they are highly predictable. He does know his set ups, but I really think he gets scared out of his trades because he is using too much size. He would be way more profitable if he sized down even a little bit.”

He Grabbed His Pants, Took A Better Stance

Added on May 11, 2017 by C. Maoxian.

Here's the silver-tongued Sammy Davis, Jr. in an amazingly tight brown pantsuit singing Jerry Jeff's great song:

This is Sammy Davis Jr.'s Version of "Mr. Bojangles".