When I first got interested in markets about 12 to 13 years ago, I never knew how deep the rabbit hole would go. It started out of pure curiosity and turned into a real passion. There are very few things in life that you will be passionate about, maybe even one or two. I happen too have two passions the market and psychology. Fortunately they go hand and hand. However, it took a lot of different, jobs, books, and life lessons to understand what my true passion was. In order to know what you don’t like or what you like, you have to try and experience many things. I don’t mean just try everything like, “O I’ve never been drunk before, so let me go out and get drunk.” I mean try different things that intrigue your mind. For example, learn a new language or travel to a place you have never been. Try and learn different aspects of life. This will open your mind and broaden your horizons. (I know two other languages outside of English.)
One of the many pictures from my summers in Germany
In the retail-trading realm there is a lot of garbage out there and a lot of things that are spouted from the mountaintop, as the gospel of trading. Yet there are very few mentors that actually teach one how to think on their own. This is a key distinction from hand feeding people to allowing them to feed themselves. My progression through the market, I think was not an overtly unique experience but I think it is helpful to understand my progression. Maybe it resonates with you, the reader.
What I Was Taught To Believe At First
- Value Investing is the only way to make money.
- Mutual funds are the only people who can make you money.
- The market is a magical dragon that only people with PHD’s Understand
- CNBC knows what they are talking about
What Reality Turned Out To Be
-Value Investing does work but only if I was the person trading the value fund. 😉
-Mutual funds do work but again the drawdown is something I’m not comfortable with.
-The market is not a magical dragon and normal people without PHD’s can understand it. A lot of smoke and mirrors in the industry for a bunch of people who generally make on average 7% return, with an expected loss of 50% or above.
-CNBC is run by a bunch of monkey’s who are allowed to give people financial advice and never go to jail; Yet if a newsletter person was to do this, they would go to jail; it is unreal.
The Illusion Shattered
Once all preconceived illusions were shattered I was left wandering a little bit of what to do. So, I started to look across the Internet (Dial Up Days) and there wasn’t a lot out there. Then I found a couple of books like “How To Make Money In Stocks (1988)” by William O’Neil. “Reminiscences Of A Stock Operator” by Edwin Lefevre. These two books helped get me into the idea that there was possibly more out there then what met the eye. William O’neil’s approach also started to open my mind to the idea that there was possibly a more mathematical way to trade the market. Even though these books were old an tattered and very outdated, they still contained knowledge to build a platform off of.
The next thing that happen was almost by pure chance, one day at my local library, I found a book called “Don’t Sell Stocks On Monday” By Yale Hirsch, in a bin of books they were going to throw away. This book was amazing and confirmed my suspicion about markets, that there was a way to track data and form hypotheses to create small edges in my favor. A book that altered my mind about markets forever. The second book that sort of helped was not so on the Quantative side but more on the technical side. A book I still own to this day, although the copy I originally had, had to be replaced last year. It was a book called “Trading Commodity Futures with Classical Chart Patterns” by Peter Brandt. This book looking back on it now was profound, as I learned classical chart patterns from a true expert, who at the time, I didn’t know was so famous. His book instilled in me what charting was all about and helped me think outside the box, to the point that I have come up with some of my own patterns. The most interesting part about Peter’s book was the rigid discipline he used to enter and exit trades and extract money in this manner. A fascinating confirmation of what I had read before.
This path took me to many other books and one day I will make a blog post about all my favorite books but I digress.
In my transition years from my last year in High School To/Through College my Dad would talk to me about his work in math and his jobs. My Dad has two masters degrees both in engineering. By all aspects my Dad has a great mind and is a very methodical thinker. A trait that I think he passed on to me, in his own way. He would always say weird catch phrases for things I would do in my life, like “Matt, what are you doing, you have to know when to fold, and when to hold.” A phrase that permeates almost everything in my trading. Although I think he wished I used my intellect towards math or science, I instead went down the path of psychology in college. A choice I don’t think was bad at all but in hindsight I kind of wish I applied my self in math/finance so I wouldn’t have to play catch up in my free time. However it seemed to work out ok.
Between work, school, dating, and many other aspects, I continued to learn slowly about the market. One of my best friends was becoming a computer programmer and introduced me to the idea of programming. You have to understand that through my short life of 27 years, technology has exponentially increased from Super Nintendo to Xbox one in only 2 decades. From cell phones being a thing, that your parents would only give you because they wanted to call you after school, to it being a staple in society. Programming never even crossed my radar until I was about 19 years old. Then I began the path of doing simple programing in websites, to C++, to python. It was all very daunting and to this day, I’m still not very good at it but I try real hard. 😉 All of these things from programing, to movie design, to web design, would all come together in one fantastic explosion of trading and making my own business.
The reason I give all this background is, because not many people know this stuff about me. Secondly, to show that learning to trade takes time and it is an endless pursuit. By my imagination I’m not a successful trader. I’m just a guy who keeps an open mind and tries to learn as much as humanly possible. The goal that we are trying to achieve in trading is called Alpha.
Alpha by investopedia is defined as: often considered the active return on an investment, gauges the performance of an investment against a market index used as a benchmark, since they are often considered to represent the market’s movement as a whole. The excess returns of a fund relative to the return of a benchmark index is the fund’s alpha.
For my mentees I try to give them a structure in which to learn, create, and get them pass the b/s of what is spewed everywhere by most traders. This is usually in the form of discretionary trading. Why in discretionary trading is so much garbage spewed? Because why pin something down, when the person teaching can be vague? I never understood this kind of teaching style especially with the advent of computer power being progressively so cheap.
It is true that I had a mentor in the market, Superman aka Paul Scolardi, who is completely discretionary but Paul and I have and still trade very differently. Paul for me, at the time, was much more important to me in the mental game and teaching me Zen like patients, more so then anything else. Like Paul, I don’t believe in flipping or “day trading” unless there is a very specific condition. For me that condition has to be quantified and they rarely happen all the time. Useful to know but not useful to make consistent long-term profits.
Yet, you will see gurus or market experts rope in people with penny stocks or low float stocks, and usually these subscription services are only there to pump something and then dump something. There is no Quantative Analytics, there is no, here is a repeatable thing that can help you make a decision, there is no consistency; If there is no consistency, then what the hell are all these people talking about or teaching?
For me, I have always been a person who only believes in probabilities. I assume nothing is in my control.
This whole teaching thing has showed me both the good and bad side of the business in terms of education. I cannot understand how some of these “Gurus” or “Teachers” have so many subs, when a lot of their content is so vague and so simple. By simple I mean, you can literally find it on the Internet for free. Is it me, or do people just want to be lied too? The phrase “The Greatest trick the devil ever pulled was to convince the world he didn’t exist”, rings true when I think about these people. (Quote From “The Usual Suspects” said by Kevin Spacey.)
I refuse to be this vague mentor who doesn’t show real probabilities of trades every single night and backs it up with statistics and validity. See here what we did this January 2017.
Now before the hate mail rains from the sky how discretionary traders can make it, I’m not saying they cant. There are very few real discretionary traders who make it out to sea and are profitable. The simple reason is, because they don’t have a complete repeatable system, and so a lot of it is based on gut reaction. The world is changing more towards a “Quant Party” just like Sunrise Capital said here.
So ask yourself, has your mentor showed you the data of what he is doing? What is this person’s edge? Is it wishy washy? Is it something that is uniquely them or is it something you can copy or use? If the answer to these things are no, then be really skeptical of that person or just understand you will never be able to trade like them.
The beauty of a Quantitative approach is, everything is clear-cut and if something is misunderstood, then that person either taught it wrong or there is minor miscommunication. This all can be rectified in some manner.
Now every trader does need to learn the basics before ever going down the Quant path which as why I have two primers into this. One is 20 Hours, which goes over just the basics here and the second one is an intro dish into Quant trading. You can find it here.
Lastly, one thing that has eaten at my soul for the last couple of years in the realm of quant trading is not having a structure to test ideas for retail traders. Tradestation and TradeNavigator are both amazing platforms with their own set of strengths and weaknesses, however they lack some structure in testing multiple combinations and having the computer pick and put together different combinations. Testing using Monte-Carlo simulation to check for strategy robustness. In my Quant 101 DVD, I have designed a way to test for signal strength, which was a little App designed for the users desktop to do this. However, I’m looking to go full scale on making a suite, which allows for testing and some strategy design. I have been fortunate enough to have some help, and feedback on the project with one of my close friend, who is a brilliant mind and helps keep me grounded. So stay tuned via my…
Twitter Feed: @triforcetrader
Facebook: @Tri Force
In sublimation knowledge, understanding, and forethought in markets takes time. There is no quick way to it. Mentors can try and cut down on the time of learning but just make sure they actually have something repeatable. Its better off this way, for the end user (which is you.) =) Here is a Free Three Hour AMA I did for more learning.