125 karma · joined November 12, 2014
My sharpe ratio at my firm (calculated automatically in our database) was well over 3 until that loss. I don't remember it exactly but it was such a crazy number to believe (relative to other sharpe ratios) that I stopped thinking it was a risk metric that mattered for my style of trading.
2) At the very least, I don't think what I do is harmful to anyone.
I'd also like to add that I make many trades that are a better example of adding value. In the trade example of buying the dip in AAMRQ (prior blog post on my site), I am making the market more efficient (I'm saying this with the benefit of hindsight, of course). AAMRQ was moving adversely against its clear fundamental value (based on a stock merger deal with US Airways) and by buying it on weakness, I'm adding liquidity on the side that it should "eventually go to". This only works if I'm consistently right more than wrong. I also short garbage stocks that have no fundamental value, another example of trying to restore efficient prices. Price discovery is important so capital isn't allocated inefficiently.
3) Impossible to ban trading without destroying market liquidity. It's also way too difficult to define what trading is helpful vs. parasitic and have everyone agree on it. One could easily place a seemingly "outlawed" type of trade and claim to have sound intentions, which is what makes market manipulation difficult to prosecute.
In the end, I don't care that much to argue about social utility. I trade my own cash or I trade the money of guys who completely understand my objectives and choose to back me. I respect your views and I won't bother to persuade you otherwise.
I get the feeling if this thread was about losing $200k to Phil Ivey heads up in Hold Em or Nate Silver losing $200k by betting against Obama on a political betting site, nobody would care to bring up social utility.
Ask yourself, if you flipped heads on what you thought was a fair coin 500 straight times, did you REALLY just observe an ultra rare event? Or is it more likely another phenomenon at work (like a rigged coin)? Whether you can fully explain it or not doesn't matter.
Why do you care so much what I do with my money? Or how a firm chooses to allocate its money? This wasn't client money or institutional money, it's the money of a few guys (partnership type of structure) who used to be or still are daytraders themselves.
(one last edit: if you're too thick to see it, I deliberately tried to showcase my overconfidence to show how things can go wrong easily. guy makes money and wants to make more, guy wins money and thinks he's a champ -- it's called the human condition. I deviated from normal execution rules and position size rules and paid the price)
http://ptotrading.blogspot.com/2014/11/a-message-to-all-non-...
I am as well-rehearsed in financial history as anyone. I have read about LTCM, Nick Leeson (I even watched the movie), etc. In these situations there was so much size being used that if any unexpected squeeze scenario occurred, those guys would move the markets and cause a horrible chain reaction.
I understand on the surface this totally looks like I'm trading in a "eat like a chicken, shit like an elephant" type of fashion. If I were in your shoes and I read "guy made x, x, x consistently and lost 20x one time!!!" I'd be thinking along the same lines. The difference is, I had more control of my outcome. It's hard to prove this and you won't totally believe me unless you are also a day trader who grinds it out and has a feel for intraday liquidity and slippage (particularly on the otc/pink sheets). I wasn't trading such a large size where I would move the market if I was squeezed out. The risk distribution of intraday scalps is not at all similar to writing naked options with unlimited loss.
It's like this: normal trade: entry signal occurs. get in. exit signal occurs. get out. the trade in particular: exit signal occurred and i chose to ignore it and keep scaling in. would there have been awful slippage? yeah but it would have manageable. in the heat of the moment on the largest loss ever, 10-15c slippage on a $4 stock massive size feels like the end of the world but it's better than riding it down 50c or a point.
I used to think TA was a joke. I was very skeptical before using it. I have never bothered to explain why it works intellectual to non-believers. But I do think someone who understood probability and saw the compiled statistics of practitioners would concede that there's 0 chance of non-randomness.
Not only does significant breaking news have to happen while you are in the position, which is already very rare, it has to happen in a way in which you cannot respond and cut it off -- like the stock getting halted. Most intraday stock halts that occur are not exactly a shock (like a biotech or a stock under investigation of any kind) so if you are highly leveraged on that stock to the point where your entire equity can get hurt, that's on you.
If something big like GE or AAPL halts, the move proably won't be extraordinarily huge like 20%+, unless it's an Enron scenario.
This is what I thought as well when I was initially introduced to the idea of technical analysis and day trading. I was very skeptical.
I don't want to call myself a probability expert but after studying poker theory and reading mainstream works like Fooled by Randomness, I bought into the idea that it was just a bunch of a guys throwing darts and the "winners" whom were trying to sell all their BS were simply benefiting from survivorship bias.
But after seeing the numbers themselves first hand, there's just no way it's random chance. Being net positive 80% of all days traded with all your winners and losers falling in a relatively tight distribution -- luck can't create highly specific, repeated outcomes like that. There is virtually zero tails risk since 99% trades are intraday only.
My loss was a failure of discipline. I froze like a deer in the headlights, failed to execute like I normally do and paid the price. Hope you keep reading to find out what happened!