Rhody Trader

I just had a call from a woman at SFO Magazine asking if I’d be willing to be interviewed for a story on part-time trading, specifically trading for those who already have full-time jobs. I agreed. We’re going to chat tomorrow afternoon. I’m don’t know at this point when the article would go to print.

It’s interesting to be asked for an interview like this. I’m not talking about part-time trading. Personally, I’ve always considered myself a part-time trader. Yes, I work in the markets as a professional market analyst, but that’s not trading. In fact, most days I have to make a point of remembering to open my trading platform if I think I might do a trade. Besides, I’ve long found that my somewhat longer-term positions have been the most productive for me.

No, the thing I find interesting is how I’ve been asked for and interview rather than maybe asked to write an article on the subject. I’ve published three articles in SFO – Trading Coaches Needed!, Juggling Too Much? Trend Trading Simplifies Analysis, and What’s the Bandwidth?. Granted, it’s been a while since I wrote anything for magazine publication. Maybe this is their way of trying to draw me back in.

By the way, SFO published a review of The Essentials of Trading when it first came out.

One of the many things I have on my plate (probably too many things, to be honest) is  the development of a new book project aimed at answering all the most common questions new traders ask. I answer a lot of questions on my trading education blog, on the forum sites I hang out at, via email, and in seminars and other discussions. While some of them are specific, many are variations on the same basic set of questions that most folks have at one point or another during their development. A while back I decided to put them all into one place as a handy reference source, with answers of course.

I’m most of the way through collecting the questions and providing answers to them. My hope is to have the book completed early this fall.

This is not a solo project, though. While I can answer all of the questions I intend to include, I’m not necessarily the best source for many of them. Also, I only have my own perspective based on my own experience in the markets. It might not be quite the right one to best answer the question on the mind of a specific individual. With all this in mind I’m bringing together a group of additional contributors to provide additional depth and expertise to the question answers. I’ve got several commitments to take part already, but will continue to look for others who can add value to the project. The more the better, as far as I’m concerned. If you are someone with a goodly amount of experience in the markets, and would maybe like to take part, let me know.

Here are the questions I have put together so far. If you have suggestions for any additional ones, definitely leave your suggestions via comment below.

Staring Points

How is trading different from investing?

Why should I trade rather than just invest?

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The Biggies 

How much money can I make trading?

When do I know I’m ready to start live trading?

What books should a new trader read?

Should I quit my job and trade full-time?

Only professional traders make money, right?

Do I have to accept some big losses in the beginning?

How long does it take to make a stable income from trading?

How do I start trading?

How difficult is it to trade?

What is the percentage of people who succeed in trading?

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Trading Education

Is it worth spending money on educational resources when there’s so much free stuff available?

If you know so much, why don’t you just trade?

How do I avoid scammers?

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Markets & Instruments

What is the best market to trade?

What’s the safest market?

What should I trade?

Is forex trading a scam?

Is it better to trade spot forex or currency futures?

Should I avoid trading over the holidays?

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Mechanics

What is leverage and margin in trading?

How much money do I need to start trading?

Is live trading different than demo trading?

What’s the difference between a stop and a limit order?

Where does the money I make in the market come from?

Do I have to pay taxes on my trading gains?

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Analysis

What’s the best indicator?

Which type of market analysis is better?

What is technical and fundamental analysis?

Why didn’t the market rise on the positive news?

What is Support and Resistance?

What are the differences between discretionary and system traders?

What timeframe charts should I look at?

What charting package and/or data feed should I use?

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Trading Systems

How can I create a good trading plan?

How do you backtest a system?

Where should I put my stop?

Should I buy this system?

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Trader Psychology

How important is psychology in trading success?

How can I overcome my fear when trying to pull the trigger on a trade?

Why can’t I follow my trading system?

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Brokers

What’s the best broker?

How should I select a good broker?

Is my broker trading against me?

Is my broker running my stops?

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Jobs

How do I get a job trading?

What types of trading jobs are there?

What’s better, an MBA or a CFA?

What kind of program should I do at school to get a trading job?

I received a trading career email over the weekend.

Hi John,

I have recently began reading your book and this posed questions within myself. What makes a trader truly successful? Reading charts? partly so. Economics? I believe so. But more importantly the knowledge required to interpret the raw data &/or mews on a macro & microeconomics level.

Without this skill would be akin to a pilot flying without instruments? So I began looking for companies requirements of employing traders. They all seem to require a minimum of Bachelor in Business or Finance at university level.

My question is. To become part of the successful few would it be advisable to complete a Bachelor of Business or Finance?

Regards,

Darren D.

PS This book of yours has started me on a path.

I don’t claim to know how the programs of every university are structured, but as far as I understand it, most of them don’t specifically differentiate between a Business degree and a Finance degree. The latter is merely a subset concentration of the former. For example, I have a BSBA – a BS in Business Administration. My major (we still called them that back then) was Finance. I also have an MBA with a concentration in Finance. Again, Business is the degree, Finance is the concentration. So basically a Finance degree is the same thing as a Business degree (though not necessarily the other way around).

Of course traders don’t just have business degrees. Some of them have economics as not all universities offer business programs. Still others find their way into trading jobs from entirely different disciplines. It is probably that much easier going for a job in the markets coming out of a Finance/Economics program than something like English, though, for the simple reason that the programs in question are generally more geered to placing students within their field.

Having said all that, it could very well be what you do outside of your college classes which help you get your foot into the trading door. In my case, my understanding of technical analysis and membership in the Market Technicians Association went a long, long way toward landing me my first job out of college.

Be aware, however, that institutional trading is very different from individual trading. Recruiters probably are going to be less interested in your trading performance (unless you’re going to work in a position where you will specifically be running money yourself) than in your overall knowledge of the markets. This is even more the case with the first line of corporate recruiters who are HR people, not traders themselves.

I received an email overnight asking about some action in the options market.

Another blogger’s post today says that through 12:45 this morning the volume traded on SPY December $95 puts was 122,018 contracts, i.e. a $1.1 billion worth of underlying.

It has been commented before that a large number of institutional players would enter long positions in stocks once the S&P 500 closed above 950.

Could these large purchases of “portfolio insurance” be signalling such a move?

To answer the question, the sale of the options could certainly have been a type of portfolio insurance play. It was commented on CNBC this morning that this kind of sized put buying is something generally done by fund managers who want to protect against a sizeable move down. They wouldn’t buy puts to hedge against a smallish contrary move because of the cost involved. Those calls closed Thursday out at about $5.70, so they aren’t cheap. Futures may be a preferred way to go there in that circumstance, though there are different implications going with that alternative.

It’s worth noting that there’s a lot of open interest at a number of points in the September puts. Specifically, there’s more than 100k at each 5 multiple strike point from 75 to 90, with 135k at the 85 strike. Only the 100 stirke calls have 100k+ in open interest as of yesterday’s close.

I just got fininshed reading a really good post at the Psy-Fi blog, Mandelbrot’s Mad Markets. It’s a well written discussion of some of what underlies financial risk management and why it all went to hell in 2007 and 2008 – and why it will do so again some time down the line unless decision makers start understanding the limitations of their tools.

Basically the bottom line is that despite what some folks might lead you to believe (or delude themselves into believing), the markets cannot be modelled nice and neat with bell curves and standard distributions, at least not with current tools. This has very serious implications because it means things can go much worse than folks expect and are more likely to do so than would be predicted. This is something discussed in Benoit Mandelbrot’s book The (Mis)Behavior of Markets.

Traders may not think all this modeling and forecasting stuff impacts them, but they would be wrong. First of all, it tells us that markets can go further and faster than we’d ever expect. Can you see how that might  be useful to know? Also, it puts the whole idea of “risk reversion” in question because there may not be a proper mean to which prices can revert. Oh, and it may take much longer for that reversion to happen and see the market go much further away from the mean than would be expected.

Yesterday Brett Steenbarger posted Matching the Time Frames of Your Analyses and Your Trading which focused on how traders can sometimes allow their view of the larger macro picture affect their more micro trading. To put it quite simply, Brett was saying trade what price is doing now, not where you think it should be going in general terms.

I’d add another level to this discussion.

There is the additional trap that traders can fall into where positions which start as trades become investments because the trader looks to a higher timeframe and uses that as an excuse to stay in a position (widening the stop, perhaps) when they would have been out of the trade otherwise. And of course there’s the other way around as well where investments become trades because an antsy investor starts to narrow their focus on shorter timeframes. Either way it’s a breaking of one’s plan, which is definitely a no-no.

Peter Boockvar made a bit of a boo-boo on the Big Picture blog in his post 10 year bond yield/50% retracement. Since leaving a comment requires logging in, which requires being registered – which I’m not – I’ll use this blog post as a corrective venue for Peter.

In the Treasury market, coupon securities (those which pay semi-annual interest) with original maturities bewteen 2 and 10 years are called “Notes”. Those with longer maturies – meaning 30 years – are called “Bonds”. In other words, Peter should have said “10 year note” rather than “10 year bond”.

Back when I was a rookie analyst I worked in the rates market, mostly focusing on Treasuries. In fact, my first regular gig providing specific trading recommendations in a professional fashion – if I remember correctly – was on the 10 year Note.

The webcast video of my LA Traders Expo presentation has finally been posted. You can find it here. Watching the video requires being registered with the MoneyShow.com site, but that’s free.

What I find interesting is that while my presentation was an hour long, the video was cut down to only 39 minutes or so.

Hmmm….Methinks there’s been some editting. I’ll have to give it a look to see what got left on the chopping room floor when I get some free time to go through it. My guess is several of the questions asked were cut.

While I was at the Expo I was also interviewed seperately by Tim Bourquin of Trader Interviews. I’m not sure when those segments will get posted at MoneyShow.com.

For some time now I’ve been trying to figure out how best to help as large a group of people as possible to develop their analytic and trading skills. I’ve certainly done quite a bit of blogging and writing and speaking and presenting in an effort to do so, but it’s not quite what I’m after. That’s more instructive than collaborative.

Don’t get me wrong. Instruction is a necessary part of the education process.  I’ll continue to provide that sort of uni-directional work, but what I really have wanted to do for some time now is to create an environment whereby people and look over my shoulder, so to speak, as I do market analysis and come up with trading ideas, where I can do the same thing in return, and where people can do it for each other. This is something I know from feedback that folks are very interested in seeing.

I’m getting close to having things set up. I think it should be ready to go into full action in September.

This new program will basically be a focal point of all my trading education efforts moving forward. I’m expecting it to include things like:

• Specific market analysis leading to trading ideas
• Videos and other materials explaining the techniques and methods I use
• Podcasts and write-ups discussing market developments
• Trading education videos, audio, etc.
• Interviews on an array of subjects
• Additional videos and other materials to provide further perspective

One of the things that I’ve struggled with for some time is how to encourage participation. This has been a consistent problem when I’ve tried to do interactive programs in the past. While I realize it will never be the case where everyone is going to become an active participant – which is fine – more is definitely better for the cummulative educational effort.

Furthermore, I figured out many years ago that teaching is a fantastic way to learn. Anyone who’s ever coached or taught anything with any kind of intent will almost certainly agree with me on that. That’s a big part of why I want to encourage interaction.

So my thought to encourage the interaction is to create a monetary incentive for doing so. It would be something whereby the top X number of contributors on a monthly basis are paid rewarded for their efforts. This basically sets up a situation where those who are strictly there to take advantage of the available information and materials pay to do so, while those who give of their time and effort to help out their fellow traders are recognized for doing so.

I’m not totally locked in on how those top contributors will be determined, but I envision it being some combination of voting and editorial review. Any suggestions or thoughts on that subject would be appreciated.

Actually, any thoughts or ideas you have, things you’ve liked in other sites or would like to see, are very welcome. Just leave them via comment below.