Thursday, December 13, 2018

The "Should Have" Trade That I Will Regret Forever

You ever think about the one that got away from you?

It could be anything.

An amazing business opportunity. 
The partnership stake in a unicorn startup, that you sold for pennies on the dollar to fund a steady career in advertising.
An amazing partner.
The perfect college sweetheart you broke up with to "find yourself" on a year long trip to Europe.
A grand achievement at the highest level.
The final hurdle to win a gold medal but you tripped over, seeing your dreams slip away in your short and finite athletic prime.

So for us traders, there was that trade that you missed. And you will experience severe regret as you see an explosive moves away from the entry level that you considered and decided to passed on, you IDIOT.



But here's the good news: the longer you trade (and the better you become as a trader), the longer the list grows of all your missed trades. Your trading memory will start to eat up a lot of free space. These missed trades will become a big jumble of charts in your head and few, if any, will stand out. It won't sting so much as time passes.

Here's another thought as well: anything can be a "legendary trade" if you put enough capital or leverage behind it. Every week there are options going up 500-1000%. Every week there's some dumb low float trash going up 100% or more. Every quarter, there's an explosive breakout from earnings. Someone out there must have had the risk appetite and conviction (or just dumb luck) to have made money on one of these moves. It doesn't feel like a rare event if it keeps occurring so often.

Nonetheless, I do think we all have some missed opportunities and regrets that stand out, even after all these years.

But Peter, I have no regrets. Life is a learning opportunity and all my mistakes have contributed to who I am today and thus I have no true regrets--yeah shut up. I hate you people and your positive, resilient attitudes. I have regrets and I want to whine about it, like a normal person, okay?

There is one missed trade that will stay with me for a long time. It made the headlines last year:

Ethereum flash crashes to $0.10 on GDAX


So for the unfamiliar, here's a short recap of what happened:
1. Someone entered a fat-finger "multi-million dollar market sell" order
2. There was not enough liquidity on the market depth to absorb this move
3. Stop loss orders and margin call liquidations caused another chain reaction of sell orders, exacerbating liquidity issues
4. The price cleared all the bids on the order book all the way down to $0.10.

And I was fortunate to be at my computer to watch it unravel in real time. Behold...



I stared at it.

Shit. That was my moment!

I started entering in orders to try to take advantage of any subsequent mini-crashes on what was, at the moment, a super thin bid. I did catch some decent scalps but within an hour, the market started to stabilize. I knew that the moment for an all time stroke of genius had come and gone in the blink of an eye.

Coinbase would later rule for all trades to stand and would reimburse all losses caused by the flash crash. They would also remove the margin trading feature, which has since yet to return.

I had a lot more than $350 in my GDAX account and I was mostly a scalper during the time so I held a lot of cash rather than crypto. I don't know if it would have been a trade I could retire on but it would've been pretty damn cool to blog about it after the fact.

Look, I know what you're thinking. This is the type of trade where every Joe Schmo is thinking after the fact, "oh man, why didn't I think of that?" Well, the reason this specific trade resonates with me the most is because once upon a time...


I was that guy buying flash crash prices on wild west crypto exchanges



screenshot saved from 2013

That was me buying at $20 on Bitfinex, $80 below the actual trading price. I saved that picture.

Oh my God, did I really get printed there!? THAT'S FREE MONEY BABY!

It was April 12th 2013 and the bitcoin bubble had burst. (Where have you heard that one before?)



Bitcoin is trading around $55-120, depending on what exchange you looked at, after a massive crash from $260. The biggest exchange, Mt. Gox, had been halted for several days, passing on the process of price discovery onto fragmented, inefficient and thinly traded exchanges.



My primary exchange was bitfinex since they had leverage and shorting. They were not that popular yet though so it was trading with low volume and large spreads. 10-20% bid-ask spreads were not unusual at the time.  Typically, that's a sign for an active trader to stay away. But I didn't care for conventional wisdom. I didn't care for safety. To my startling observation, other traders were frequently paying through the spread with market orders and spraying way past the best bid and best ask. It was total amateur hour.

So, there I am with my small cash deposit and nothing to execute trades rapidly except my own hands, stepping in to make markets of this thing people called a "crypto currency"--the existence of which I didn't even fully comprehend quite yet. I would place multiple orders on both sides of the book and pray that the market didn't rip against me too much and margin call my ass.

I had no method, no pricing model, no process. It was all guessing--just try to turn over my money as many times as possible and catch spreads. 80x90, I'll step in at 83 since I need to buy, sure. If the market moved away from me, I'd scale into more of my net position (could be long or short) and raise the other side to try to reduce my exposure. I figured market making is just about reducing directional risk over time. Don't let an adverse move eat you up.

Part of my routine was having to constantly refresh the Bitfinex trading log (time and sales) to see how trades printed because many of the real time chart API's were temporarily down. That's what trading crypto was like back in 2013--primitive, unreliable, broken.

After what might've been my 893th refresh of the night, I saw the magic happen. That was me sitting at $20, getting printed for 38.9 bitcoins. BOOM.

I sold them all near $100 within minutes and realized about $3000 in the profits on that one round-trip alone.

All in all, I made about $5000 in a few hours of trading, which was incredible at the time because at that time, $5000 was a good month in stock trading for me. This wasn't a great time for me personally. I had thought about quitting this whole trading thing and moving back to California and it was killing me inside. This night alone lifted me out of depression.

For the next months, if I ever had spare capital, I made it a purposeful habit to always have low bids entered into bitcoin... because you never know when she might say YES.


Seeds of the Idea


Unfortunately the magic print never happened again. I made decent money with more conventional trading on the run to $1200 and then I stopped trading crypto altogether in 2014. It was a bear market and I had lost interest. Then I came back to crypto in May 2017, a little late but not too late. That's probably a post for another time.

But man. Think about it!

It's not just hindsight. The seeds of knowledge and experience were there for me to place an extremely low "just in case" bid and capitalize on that opportunity. Imagine reveling in your genius of being able to put it all together and just do something so simple, something that takes zero work and zero risk... and then the impossible happens and you take a small fortune out of it. And I couldn't do it! For whatever reason, I just stopped doing what I used to do. I stopped believing it was possible. But in a young, disorganized, chaotic, inefficient market--anything is possible.

This is why I will always take the chance on new frontiers of market opportunity. You just never know how you can make money. It isn't always a matter of needing a bias that something will go up meaningfully higher or meaningfully lower. There might be these unknown inefficiencies that you can brainlessly exploit with close to no risk at all. That's also why I took the risk on the overseas broker that shall not be named, for those of you who were fortunate enough to read my last blog post (now deleted).

A lot of traders love that feeling of being right.

They made the right call.
They told everyone on twitter that that piece of shit stock was going to 0 and it did.
They screamed at the top of their lungs on CNBC that this stock would go to the moon and it did.
I was a bull and I beat those idiot bears. I was a bear and I beat those stupid bulls.
I was a contrarian and told the crowd to go suck it and they did.

We all want to be George Soros, breaking the Bank of England on a generational macro call. Hey I won't lie, I like that feeling too. I just think it's overrated. I like another feeling a lot of better.

"That was too easy. I feel like a bank robber". -- this is something I say to my trader friends when the trade is a little too easy.

I like that feeling after a trade where I feel I just got away with a heist for a $100 million diamond and no one was the wiser. I'm taking off my ski mask and high fiving my entire crew for a job well done. It was THAT EASY. I didn't need to pontificate upon the wisdom of the crowd or prognosticate the future. I didn't have to be Soros or Livermore. I didn't need to lay out the risk. I didn't need to worry about some bullshit squeeze or shakeout or stop out. I just took the sack of money off the ground and ran as fast as I could. I love that feeling more than any other feeling. There should be a German word for it.

That should have been me as I hurried to transfer all my stolen ten cent ethereum off GDax and sell it on another exchange. Should have. Now it's just a missed trade that I'm blogging about like a loser.

I don't regret not buying bitcoin at $30.

I don't regret not buying ethereum at $10.

I regret this.

Wednesday, November 21, 2018

Resolution

To everyone,

I am happy to say that I am moving forward. I had a productive conversation with a Tradenet representative, who explained why my TEFS sub-account was charged with $58,820 in routing fees--this was due to the broker’s costs of hedging unexpected high volume trades (2.1 million shares traded in a few hours). I was fairly compensated by TEFS for my extra costs and I now consider the matter resolved. I enjoyed trading with Tradenet and have thus far been paid on schedule by TEFS. It was never my intention to damage anyone's business, but only to share my experience as a customer so that positive changes could arrive—I now feel this has been accomplished. I wish them the best of luck.

Thank you to all my readers for their support.
-Peter

Thursday, September 6, 2018

Different Type of Edge

I have a bit of an edge to me--an angry edge. Had it ever since I was a little boy.

If I were writing a screenplay lionizing my entire life, I would cast it in a positive light. It's the chip on my shoulder. It's the drive to be great. It's the fire within. 

There was that time in 6th grade playing pickup basketball during lunch. Sean McFarland was throwing elbows while posting up and giving me not-so-subtle two handed shoves to grab the rebound. He only did this to me, I swear. Mr. Little League All-Star Athlete with all his trophies playing dirty like he's Bill Laimbeer. That piece of shit. He's been picking on me for years now--not just physically on the court, but taking jabs at me. Asking me why I didn't participate in PE--maybe I was just faking it. Asking me if I need to wear that brace for my medical condition. Just these little things he'd say because he thought I was a weakling. I had enough.

I charged at him and forearm-shoved him to the ground. Asked him what's up.

What's your problem dude?!

I still remember his face. He was shocked. He reacted like a whiny little bitch.

Nothing! Fuck you!

Returned a little bitch shove that knocked me back a half step. Nothing else. Pfffft. That's all you got?

When lunch ended we shook hands and that was that-we never had a beef again.

I stood up to a bully. Knocked him on his ass, demanded respect, and was given respect. 

That's a good story. That's a narrative that can sell.

But I'm not writing that screenplay. I'm not that cool. This is a blog where my most popular post was about me losing 6 figures in a trade in the dumbest way possible. It's about me being an idiot.

There's an ugly side to this edge.

There's the time I rage-reset the Super Nintendo and said some not-so-nice things to my sister because she was obliterating me in Mario Kart over and over. I was 7 years old.

There's the time I threw the remote at my cousin because the Blazers were beating the Lakers and he was rooting for the Blazers (traitor!) and smiling at every basket made. Rasheed Wallace would have been proud.

There's the time a classmate from high school hit a runner-runner straight to bust me in a home poker game and I threw such a nasty tantrum that they didn't want to invite me over anymore.

There's the dent in a waste basket that I kicked over and over again at the prop trading desk.

There's the hole in the wall at my old apartment in FiDi.

Spoiled, entitled brat all pouty because he doesn't get what he wants. That's the picture being painted there.

I really hate losing.

I hate it.

It just wrecks me on the inside.

No one is supposed to like it but I wish it didn't wreck me to the core like it so often does--to the point where I stay up all night until I exhaust myself because I don't want to go to bed and I don't want to go to bed because I don't want to think about the next day and what the next day is going to do to me (hint: it's gonna wreck me because I'm a loser and I'm going to lose).

Among my many flaws, my shakiness with handling loss is maybe the worst. Oh I'll take a loss. I'll be disciplined. But then I'll pout. You watch.

The Next Day

Why am I even writing all this? The same reason so many traders blog about stupid personal shit--because they took a big loss. Except in my case it's more like a large "giveback"--a larger than normal profit turned into fairy dust. I am literally the day's top tick to cover. And then the stock trades back to the lows. It certainly feels like a loss to me.

Now here's where stupid twitter traders with their motivation memes say "oh gee golly I messed up but  tomorrow is a new day hooray I love my job #trading $AAPL $TWTR $DRYS".

Fuck that shit, I am going to take this very personally.

The market gets to live rent free in my mind.

I'm the little bitch who moved his stop to break even and got ticked out.

I'm the idiot who didn't take any profits on a big move

I'm the little bitch who swung for the fences but didn't have the heart to stay with the conviction and sit through the swings

I'm the idiot who said he wouldn't trade these nasty "hero setups" anymore but didn't have the character to stay true to his word

NINE YEARS YOU'VE BEEN DOING THIS AND THAT'S THE BEST YOU CAN DO? ARE YOU KIDDING ME? YOU'RE A JOKE. YOU'RE A WORTHLESS FRAUD.

stick figure obama GIF

Ugh.

There are 6am next days, 8am next days, and 9:29 next days.

6am.  I can't have ENOUGH of this market! I LOVE IT!!!
8am. Clock in, check the news, do your thing. All professional.
9:29am. I hate trading.

Tomorrow is gonna be a 9:29 day.

I hate losing.

I hate the next day.

Friday, August 31, 2018

Button Pushing Fast Trader

So I posted a poll on twitter a couple days ago to see how many traders use hotkeys vs. mouse or touchscreen. I was curious because I don't see a lot of discussion on the mechanical side of trading.

I'm a bit surprised that--given that my audience is mostly "active traders"--only 21% use hotkeys.

That means a whole lot of you are missing out on the experience of being a speed demon on the keys.

As well as being a button pusher and the residual effects of being a button pusher.

On Monday, I was excited to see one of my swing positions gap up pre-market. I owned the call options. It was a carefully thought out, methodically entered technical trade from the prior week. I had been patient. I waited for my targets to sell rather than just blindly taking profits into strength. I kept a decent chunk to let it run. The trade was paying me off a fat multiple of my initial risk.

My buddy Clockwork took the same trade and I thought he sold way too much on the initial breakout from the trading range. But that's his choice. So going into this pre-market gap up, he was probably a bit too light on his position.

But then in less than a minute, his PnL catches up to mine on the symbol.



Wow, huge buy imbalance, indicated a point higher.
I bought 30k at 11.60 and sold into 12.
I just made $9000 off that move.

Oh okay. Nice job.
You sneaky fuck.
You goddamn bank robber.

I don't think a mouse clicker could have done what he did.  And certainly not a mobile trader. In theory, if they were absolutely prepared to react to that specific scenario in advance, maybe they could have. But being "absolutely prepared" in this scenario would entail actually having set up hotkeys to be faster, in the first place.  I get the sense that most mouse clickers just don't care about being fast. They don't care about scalping. They are content to look at a chart, make one entry, set a stop, and maybe enter a couple profit taking limit orders and making a living off that. That's fine. I guess this blog post is give perspective to those who don't trade like this.

Clockwork is a natural scalper but he doesn't even make most of his money scalping anymore. The ability just gives him the opportunity to snatch the free money off these special situations.

The best traders at my firm--and I'm only talking about guys who I personally know and saw trade nearly every single day--are really fast. They process data fast. And while they all started off as scalpers, they can do everything now. Long/short. Options. Market plays. Micro cap low floats. Crypto. Gray-box trades. News trading. Scalping. Day trades. Swing trades. Long-term positions. They might trade up to 20 positions a day. One guy runs a hedge fund now. They can trade the patient money and the hot money.

Can you do that with just point and click?

I can't think of anyone who stepped in from the other end of the spectrum--trying to be a relaxed big picture position trader and only using their mouse to make trades--being able to add scalps and hot money trades to their arsenal. Not saying they have to do it--hey, look at Warren Buffett right? he doesn't need to do any of this shit to make his money. Just saying I haven't seen it. Fast can go slow, but maybe not the other way around.

That being said, there is a residual effect to being trained as a "fast trader". You might just get these annoying bad habits that are difficult to shed later. I can tell you first hand.

Psychological drawbacks
  1. Unwillingness to take pain. Thinking you can time every move to a tee, so you don't give positions any room to breathe
  2. "Get out and get back in when it looks better" <--- can get carried away with this concept since getting and out with buttons just feels easy and natural. 
  3. Too much button clicking without purpose, start asking yourself "what am I doing" as fees rack up, feel demoralized
  4. Thinking speed can be the edge on a low margin trade. Oh I don't know what this stock will do but I'll just pay the offer as this seller is cleared, see what happens. Risk a tick maybe I get lucky.
  5. Lose sight of the big picture, trying to trade in and out of everything may just butcher the bigger picture outcome that got you interested in the first place
Advantages
  1. Take advantage of special situations to size up quickly with low risk
  2. Better at scalping
  3. More efficient at filling orders (more important when trading size or on a thinner stock with wider spread)
  4. Better feel for how liquidity moves in a stock
  5. Can manage more positions
  6. Certain strategies are enhanced -- news trading, imbalance trading
So there you go. You want to be a fast, stare-til-your-eyes-bleed mother fucker trading with 17 monitors and a $200 custom keyboard, go for it. There are pros and there are cons. Personally, I just accept that this is part of my DNA at this point and I can only to try mitigate certain things. You can also just be your regular low stress position trader but use hotkeys and maybe save yourself the spread/slippage. It adds up over a long career. Either way, happy trading.

Friday, March 30, 2018

5 Interesting Trades I Made in College: Buying Gold Bullion

There are five trades I want to reflect on from my college days. Each trade represents a new trading phase. And I went through many phases, much like a student who kept switching majors. I want to do political science. No, maybe programming. Hmm, but what is all this hype I hear about eastern european gender studies? Nah, I'll do film and broadcast--I do love movies after all! But then I eventually settle on business economics because it's bland and it'll get me a job.

You don't know if you'll like it until you actually do it. 

Here are the five trades.

  1. Buying gold bullion in 2008
  2. Buying AAPL when Steve Jobs announces medical leave (don't ask me where I sold it)
  3. Buying a small biotech with a drug that... cured laughter??
  4. Shorting AIG after it went from $6 to $40
  5. Shorting some scam micro-cap called InfoLogix
 I don't know if I will finish this but I finished the first part and would rather publish it now before I decide I don't feel like blogging again. So without further ado...

Buying Gold Bullion in 2008


This is the time I went full gold bug. 

It was the year 2008. What a wonderful time it was to start learning about the markets. Big banks going chapter 11. The market plunging to 10 year lows. My trading career was born in the chaos. Molded by it. You saw Too Big to Fail, you know what I'm talking about.

We all had our narratives to explain why this huge, spectacular, horrible thing was happening to the market and the underlying economy. I had mine.

2008 Peter To was a hardcore libertarian. Non-stop. This was his soap box at the time.
  1. Vote Ron Paul otherwise you're just voting for the evil government-loving Republicrats
  2. No bailouts or nationalization! I say let them fail and see what happens. MORAL HAZARD!
  3. End the Federal Reserve! Bunch of no-good money printers stealing my wealth.
  4. Mainstream economics was 99% politically-driven fallacy and masturbation in linear regressions. I called my Econ 100 professor a neoliberal shill on the margins of my midterm since I knew he graded them himself. I also told a policy class TA to fornicate with himself because of he told the class how great the New Deal was. 
  5. Everything happening the economy is happening because people are stupid and governments are incompetent and/or corrupt. We printed too much money, we got greedy, and Greenspan created this gigantic housing bubble. Now we're grade-A FUCKED. That was my narrative.
  6. Hyper inflation was imminent! We were on the precipice of an extraordinary collapse of confidence in the U.S. dollar once the Fed tries to print their way out of this mess.  Peter Schiff said so and I bought his book!
2008 Peter obviously knows everything about the world and how it works. And hyperinflation is so obviously going to happen, he thinks. It's like a mathematical certainty based on the Austrian school of economics, which is always right because capitalism is the purest system and government intervention always ends badly. 2008 Peter, to his credit, also puts his money where his mouth is. There must be a way to profit off of this inevitability. So what does he do?


Oh, like a gold ETF or gold futures where he can trade it and avoid high transaction fees? No.

Fuck that shit. He buys actual gold coins.

coins GIF

Because once the economy collapses, those fraudulent paper vehicles will never deliver! Fake gold! You need the real thing that you can touch damnit! 

That's what doomgold666 on thesilverforum.com said and he has 15,000 posts in the 9 months so he seems pretty credible.

2008 Peter was ready for $10,000/oz. Gold. He was ready for anarchy in the United States. He was ready to claim his status as an oracle and a market prodigy. He was ready to give all these idiots around him a big fat, resounding "I told you so!" 

2008 Peter was also an impressionable kid. Maybe moreso than he'd like to admit. And when your conviction is only based on the sooth sayings of other self-anointed experts rather than actual experience and observation, is it truly real conviction?

2008 Peter was also a market rookie with zero experience. Would he really stayed composed if the market started to test his ideas? Would he really die on his own sword for his predictions?

Let's see how this trade turned out, in four panels.

ENTRY.


TRADE MANAGEMENT.



EXIT.



POST-HOC ANALYSIS.



Ouch.

I loved those gold coins. They were like family to me. My little shiny metal children.

In those few months of drawdown, I learned that you never go full gold bug. And never make market predictions based on passionate political opinions. Only idiots do that.

It pained me to sell them but I had to let go. In those 5 months since buying, I had unsubscribed from the gold bug libertarian cult. 2009 Peter had learned the folly of his ways. He needed liquidity so he could move onto the next phase and make godlike returns from his new strategy.

2009 Peter was going to a new Peter, a better one. He was going to be...

a Value Investor...