Read: fundamentals of hedge fund management by Daniel Strachman. He mentioned his site, hedgeanswers.com numerous times. I was hoping it would be a good resource. However, it is very buggy and the last forum question was in 2014. I tried to post the following. Oh well, definitely not giving up. Definitely A for effort:
"I'm 23, graduated from UCSD, was disowned by parents for not going to med school, and have been an entrepreneur all my life. Never had a job, although I've interned for 4 small companies and the school district. I've had brokerage accounts for 5 years, and trade for myself and friends. Made a 42% return last year. I wouldn't say I've figured it out, constantly trying to learn new techniques and trying strategies. However, I've gotten the general idea. Read fundamentals of hedge fund management, which is how I found the site. I'm willing to do whatever it takes to become a manager, that's my dream. I'm completely mobile as well. However, I only have 20K. I would like to launch a fund with 10M in assets under management by Jan 1, 2020. I'm honestly intimidated by this goal. From where I am it's hard to see it happening. Essentially need some seed investors I think, with some sort of arrangement which will allow for the legal fees to be paid. Perhaps it would be beneficial to work in the industry? Wouldn't know how to go about doing that either...seems like it would be extremely difficult to get into...but like I said I'm fairly determined. Pretty clueless, yes, I admit. Wish it wasn't the case, and grateful for any assistance. I have some powerful friends in San Diego where I'm located. I'm finalizing the plan and will be reaching out. Also, where in the US are the hedge funds concentrated?"
Sunday, April 30, 2017
Thursday, April 27, 2017
Vix Scalping: Day 2 -- IT DOES NOT WORK!
Why did I spend ~$100 to figure this out? Why?
The orders just don't fill unless the price move past the position. I suppose maybe I could have held on instead of getting out when that happened, but it's anybody's guess as to which way the futures will ultimately go...can't really count on this thing.
The only good news is I now have the ability to trade vix futures directly, even if I am paying $25/month for it. And I can cancel that at any time.
So much for the millions I was going to make doing this. ^^ The lesson is: paper trading is close but not accurate. Any strategy which involves very precise entries and exits is likely to be flawed in real markets if it does work on paper.
The orders just don't fill unless the price move past the position. I suppose maybe I could have held on instead of getting out when that happened, but it's anybody's guess as to which way the futures will ultimately go...can't really count on this thing.
The only good news is I now have the ability to trade vix futures directly, even if I am paying $25/month for it. And I can cancel that at any time.
So much for the millions I was going to make doing this. ^^ The lesson is: paper trading is close but not accurate. Any strategy which involves very precise entries and exits is likely to be flawed in real markets if it does work on paper.
Wednesday, April 26, 2017
Seeking Alpha: What Could Happen If The Government Shutsdown?
I'm published again! Had to explore this from a money-management perspective anyway since it's one of the major risk factors for trades I'm in. My editor changed the title and it's not grammatically correct anymore...how embarrassing! (Put in an edit request though): https://seekingalpha.com/article/4064856-happen-government-shutdown
Vix Scalping: Day 1
There was a lot of success initially. I was up $250...then I lost $200 in a single swoop. The market is not active and volatile enough at 12 PM to make trading worthwhile...nothing fills. So overall, that's $50 - 12*1.5 - $25 (for 1 month of market data)= $7 profit.
Trading in the real market is much slower and far more difficult than on think or swim paper trading. At the same time though, the market is not as active right now as it is in the AM. I am using optionshouse though, perhaps if I were able to use interactive brokers things would be different. I am not sure. If there was a way to trade in increments of 0.01 instead of 0.05 it would be game over...the potential is amazing!
During the time I was trading, Mnuchin outlined Trump's tax plan...this might have contributed to the relatively fast decline in vix futures prices which resulted in the $200 loss.
Posted on Tech Meets Trader:
So...I achieved a $7 profit this afternoon trading /vx futures for the first time...that's after commissions and a $25/month market data package. 12 fills. Had 4 wins then 2 larger losses...real markets are quite different than paper data because there is a queue at a certain price, whereas in paper trading you get instant fill! Is the queue order based on timestamp of trade? Are there any front of the line passes? Different brokers result in different positions in line? It seems these particular contracts are listed on the CFE, only. Also, the minimum price increment is $0.05. It seems open outcry traders can trade in $0.01 increments, according to Charles Schwab, if so...those bastards have an insane advantage.
Trading in the real market is much slower and far more difficult than on think or swim paper trading. At the same time though, the market is not as active right now as it is in the AM. I am using optionshouse though, perhaps if I were able to use interactive brokers things would be different. I am not sure. If there was a way to trade in increments of 0.01 instead of 0.05 it would be game over...the potential is amazing!
During the time I was trading, Mnuchin outlined Trump's tax plan...this might have contributed to the relatively fast decline in vix futures prices which resulted in the $200 loss.
Posted on Tech Meets Trader:
So...I achieved a $7 profit this afternoon trading /vx futures for the first time...that's after commissions and a $25/month market data package. 12 fills. Had 4 wins then 2 larger losses...real markets are quite different than paper data because there is a queue at a certain price, whereas in paper trading you get instant fill! Is the queue order based on timestamp of trade? Are there any front of the line passes? Different brokers result in different positions in line? It seems these particular contracts are listed on the CFE, only. Also, the minimum price increment is $0.05. It seems open outcry traders can trade in $0.01 increments, according to Charles Schwab, if so...those bastards have an insane advantage.
Tuesday, April 25, 2017
Case Study: "Pegging"
Observe the "Pegging" action in vix futures today. Notice the 425 contracts traded. Observe the $14k* gross profit...one hour's work, trading a maximum of 8 contracts at a time (full disclosure, once I messed up and had 16 going). Started out with 1. This is the craziest opportunity I have ever seen. Definitely don't think it will last. This action has to have been created by a large institution of some sort. Genius I say! Will definitely be on the look out for similar.
*ToS simulated trading. UNFORTUNATELY I cannot trade futures in any of my accounts--yet. This was the result of a foray into futures trading. Strategies are paper traded before cleared for use with real money.
Friday, April 21, 2017
Case Study: Irrational Vix Futures Pricing
In this particular case, VIX futures have been up in anticipation of a close French election where a far left or far right candidate might garner enough votes to cause a run off election. The proof of this was the selloff in French government bonds relative to German bonds. This possibility would result in a questionable future for the EU as a whole traders believed, after Brexit, since France might decide to modify it's relationship with that body as well.
The issue for traders was they were buying the wrong futures contract! If they were buying /vx it seems they were loading up on April contracts, which expired on the 18th. The election --and for that matter the debt ceiling stuff in the US, the OTHER event which could cause major market turmoil--took place after this contract expired, on the 23 (debt ceiling 29th btw). SO...one would reasonably expect the April contract to decline relative to the May contract by expiration. That is exactly what happened, and a trade selling the April contract while buying the May contract was a profitable one.
The following is the situation on April 13th. Backwardation of 9% occured on April 11th...this is when it peaked, futures continued to rise for 2 days afterwards however.
To trade this, wait until the backwardation peaks and begins to decline, because you never know how high it'll go!
UPDATE: The French election WAS clearly the cause of this aforementioned strange pricing...vix futures snapped back into deep cotango after round 1 results were to the market's liking.
The issue for traders was they were buying the wrong futures contract! If they were buying /vx it seems they were loading up on April contracts, which expired on the 18th. The election --and for that matter the debt ceiling stuff in the US, the OTHER event which could cause major market turmoil--took place after this contract expired, on the 23 (debt ceiling 29th btw). SO...one would reasonably expect the April contract to decline relative to the May contract by expiration. That is exactly what happened, and a trade selling the April contract while buying the May contract was a profitable one.
To trade this, wait until the backwardation peaks and begins to decline, because you never know how high it'll go!
UPDATE: The French election WAS clearly the cause of this aforementioned strange pricing...vix futures snapped back into deep cotango after round 1 results were to the market's liking.
Wednesday, April 19, 2017
Another Day, Another Trade: Rule of 4 Thirds
I made another "poor entry" trade today into XIV at 67.33...should have been more around $62-65 when I had decided the instrument had stabilized But as a result, I came up with a strategy to leg into a large position...
Blueprint for Strategy--rule of 4 thirds:
-Third 1: early bird...immediately when things seem to have stopped going the bad way, put in an order below current price to put 1/3 of the capital in...this order can be open for a few days, sometimes gyrations occur for awhile.
-Third 2: once that is filled, and markets seem to be starting to go in the other direction, put in a second third of the capital in, at a limit price a little lower than current.
-Third 3: Once markets are obviously going in the right direction, put in the remaining third
-"Third" 4: Give it some time to clear any forthcoming hurdles (political events, etc.) and then put MARGIN into the trade. At this point, it should have gone significantly in the good direction.
Protective stops will be at 5% of portfolio loss for the first 2 thirds...they are just that, protective stops in case something happens. The major trading decisions will be executed by the manager.
Once the Margin is in, switch to a trailing stop for the margin at least. At the first sign of trouble, the margin needs to be taken off.
Blueprint for Strategy--rule of 4 thirds:
-Third 1: early bird...immediately when things seem to have stopped going the bad way, put in an order below current price to put 1/3 of the capital in...this order can be open for a few days, sometimes gyrations occur for awhile.
-Third 2: once that is filled, and markets seem to be starting to go in the other direction, put in a second third of the capital in, at a limit price a little lower than current.
-Third 3: Once markets are obviously going in the right direction, put in the remaining third
-"Third" 4: Give it some time to clear any forthcoming hurdles (political events, etc.) and then put MARGIN into the trade. At this point, it should have gone significantly in the good direction.
Protective stops will be at 5% of portfolio loss for the first 2 thirds...they are just that, protective stops in case something happens. The major trading decisions will be executed by the manager.
Once the Margin is in, switch to a trailing stop for the margin at least. At the first sign of trouble, the margin needs to be taken off.
Sunday, April 16, 2017
Saturday, April 15, 2017
Personal Trading Economics
Trading will become my main income source, especially when I am an established fund manager. At the present time and for the foreseeable future, however, I will not rely on trading to meet my cost of living expenditures.
I will always have an alternative source of income which meets my basic expenditures. This alternative source of income will determine what sort of lifestyle I can enjoy (I've struggled with how to determine what lifestyle I will have. This makes it easy!). If I begin consulting, for instance, and have a high alternative income relative to hours worked, then I can live a comfortable lifestyle and not violate this principle.
This means that money will only flow out of the trading account to be put into other investments, whether these are regulation A+ investments, investments in a new business, or investments in something like an IUL, gold bullion, or with other money managers.
I will always have an alternative source of income which meets my basic expenditures. This alternative source of income will determine what sort of lifestyle I can enjoy (I've struggled with how to determine what lifestyle I will have. This makes it easy!). If I begin consulting, for instance, and have a high alternative income relative to hours worked, then I can live a comfortable lifestyle and not violate this principle.
This means that money will only flow out of the trading account to be put into other investments, whether these are regulation A+ investments, investments in a new business, or investments in something like an IUL, gold bullion, or with other money managers.
New Max Loss determinations--*OVERALL TRADING PLAN*
For the time being, as I get back into trading, and until I make more consistent profits, I will set max risks of 5% of my account's highest recent cash value per trade (position size does not decrease every loss). That means I will have 20 shots before being completely depleted. Although really it's more like 5 shots before a lock down is triggered, because that will be 75% of value.
This is aggressive enough to suit my tastes. 10% max loss per trade is just too much. Each one of those is too much of a knockout. Of course the plan is to NOT take the max loss. To take losses discretionarily...however you spell that. Much less than max loss usually.
Also, if having a particularly bad time or in a fragile state, acceptable max losses can be halved or even quartered as ICT suggests, to allow trading to continue. Max loss is just that, MAXXXXXX loss! Not to be exceeded!
Max Loss: 5% of overall portfolio--automatic measures must always be in place to ensure loss does not exceed the Max Loss.
--With options strategies, the trade cost will be the max loss. The possible exception for options is straddle earnings plays. These straddles will be liquidated before expiration, there will be some value left although they can lose a very significant amount if the stock doesn't move. Paper trading will be required to get an accurate feel for how to determine position sizing with these instruments. As a note, betting heavily on one straddle play is really asking for trouble. These are very "hit and miss". So position size should remain quite limited.
--For forex time-based trading that is high probability the loss will be limited to 1% if trading tightly because there of the way I trade it is very difficult to get out early. If trading along ICT guidelines, with 1/3rd of day's range stop, then 2% is acceptable, since those are much higher probability trades.
--For computerized forex time-based trades, max loss will be 1%. These are far less likely to be successful or to experience an extended string of losses, tolerances must be adjusted accordingly.
--Tight futures trades will be treated the same as forex, 1% max loss (of the entire portfolio) will be tolerated. Only after data shows we can make money consistently though, subject to adjustment.
--With large commitments of capital (such as trades on XIV) and where margin is used the principle will be the exact same. First: a position with a 5% max loss will be taken. Then if the market deteriorates further, it will be liquidated. If instead the market proceeds higher, a second position will be taken. The stop will be moved up for a combined loss of 5%, this will be done with successive entries such that the entire amount is committed in 3- 4 installments, with margin going in last, after which an appropriate trailing stop will be used to take the margin off the table if things start deteriorating. A medium term position: small dips will be played with margin. When it looks sour, margin will be taken off. If it looks good, margin will be put on. If things really start going south though, like when futures go into backwardation, the entire position will be liquidated, perhaps in several chunks to get better pricing, although margin will always be liquidated straight away at the first signs of trouble.
This is aggressive enough to suit my tastes. 10% max loss per trade is just too much. Each one of those is too much of a knockout. Of course the plan is to NOT take the max loss. To take losses discretionarily...however you spell that. Much less than max loss usually.
Also, if having a particularly bad time or in a fragile state, acceptable max losses can be halved or even quartered as ICT suggests, to allow trading to continue. Max loss is just that, MAXXXXXX loss! Not to be exceeded!
Max Loss: 5% of overall portfolio--automatic measures must always be in place to ensure loss does not exceed the Max Loss.
--With options strategies, the trade cost will be the max loss. The possible exception for options is straddle earnings plays. These straddles will be liquidated before expiration, there will be some value left although they can lose a very significant amount if the stock doesn't move. Paper trading will be required to get an accurate feel for how to determine position sizing with these instruments. As a note, betting heavily on one straddle play is really asking for trouble. These are very "hit and miss". So position size should remain quite limited.
--For forex time-based trading that is high probability the loss will be limited to 1% if trading tightly because there of the way I trade it is very difficult to get out early. If trading along ICT guidelines, with 1/3rd of day's range stop, then 2% is acceptable, since those are much higher probability trades.
--For computerized forex time-based trades, max loss will be 1%. These are far less likely to be successful or to experience an extended string of losses, tolerances must be adjusted accordingly.
--Tight futures trades will be treated the same as forex, 1% max loss (of the entire portfolio) will be tolerated. Only after data shows we can make money consistently though, subject to adjustment.
--With large commitments of capital (such as trades on XIV) and where margin is used the principle will be the exact same. First: a position with a 5% max loss will be taken. Then if the market deteriorates further, it will be liquidated. If instead the market proceeds higher, a second position will be taken. The stop will be moved up for a combined loss of 5%, this will be done with successive entries such that the entire amount is committed in 3- 4 installments, with margin going in last, after which an appropriate trailing stop will be used to take the margin off the table if things start deteriorating. A medium term position: small dips will be played with margin. When it looks sour, margin will be taken off. If it looks good, margin will be put on. If things really start going south though, like when futures go into backwardation, the entire position will be liquidated, perhaps in several chunks to get better pricing, although margin will always be liquidated straight away at the first signs of trouble.
Case Study: Poor trade managment--XIV
"The money is made in the trade entry" - ICT
This exit (the bold arrow) was definitely confirmed by futures action (backwardation) on that day, April 7th:
There was no excuse not to get out.
Takeaway from this trade: every day attempt to analyze the position impartially and anticipate future direction. I have a very hard time "trusting" myself I guess, although I'm usually right. When I'm in a trade that's going south and I anticipate it doing that...I'm hoping I'm wrong. I'm holding on hoping I'll be surprised. THAT'S NO WAY TO TRADE!!! CAN YOU HEAR THAT IAN?? This is a trend and it is definitely costing me.
I guess it's a swing from when I was mainly trading tight market neutral options strategies and conditioned myself to stop being such a chicken and getting out of trades that wound up working out. I'm guessing these are two different animals...and I will treat them as such, instead of applying the same mentality to both. ESPECIALLY when there are futures profiles confirming the prognosis that it's time to exit.
Takeaway from this trade: every day attempt to analyze the position impartially and anticipate future direction. I have a very hard time "trusting" myself I guess, although I'm usually right. When I'm in a trade that's going south and I anticipate it doing that...I'm hoping I'm wrong. I'm holding on hoping I'll be surprised. THAT'S NO WAY TO TRADE!!! CAN YOU HEAR THAT IAN?? This is a trend and it is definitely costing me.
I guess it's a swing from when I was mainly trading tight market neutral options strategies and conditioned myself to stop being such a chicken and getting out of trades that wound up working out. I'm guessing these are two different animals...and I will treat them as such, instead of applying the same mentality to both. ESPECIALLY when there are futures profiles confirming the prognosis that it's time to exit.
Monday, April 10, 2017
2016 Tax Return
I have the pleasure of reporting $7109 in capital gains directly attributed to trading with live funds on my tax return. Was trading with less than 20K.
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