224: Best of Day Trading, Pt. 2

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Hey crew, welcome back. This is episode 224, and as promised, we're rolling on from last time. Here's the best of day trading part two. Just to remind you, this is a compilation of snippets from past interviews, all of which are applicable to day trading in some way. From technical intricacies, insights about various strategies to trading tales and broader viewpoints on day trading, there's a lot jammed in here.

And putting together these compilations, besides creating a quality resource for day trading wisdom, it's my hope that I can bring your attention to a few episodes that you may have previously not heard. So listen out for the episode number prior to each clip, then you can simply type in chatwithraders.com slash episode number to hear the full thing.

Now let's hit the ground running with a couple clips from Equities Trader at Seven Points Capital, Stan Gloosman. The first clip on recycling shares comes from episode two hundred and eleven and the second from episode one hundred and seventy one. The thing I love about this second clip is it's a great example of the edge and understanding the nuances and structure of your market. Essentially these small things can make a big difference.

Just that you spoke about when you are trading intraday, if you're short something, you're gonna and it drops, you're gonna cover into that wash. This is something I think you do really well from seeing, you know, your executions which you occasionally share. You know, a good example of this was how you traded Tesla, I think predominantly on the short side in today. And then like you flipped to long when there was a, you know, big wash into what happened to be the low of the day.

I'm quite interested to know more about how you do this, how you think about, you know, timing these trades intraday, what determines a good price to add, et cetera. Um, so I know there was just a whole bunch of questions in there, but How do you think about recycling shares on an intraday trade? It's all about the trend, uh and it's all about the volume for me. So if the trend is still holding, uh if the stock drops, bounces and puts on a lower high.

Um, I don't know if it's gonna be a higher low or a lower high, you know, but I'll, you know, as it's curling down, I'll re-add back. So one important thing that I started doing I think was it twenty nineteen or twenty twenty? I don't remember. I started doing it a while ago. Is for example, if I'm shorting a stock, if I'm adding um

or re-adding shares to to a short position, I don't shorten a green candle. I try not to shorten a green candle as much as I can. So I'll only shorten a red candle so that I know if uh the stock bounces uh you know I'm gonna short as it's as it already put on a lower high. So whether it's a one minute chart or a five minute chart, it's better if it's a five minute chart. So a red candle as preferably even as it's breaking the low of the previous candle. Yeah, so I'll add back on the lower high.

As long as the trend holds, pretty much. So so I'm staying with the trend, lower high, I'm adding lower high or or re-adding and I'm covering into the washout, lower high. uh re-adding covering into the washout. And for me, the main indication of a reversal where I should be going long is a volume exhaustion. So if the stock really extends and also extension from the mean.

So if I'm watching, let's say, VWAP or some sort of a moving average, um, and the stock really extends from from from its mean, um, I know that I should probably be closing or scaling out of my short position uh completely. Uh so usually I would cover half, but if it's really getting extended on big volume, I'm gonna be covering the entire position and

Once a massive volume bar comes in, uh I'll be I'll be looking for some upticks. So um it's still gonna be a red candle that'll be I'll be buying on. But I wanna see upticks. I want I want the stock uh to start going up and then I'll start longing it. So Only when I see massive volume and extension from the mean is is uh when I'll be looking to buy it. And it's a dangerous setup and it's not uh you know, it's for someone who's a little bit more experienced because if it doesn't stop

You know, going down, you can find yourself uh holding, you know, a long position and just it's kind of off the cliff against you. So uh the stop has to be pretty tight, you know, hard stop. Uh once you know, you're in f uh once I'm in full size. But yeah, like I said, extension from the mean and huge volume is my main indication for reversal.

Okay. So a few things. When you're readding, so say you're short, you've covered some into a wash, pops up a little bit, you're looking for a another lower high as you describe it. to re add short, but you're kind of waiting for it to like curl over a little bit before you do short it so you're not kind of shorting that front side pop, if you want to call it that. Okay.

When you talk about these volume extensions, you know, points where you will look to cover your entire position and possibly flip to a long. Extension from the main, I mean how are you determining what is the main The mean so I'll I'll use a few moving averages. Like I'll use for example, I think I'm using a 20 SMA on a five minute chart. So I'm looking at that one and as well as uh as well as uh VWAP, uh but for the most part

If the stock just extends and I've I've actually coded into uh my uh thinkorswim platform, but I actually don't use the think sw thinkorswim charts anymore. I used to have this code that um shows you know the percentages in in percentages how far it is from the mean and when it like kind of breaches a certain number I'll start to think about going long. But now I just

like look at it and and see if it's like way too far and it's just straight down, like really far from the moving average, then you know, I don't automatically go long. I I wait for the volume. I wanna see massive volume. Um and and that basically means like people are getting stopped out. Like people it's like max pain level where everybody's just getting blown out and the stock is

you know, there's not gonna be much more selling after that, after everybody gets blown out. So and then a little bit of an uptick and I wanna start in and add as it's working. So uh I mean it's probably fair to say you have a pretty good feel for these sort of things nowadays. Um, I mean... I mean is why you're not so reliant on the things you've coded to look at the actual percentage. Yeah. From

Yeah, because it varies from stock to stock, you know. Yeah. Uh like percentage wise. Um, but I I used to be a I I used to be more systematic and uh now I'm a lot more kind of reactive. Uh, I don't really think about like what exactly I'm gonna do. Uh, you know, I was actually telling my girlfriend, I was like,

I don't even know what to talk about on this podcast. I just kind of like I don't even know what I did today. You know, I just I just traded today. I don't I have no idea what I did today. Just an auto part. Yeah, so I I feel like with you know, with experience the more trades you you know, you put on, you kind of uh start to feel f feel, you know, these things. So I don't even know what I don't I'm not sure what moving averages I'm even using. Um, but as it's extending from it like really far,

You know, there's an opportunity. And that, you know, it's just about timing when there is an opportunity. Yeah. When you are flipping to long at these points, and I'm sure you don't do this every time, but when it it seems obvious to you. I mean, is it easy for you to just flip your bias like that? Like you've been I'm sure you've been holding a decent short position throughout a a decent chunk and then all of a sudden you're flipping to long.

Is it easy for you to flip your bias like that or is that something which has also come with more experience? Um, you know, it's just hard to h to sit through a pullback when it when it actually puts on you know, if you're holding and it the volume gets exhausted and it gets extended from the mean and it starts to come back.

you know, it's really painful to sit through that low and not cover any. You know. So now I just know that m more likely than not, it it's probably if it didn't bottom out on this candle, maybe next candle, you know. Um pretty pretty rarely it'll you know keep dropping. But uh if I do go long and it bounces just a little bit and starts to curl down again, I'll probably uh trim or even get out and see if If this is kind of an outlier move.

Uh but yeah, uh it's not that it's not I can't I wouldn't say it's difficult to flip to flip bias. Mm the only bias is to make money. So if I feel like the stock is gonna bounce then I I gotta go along. The only bias is to make money I like that. Yeah.

When you're talking about routes, you're talking about how you're sending your orders to the exchange, like which exchange you're routing to, right? So can you just go and say a little more like why is that why is that an advantage? Okay. For example, uh you're looking at the level two, the bid on the offer, and there's like

25,000 shares on the offer and it's printing it's printing some shares on the offer. It's printing thousand shares, thousand shares, five hundred shares. Um so normally if I'm just using ARCA. If I wanna sell on the offer, I would add liquidity on ARCA and wait until I get filled. And I'm gonna be the dead last person to get filled. Um if I have dark pools, access to dark pools, I can throw two hundred shares on ten different dark pools and see if I get tagged by one of them.

So and chances are I will get tagged by one of them. Chances are it's like Credit Suisse is printing on the offer. So I can just put my entire order on the offer and be the first one to get filled. So I I'll skip the line and I can actually get short on the offer and see if the stock drops. Okay, so it's a way for you to jump the queue. Yeah, exactly. Yeah. And those are the strategies when I came in, those are the strategies that uh

I I I saw Mike execute and I'm like I I was speechless. I couldn't I d I've never seen anything like it. You know, I've seen him execute like uh fifty thousand share orders on the offer, like skipping the line and then getting short and covering

at the midpoint, uh you know, those strategies they don't really work anymore. Uh, but we still do have access to those dark pools and aggregators and like I do use them from time to time. Like this morning I was trading um FCX and uh I was uh getting short with Morgan Stanley on the dark pool. So are you going to let's say you want to get short, but you don't want to hit the market, you just want to join the offer. Yeah.

Are you going to send I think you said before you might send two hundred shares to a dark pool to see if it gets hit. Um, are you gonna send that to like ten different dark pools and see Which one gets hit first and then pull your orders um on all the others? Yeah, that's correct. Exactly. Okay. So as soon as one gets hit then you're gonna reload and with your full size.

Yeah, so That's one way to get is one way to use that technology is to get short if you actually want to execute a position um and I want to like jump the line and you know I'm gonna see who's buying and then sell to that to that buyer. Another way is that if the stock is actually going up and I want to know is this a real buyer or is this just going up with the market or like with the ETF, that kind of thing? Um

So I can throw a bunch of orders to different dark pools, different aggregators, see who tags, and keep throwing it there. Is is he there? Is he still there? Is he still there? So I can be actually long. But I'll keep selling to him a little bit, different po you know, at different prices to see if he's still there. So for as long as he's still there, I wanna be long. Once he's not there anymore.

I'm actually selling my position and getting short because it's probably gonna roll over because he is the only guy who's buying right now and pushing the price up. Okay. And I'm just thinking about the time it would take to send it. like ten different orders to ten different dark pools. Do you have some technology which assists you with the Of course, yeah, one button. I have like 150, 100, probably about 150 hotkeys. So it's one button. 100. Yeah How many how many keys are on a keyboard?

I'm not sure, but I'm utilizing everything. I have like control Q is is one, but like alt Q is something else, or Shift Q is something else. What's your what's your most used hotkey? It's probably F two, which is just short the bit. Okay. What, the take the whole bid or how many does it short? Oh, it's just whatever uh quantity that you put in uh level two. Okay, so you gotta type that in and then you hit your hotkey.

Yeah, yeah, yeah. I use a scroll wheel to to scroll up and down to pick my size and I hit F two.

Next up is the one and only Sam Bankman Freud. This is a slightly longer clip but incredibly interesting and it comes from episode 177 recorded in 2019. Since then, Sam, an ex-Jane Street trader who went on to start trading firm Alameda Research and FTX Exchange. has been noted by Forbes as the richest person in crypto with a net worth exceeding twenty billion dollars. Yeah.

You know, the natural question would be, why was it important for you to be active on so many exchanges? Like what advantage was that to you? So the basic answer is that there are two ways to think about, you know, what exchange you would choose. One, if you think of yourself as a liquidity taker, is my goal is I want to get long Bitcoins. I just want to buy a bunch of Bitcoins, right?

And that's where you're saying, then first of all, it doesn't matter that much where you buy them. But to the extent it does, you just have to find the one or two exchanges where you can find the best liquidity, where you know you can buy everything you need without having much impact, without paying large. um and that it'll interface nicely with your system.

Another version of it though is like I'm a liquidity provider and my sort of role in crypto is to be on the other side of those trades and to take advantage of arbitrage opportunities that arise because of customer demand. And so a lot of how we think about our trading is not like we're just gonna buy a lot of ripples.

You know, what what we're thinking about is like, where do we see imbalances in in supply and demand? Where do we see a ton of customers trying to buy some asset and not enough liquidity? So the price is running up there maybe more than it's running up in other places. So it creates an arbitrage opportunity, but only if you're able to sell where the customers are actually buying, and similarly, buy where the customers are selling.

And so because of that, um, you know, as as a liquidity provider, it's important for us to be able uh to be out there wherever they're customers. And uh, you know, there is a lot of customers in crypto and they're not very centralized. Uh is, you know, as you might expect, a pretty decentralized space.

Um and that that applies to the jurisdictional and and sort of exchange ecosystem as well. And you have, you know, a lot of this is cultural. You have, you know, Chinese users on Chinese exchanges, you have American users on US exchanges, Koreans on Korean exchanges. Um regulatory. Bis zum nächsten Mal.

people get banking hooked up to their exchanges. Um then some of this is which products people demand and which exchanges have those. But because of this, you have a lot of isolated pockets of trading on different venues. And we wanna be there to provide liquidity on on all of those to the customers on each one.

How come you were interested in being a liquidity provider? Because you can trade. um arbitrage opportunities without necessarily being a liquidity provider. Like those are kind of two separate things, right? So I actually think that they're pretty interrelated. Yeah. And, you know, sometimes people use liquidity predator to refer like very specifically to someone who has a market making agreement, whereas they'll have like a certain number of orders out at all times or something like that.

But I think there's a more generalized version of liquidity providing, which just means being there wherever liquidity is demanded, being there to provide to customers wherever customers come. If you think about what are you doing when you do an arbitrage, you're buying low and selling high. Well, why is it higher in one place than the other? You know, if you're buying on BitSamp and selling on Coinbase.

Why is there a higher price on Coinbase than Bitstand? Well, there are a lot of possible reasons, but actually probably what's going on is some combination of, you know, there are customers who are excited to buy on Coinbase, or there are customers who are excited to sell on Bitstand. And

Actually, providing liquidity to those customers is often exactly the same thing as doing that arbitrage. You know, both of those are another way of saying you're selling to the customers bidding up Bitcoins on Coinbase and buying from the customers selling their Bitcoins on Bitstand. And by providing liquidity to those, you know, two sort of imbalanced supply and demand venues, you are actually completing the arbitrage. And most arbitrage arises because of something like this.

someplace where there is an imbalance in liquidity demanded between two different coins or venues or platforms or derivatives or something like that. And you're kind of providing, you know, sell side to the buyers and buy side to the sellers. And Probably the buyers are driving up the price, the sellers are driving down the price, and so you probably have done an arbitrage when you did that. Okay, so I guess when I

think of a liquidity provider. Like the first thing I think is they've got, you know, bids stacked on one side and offers stacked on the other side. You know, providing liquidity. Yeah, and we do do a fair bit of that as well. And but it but again I think these things are actually somewhat related. Like let's say we've got a lot of bids stacked on one side and offers on the other. Um, and now a customer comes in and and lifts one of our offers.

Well that offer probably was above what we thought a bitcoin was worth. Which means that probably we can go buy Bitcoin somewhere else at a slightly lower price, or at least that's our hope. And if so, we've just done an arbitrage where one lake that was was the liquidity providing. And and so I think that, you know, if you're providing liquidity successfully, you're probably doing arbitrage at the same time.

And the flip side of this is, and this is a little bit trippy, but but I think it's basically true. Um, you know, people always think about the liquidity provider and the arbitrager as the one who's. uh making and the the customer is the one who's taking. You know, instead of offering a Bitcoin at$13,005, I offer a Bitcoin at$13,000. Then a customer places a bid at$13,05 and I sell to them.

um is that really that different than if i just had that bitcoin offered at 13 05 in the first place like it's sort of the same result um but we flipped who's making and who's taking And now you can get rid of the thirteen thousand six offer if you want, and it's still sort of the same.

And what you end up seeing is that like there's actually a really thin line between making and taking when it comes to providing liquidity. And you know, yeah, you could have had a lot of offers out for them to lift, for customers to lift.

Or you could wait for them to place their bids, then hit their bids at the same price your offers would have been at. And sort of both of those are providing liquidity to the customers. And similarly, both of those are, you know, probably you think you can do some sort of

And so I think that, you know, while it is generally the case that liquidity providers are the maker and and customers are the taker, um, that needn't be true. There are places, and in fact there are a lot of places in traditional finance where for various marketing reasons that's not And the customers are the makers and the liquidity providers are the takers. And it's actually quite similar of a dynamic.

I think what might be interesting is if we could maybe go through as a liquidity provider as how you trade. how you would react to maybe certain scenarios. Yeah, absolutely. I I guess like this video I mentioned earlier where there was a a huge cell wall on a particular exchange. I mean, what are you doing in in that situation? I know someone can just go watch the video um for a much deeper explanation, but

You know, obviously there's large cell walls uh or buy walls, at you know, vice versa, it doesn't really matter. Um but, you know, when you see something like that, what's how are you reacting? Yeah. So, you know, the context here is someone sold about a hundred million dollars of Bitcoins on Binance the other day. Um, and they did it by just placing a giant offer for, you know, a hundred million dollars.

And so, you know, how do we react to something like that? Well, I would say a bunch of things go through our, you know. sort of think about a bunch of things at once. Um one thing is uh well who's providing to this customer and that's sort of the liquidity providing side of this. Someone just tried to sell a hundred million dollars and Like they probably can't just place an offer and immediately get lifted at the current market price.

You know, I I would not be excited to take on a hundred million dollar position uh at the current price and then have to figure out how to get out of that. Um so what's probably happening is they're driving down the price. Um, you know, whether that's happening because And and you know, there are a lot of ways you can imagine that happening. They just keep lowering their offer until someone lifts it, um, or they just send one giant offer at a very low price at the beginning. But either way.

Uh, you know, there's sort of this auction almost where they're auctioning off, you know, 10,000 bitcoins to whoever's willing to bid the most for them and seeing how low they have to go to get those those buyers. And so the first thing that I think about is, well, should we be one of the buyers?

You know, are they offering these Bitcoins at a price where we actually just want to buy them from the customer? And if not, what price do we want to buy them at? Like at what price are we like, yeah, we'll just buy those?

Um and you know in this particular case actually they they placed their offer low enough eventually that we did definitely want to buy them. And again, you kinda kinda see this like uh you know relationship between Tiggy and Friday there where there weren't enough bids out to fill this order.

So instead, they just placed it as an offer and waited for the liquidity providers to come in and take their very low offer for the bitcoins. Um so you know, the first thing is do we want to buy this? And once we decide yes, the second thing is well, can And the thing in crypto is that you don't have one balance sheet. You have a separate capital pool on every exchange. I can't spend my dollars on Coinbase to buy a Bitcoin on Binance. That doesn't work.

So the next thing we needed to do was get a bunch of capital over to Binance to buy this with. And in particular, the seller was selling it for uh what's called Tether USDT, which is a US dollar-based stablecoin. So the next thing we need to do is get a lot of tether over there to to buy these bitcoins. That's sort of a a somewhat crypto-specific phenomenon of like uh you know completely fractured uh capital base.

And it really matters where physically your assets are and you need to get them in the right place in order to trade. So the next thing we're thinking about is all right, we want to buy this now. Physically we have to do that. So we have to ship a lot of tether over there. And well, first we've got to find a lot of tether. So, you know, one of our trains of thought was like all of the different pieces that we needed to put in place in order to be able to buy these Bitcoins.

Um the flip side of this is that you know we want to hedge this trade. We want to find some ways that we're not very exposed to Bitcoin price. And so on the other side, we're thinking, well, okay, we know we're buying a lot of Bitcoins right now. Where are we going to sell?

Um, and so at the same time we were thinking about, okay, here's all the platforms we're on, here's sort of our thought of all these products. Given all that, putting it all together, uh, you know, what's the best thing we can do?

given both sizing and and pricing and things like that. And so simultaneously we were trying to decide, you know, what are we going to sell, where are we going to sell it, and what do we need to do to be able to sell the size that we need there. And so those were sort of the first two things that we were thinking about there.

Um and then maybe the third thing that we're thinking about is what's what does this mean for markets? Like what's this gonna do to Bitcoin? What's gonna happen when they place this order? What's gonna happen when it goes away? Like is Bitcoin gonna go up, gonna go down? Um and and that's a complicated question, you're never gonna be sure, but you know, sometimes you can kind of get an instinct on that.

Okay. So I guess maybe a silly question, but why did you want to buy this? I think you said the the offer moved down maybe a couple of prices to an area where you became interested. Um Yeah, but why were you interested in in taking this offer? Right. So I think that there are two ways to think about this. The first is like, well, we just looked at what price it was at and it was trading two percent lower than all other bitcoins in the world.

So there was just an arbitrage. And buying this and selling Bitcoin somewhere else, you just made 2% on that trade. Um set sort of the most straightforward answer to your question is we waited until it was offered lower than other bitcoins and we could do an arbitrage, and then we did that arbitrage. Josh. Maybe another way to approach this though is that it's not surprising that

Um, because this guy really wants to sell all those bitcoins. He's gonna have to keep moving those bitcoins down and down and down until we want to buy. um or until people like us want to buy. And so it's sort of not surprising that like ultimately his offer settled in a place where it did make sense for us to buy because

You know, that was the thing that stopped it from going even lower, was that we bought it up. And in fact, it wasn't just us, it was many, uh us and many people like us, all sort of racing to get their tether over to Binance to be able to buy these. And so we kept moving it down until it hit the price where we would be able to make money buying it and selling somewhere else. Right. So once you've just taken all these bitcoin

Uh, you have a pretty heavy long position. What's your next step from there? Like I guess you're immediately looking to see where you can sell these and offload them on different exchanges? So we do it actually at the same time. And so it's not so much that we buy all the bitcoins and then we're like, all right, what are we gonna do with these bitcoins? It's as we're lifting this offer, we're simultaneously selling in other places. Mm-hmm. Okay.

That also gets back to the capital thing. Obviously, they're not the same Bitcoins, right? They can't be because those Bitcoins were just buying on Binance gets taken, you know, it takes half an hour to get them anywhere else. Just as blockchain time. So we have to have other bitcoins in other places that we can sell or some derivative product or something, some way to be able to hedge this trade. And as we're buying these bitcoins, we're selling in other places.

Okay. So you're buying into this large Silwall offer from Binance. Meanwhile you're stacked on the offer on a bunch of other exchanges around the world. Exactly. Okay. Yeah. And now again, you can kind of see why it's an advantage to be on a lot of different exchanges, like all of a sudden we want to source a lot of sell size, you know, we want to be selling a lot. And we want to be able to source as much liquidity for that as possible to be able to hedge this trade.

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This following part comes from episode ninety-eight with Peter Toe. Peter is a former prop trader, now self-backed retail trader, and some may recall he also appeared in the best of trading psychology mix. But Peter's hair again because I really like this example of how he once discovered a weird inefficiency that he could profit from. and second, hearing about how the things he's witnessed and experienced have led him to what he summarizes as trading nihilism is just brilliant.

I started to gravitate towards penny stocks because of one particular um kind of glitch. And I wrote about this in my blog. I call it, you know, the uh It's called the ARCA low offer. It was on these OTC stocks where pre market, the market would cross on Arca. like ten to twenty percent lower than the previous closing price for no real reason. And then this would just revert back to unchanged at the open.

Could you just flesh that out a little more, just explain what you what you're referring to there? I know we'll we'll put a link in the show notes uh which references that blog post. I I I have seen it's a great post. All right, so let me let me start from the beginnings. I got attracted to the OTC because there were a lot of like scam stocks and junk stocks and pump and dumps and stocks that would just go up on Uh you know, just the silliest reasons and

The stock this the OTC is different from the Listit Exchange or uh the New York Stock Exchange slash NASDAQ because it's it's a different market. It's not an instantaneous electronic market. in the sense that you can just hit a button and get out of your entire position quickly. In the sense that you can ping the book

the bid and the offer and fill your orders instantaneously. It was actually a hybrid market where you had one electronic market where you could do that thing, you could ping the book and get instantaneous transactions. And that that was half the market. The other half of the market was run by market makers.

When when when it trades off these market makers, they actually fill you manually. A lot uh what would happen was that some quotes would not be honored, especially during e liquid rushes or bottlenecks, like whenever there's a panic or a squeeze, like If you try to ping a 100 share order from a market maker, you might not be able to get it. You pr you were probably too late. And they were slow to move the quote. So it made for a very inefficient market, kind of a weird little hybrid market.

So what I observed from these OTC stocks is that pre market. The electronic market was the only market you could trade on, ARCA, where it was instantaneous, just like a listed stock. And a lot of times on these pump and dump stocks. I don't know if they were deliberately trying to m manipulate the stock or or mark it down or get everybody to think one thing and then switch it up. It's all speculation, honestly. People always speculate on what the market maker's trying to do. Nobody's actually

Nobody really has a clue. But it happened, which is that say a stock was at a dollar and it closed at a dollar and there's no news on it, Arca would come in at like 85 cents. And you could just pay the offer and you would see the market makers who you cannot make a transaction with until the 9:30 open stay at$1 bid. So you're essentially buying a$1. Price temporarily priced at 85 cents.

due to this weird efficiency or whatever conspiracy theory you want to use to explain it. And this kept happening over and over and over again. And by the time it got to the nine thirty open and Arca I picked off all of Arca's offers. It would just remain a mark a normal market. It would be uh it would open at the roughly at the same um

prior close and I would sell to the market makers right away. I didn't want to wait until something changed. Otherwise a bottleneck could happen and it wouldn't get filled. But I would just sell it to them and it would it felt like free money. Like why is this person just giving me this huge discount that I can just unload ninety minutes later at the Well w at the um equilibrium price or correct price or fair price or whatever you want to call it. It didn't make any sense. It kept happening and

Without re I wasn't even really making money off classic ABC trading at that point. I was just making all my money off this market inefficiency.

So how long did that last for before that inefficiency closed up? I want to say a little less than two years. Then it bec st it slowly became more sparse. I just wanna say it didn't really happen on a day to day basis. special stocks that had unusual order flow. So it wasn't like I could do this every day and make all the money in the world. Yeah.

Now as we're talking about your trading style, uh this was something we briefly spoke about off-air, and I'm probably gonna butcher his name, but I think it's Jimmy Bellodemus. Bellodemus, something like that. I think that's right. You know, I've that I've never even actually heard his name pronounced. So I can't even I'm not even that's how I pronounce it. So I assume that's correct.

Correct. So he was a a prop trader who was in uh he was the only prop trader who was in Jack Schwager's most recent book, Hedge Fund Wizards. I know you read this book and and that chapter in particular, that that trader in particular, had almost like a lasting impact on you. And I know you wanted to speak about how that had kind of affected you and you you really liked his ideas on the conventional wisdom and how a lot of his ideas w kind of contradicted it. We'd love to hear Yeah.

You know, why you kind of resonated with what he spoke about. So the Jimmy Ballademus chapter, I looked it up. It was called uh Stepping in Front of Freight Trains. You know. It's a good total. Well, you know, you can read so many books and so many like trading memes off like highly followed accounts. And one of those memes is gonna be or one of those sayings is gonna be something like never catch a falling knife or

You know, don't never fight the trend, or the trend the trend is always your friend. And I'm sure that helps a lot of I'm sure that helps a lot of people, but Man, there are people just making money off these unconventional ways that defy all Um conventional wisdom. And I've seen it in real time. I've seen it in in chat in the chat rooms, in the prop firms that It gets to the point where I, you know, I've kind of developed this trading nihilism in the sense that it almost feels like.

The process doesn't matter. Like I mean it matters, but it's it's like you have to find the right process for you, which is such a cliche thing to say, and I hate saying that, but it's true. You really have to find the right process for you. And it could just it could be a process that's just so wrong to all the conventional business. And that is why I love that chapter in that book, because that guy did everything that people say traders shouldn't do.

He he would fight the trend. He would add to his losers. He would take profits on his winners. He would give himself a lot of leeway uh on trades. You it just it and I've you know, and I was told by other veterans in the prop trading industry, there are guys like that. There are more guys like that than Than than just him. He's not just this one of a kind Sabant trader. There are many guys like that. They love to fade big moves.

And and make money when the move when the market is clearly wrong, even though we're always trained to think as traders that the market is always right and how, you know, you'll you'll go insolvent if before the market corrects or all those sayings. But then you know, even in my own proper The best day that they ever had by far. was buying the shit, pardon my language, out of the the the fucking flash crash.

in like two thousand and and and and twelve and they put the firm in jeopardy. They put the entire firm in jeopardy and their attitude was it was somebody else's money. But they were like, fuck it, the market's wrong. We're just gonna do it and we're gonna make a bunch of money. And that ended up being their best day. Yeah. Uh you know, it's like what can you say to that? From like just from a judgment on their risk management. Is that right? Is that wrong?

Was that did they get lucky? Was that skill? I mean was I don't know. I don't I don't know. There's no right answer. And that's the that's like the difference between like gambling and poker. In gambling you have this mathematical framework Where You can pretty much say this decision is wrong, this decision is right, you know, calling this bet is wrong, playing this hand and blackjack was wrong, or et cetera. You don't really have that.

in trading. You know, so you can get you just gonna get completely lost in this hindsight management. You can get lost in wondering whether this once in a lifetime trade that will will never repeat itself for you Whether you should have played it the right way or not, because it's only gonna happen once.

It th this is not like a blackjack hand that's gonna happen several times in repetition and you can say, Oh, over time it'll play out like this. You have no idea how it's gonna play out because it's only gonna happen that one time and it's gonna be completely different that one time. It didn't I mean b because like I mean crashes happen over and over, but that crash is gonna be different. The nineteen eighty seven crash, Black Monday.

That took much longer to correct. But now we're in an electronic market where things melt up quickly and make back their gains on low volume. And so the flash crash was nothing like nineteen eighty seven. It were corrected the same like within two or three days, which is just insane to me. So it's like

In some sense I get lost in wondering what is the right thing to do, what is the wrong thing to do. The it's trading nihilism because so many people have done it the quote unquote wrong way that, you know, I feel like you gotta throw the book out sometimes. Yeah, I love that. I like that. Sort of breaking out of the mould. Um, I like how you described it as trading nihilism too. I think that's that's a really cool way to put it.

I don't even I don't know if it's affected my trading. Like it it's it's it's given me some good moments where like sometimes like I I would sh I would trade a certain way and I would write down in my journal, you have to do this, you have to do this, you have to trail in when it breaks VWAP.

You have to take profits when it moves a certain standard deviation from from its like opening range or whatever. And then there are times where I'm like, fuck this. I'm not gonna do that. I'm gonna hold everything because I think it's gonna work. And it's all gut instinct. And you know? And then there are times where I do that and it blows up in my face and I'm like, fuck it, I should've just I should have just stuck with what I usually do eighty percent of the time. It's like how can you

How can you write down in your journal whether you you did the right thing or the wrong thing? People are always saying, if you if you do the r if you did the right thing, it doesn't matter whether you you won or lost money. And that's true, but how can you tell? You know, it because it's not gambling, it's not poker where you have a clear framework to evaluate everything.

I'll now share with you a segment from my interview with Christina Chi. In twenty twelve, Christina and two of her classmates founded Domeyard, one of the few high frequency trading hedge funds. At the time of recording in 2020, it wasn't unusual for this Boston-based fund to execute more than 10,000 trades across futures markets daily. Yeah. Now this might sound like a bit of a naive question, but just for anyone who might not understand

What's the right word here? Might not understand what goes into building an HFT business, which is probably a lot of folks. What did you have to build? Like what took two and a half years? What were all the different components that had to be developed? There's so many. Um, you know, it's like pretty much

uh a type of we had to build the entire trading system and ecosystem from scratch. So everything from um because we need direct market access, right? So we're literally placing trades ourselves. um at the exchange level. And so because of that, we had to build a system, you know, order management system basically, system to be able to place orders, to see orders, to track orders, you know, to to figure out what's going on, to cancel things. Um and that also included

uh risk management tools that we had to um get basically verified by all the different, you know, brokers exchanges, et cetera. Everyone had to make sure that our risk checks were enough and that they were stable and that if there was a some Uh, you know, a crazy event that happened that um, you know, our systems wouldn't go rogue. And so we had different ways to check.

those types of strategies as well um to make sure that we didn't accidentally, you know, um tank the markets ourselves single handedly or make any big errors or mistakes on that end. So

So that requires quite a lot of work. Um it's very different from a tech startup, by the way. And that's one thing I've noticed was, you know, with tech startups, you can launch an MVP and it can be bare bones, it can be broken, it can be pretty bad. And and that's okay, you know, your clients, early stage day one clients should forgive you.

for that because they know you're a startup. When you're trading, it has to be perfect. You can't have any error, any room for error at that level because you're literally if you mess up you know, you're done for. You don't have a second chance in this space. So that kind of process of making sure everything was perfect um definitely took a a lot of patience and uh you know energy and effort and uh a lot of

you know, checks making sure all the checks balances, whatever else, you know, was in place as well. Um, yeah, so that that was a big thing. And then um, you know, how do you process data, right? It's another big question of uh what are

Well how do you get the data that we, you know, we wanted and we had data directly from the exchanges, but then how do you process that data and turn that data into uh an actionable, you know, some kind of uh value that we could extract from it? And so how do you do that as well? You know, that took uh a lot of time to figure out and to process and to and then you know data pipelines would they would always break. We would always have some kind of issue that happened. And so

um figuring out how do we timestamp that data, how do we process that data was also a big uh question that we would have in mind as well. Yeah, in general it's a it's It's quite a nuanced process and it it just had to all be relatively perfect on day one or else um you know, a l no hedge funds rarely get second chances, I would say, unless you have unless you're famous and uh your name is already known and or you try to make yourself known. But um back then we weren't so

Um, you know, we literally just had one shot and um knew that we couldn't mess it up. So a little kind of scary, but um we're uh we do feel fortunate and lucky to have made it this far today.

And saying that, what gave you the confidence you know, after two and a half years of building this out, that when it came time to switch everything on, what gave you the confidence that the strategies were actually going to be profitable? Oh man. Uh to be honest, we we didn't. It's hard to say. You can do as many back tests as you want. We had a simulator as well. You could we could simulate, you know, strategies and orders and fills basically uh in the live environment too, which was great.

But um even then, you know, it's hard to replicate a hundred percent what's gonna happen in reality. So Um We did as much as we could, test as much as we could. And then one day, I remember the first day we launched, we were just kind of like, you know what, screw it.

Let's just trade. Let's just do it. You know, we gotta take her we were very risk averse at the time too, and we're scared, you know, to do something we've never done. And we're just like, you know what, let's just let's just try it, turn it on, see what happens, and hope for the best. And uh that's literally

you know, what we did. And uh thankfully things didn't blow up on day one. Thankfully nothing, you know, crazy happened and we were like, okay, this is great. Actually we could, you know, we figured out, you know, we needed that kind of feedback from the markets and um were able to fine tune the strategies even more and um just continued going from there. So

Um, but yeah, it was definitely a relief to finally have launched and to be able to tell people, okay, we finally launched. We're no longer uh, you know, felt like I was a fraud all the way up until we launched. And so we're like, Oh, we're finally a real hedge fund, you know. we can uh have a real track record to show people, which was fantastic. You're in business, yeah. Just recapping those first few years, looking back on it.

What would you say were some of the, you know, the breakthrough moments which you had and also some of the unexpected challenges which you came up against? Oh, there's so many. Um, I don't even know where to start. I would say like when we first started the business.

Uh, we wrote down, you know, some of the things that we wanted to save money on and some of the things that we wanted to spend more money on before getting to launch, uh, because we had such a limited budget, but there were some things that were worth. uh hopefully, you know, we thought we're worth spending some money on like a good lawyer is a good example, or maybe finding a good broker, you know, uh like someone with reputation as well, auditors, et cetera.

um we could splurge on and then you know things that we valued like we wanted to be a flat organization. Uh back then everyone was called partner and uh you know see and then it actually did not go too well and I have so many reasons for that. And um we wanted to have perks.

almost like we I don't know, we're a bunch of naive kids, right? So we literally thought about like, let's make this like Google, like a Silicon Valley company with like free food and unlimited vacation and all these great perks. And we quickly realized like that those are both really bad ideas on the organizational side. Um, you know, you don't want to call someone we hired like literally like head of HFT from firms like Citadel and uh you know Gecko back then and other firms. Um

And a KCG back in the day as well. And uh they would come in, they'd be like, wait a second, you know, why do I have the same title as this kid who graduated, not, you know, not necessarily me, but like, What about this kid you just hired, right? Who just came out of school? You know, why is why is he or she called a partner and we were like, oh gosh, you're right. You know, um we realized that.

Um people actually felt less equal because of that rather than more equal, uh, which was pretty bad. And then um in terms of perks as well. It just didn't work out. You know, people have used the perks like crazy and uh it was kind of unfair. It made it more unfair and gave people kind of almost giving people too much choice sometimes is a bad thing. So

Things like that. And then, you know, also splurging on things like lawyers and brokers and stuff, we realized quickly that um it also wasn't worth it to hire just the biggest companies out there. Um, you know, that it's okay to go for a smaller as a small hedge fund.

that uh, you know, it's okay, your investors aren't gonna look down on you for hiring a a smaller lawyer, you know, so long as they are still qualified to do their job, right? Um, so just things like that we made a lot of mistakes on. Um trying to think of what else we

We did so much wrong that it's just hard to even begin to um imagine. So I'm just trying to think of what else there was. Oh, I mean we had a settle we started off in my apartment actually after graduation. Um we worked in my apartment for some time uh until we were kicked out, we were evicted.

And uh the reason why we were evicted was actually kind of a random reason. Well, the cops knocked on my door late at night. But um what happened was the uh oh, we were we had built our server cabinets uh literally in the closet of uh one of the like the master bedroom basically.

uh and we rigged our own electric, you know, basically we rewired the electric system and built our own box and stuff. Um and I think uh Jay Wing, one of my my co-founders, he actually electrocuted himself in the process. So we were clearly uh not experienced at all.

we should have hired a, you know, a unionized, I don't know, person ride to do this. So we were doing some pretty sketchy things. We ended up, you know, we're trading so much. We're having we had so much going on on the server side that um we were literally using up all the electricity in the building.

And uh you could also, you know, people thought that we were like we had a marijuana farm or something. Like literally people thought we were running some kind of marijuana farm. And so that's why the cops knocked on our door thinking like they're expecting to find us.

growing pot or something or, you know, harvesting drugs, whatever it was. And they came in, they're like, wait, what is this? And they saw there's computers and monitors everywhere. And they're like, what? Yeah, are you guys some genius hackers? Like they thought we're hackers. And we're like, no, no, no, no, this is

you know, this is a small business here and uh, you know, I did live in the other bedroom. So technically it's my home my home business, right? And uh and they were like, No, this is not gonna work. You gotta you gotta get out of there and get a get a real office and then um the next day we literally packed up and

um moved to uh WeWork. Uh back when We work first opened in Boston at the time. Our rent shot up. We were we used to pay four thousand per month for rent. And then at WeWork it was twelve thousand per month. And uh this is three times as much. And the room we were stuck in, uh, you know, we work they pack you like sardines in these tiny little rooms. And literally um it was the size of the c server closet that we were um that we had at the apartment. So it was just

what a crazy just a turn of events like that um that really changed, you know, changed the environment and stuff. But lots of adventures like that that we were willing to go through and, you know, finally we're very lucky to finally get to a point where we could launch, I guess.

Now, Ryan Hassen on episode 210. Ryan is a senior trader at SB Capital, joining the firm in 2016. He's best described as an intraday trader, however he will also take an occasional multiday swing when there's a larger theme at play. Yeah. What sort of things were you trading in the beginning? And this is gonna lead us into obviously the sort of things you're trading now, but where did it all start for you?

Sure. So so in the beginning, because I I never knew who I was as a trader, um, I decided that I was gonna trade very small size and I was gonna trade everything. So by everything I mean I was in a trade, you know, large, medium, small caps. I was in a trade on the long side, the short side. I was in a trade stocks in play, so stocks, you know, that have elevated R vol.

uh breaking news trades, mean reversion trades, also new trade, low floats, IPOs, and and everything with small size. And small size because, you know, all the senior traders had told me that You know, as a new trader, you're gonna go from losing to losing less to breaking even to making money to making more money. So I decided, well, you know, by the time I figure out what I'm doing, I don't wanna have a hole. So let's experiment with everything for

Three to six months, let me record all that data. And after six months, I'll be able to analyze that data and figure out. Well I guess let the data tell me where there are some signs of edge in my trading, um, be it long side, short side, both sides, you know. And then Mm. small, medium, large caps, what time of day, um, and what particular setups, et cetera. And so that's what I did. And, you know, every day I would play book.

you know, the best trades that I made, the best trades that some of my uh peers that I started with made. I would do anti playbooks so I could, you know, document what I did. you know, wrong, which was more you know, I had more of those playbooks than the good playbooks in the first six months.

But I learned from that. Um and then uh you know, asking the senior traders, hey, what did you trade? What did you do well today? Um and then document that and sort of analyze their trades so I could kind of pick that brain in that sense. Um and then after six months. Um I analy you know, give or take six months, I kind of

looked through all of my data on TraderView and I found that um I wasn't making money trading large caps. I wasn't making money trading, you know, uh large caps earnings or breaking news. But I was making money consistently trading low floats and specifically on the short side. And so I decided that for the next six months I was only going to focus on low floats and I was going to

really learned everything that I could about trading low floats from building out in-depth playbooks, documenting, you know, high-edge and probability setups. I was going to understand the psychology behind the moves. Um the technical side, fundamental side, how to read the SEC filings, understand different forms of dilution. et cetera, et cetera. And and so that's all I focused on because I wanted to now show that I had edge. I had found edge. I uh was consistent. I could be profitable and um

and and slowly bump up my size and risk uh in the process. And so that was the next six months. of trading and so that's what my first year looked like. Yeah.

This might sound like a really simple question or a really uh obvious answer, but I think some people might appreciate me asking this. How do you get a sense for when a sector is beginning to heat up? It's it's a really good question. So what I do is And and I I'll give you a pretty simple answer too. Um it's from talking to other traders.

and sharing ideas and hearing the ideas. Often all the traders, you know, when many traders start mentioning the same symbols or the same, um, the same theme or sector, you know that something

you know, there's just a lot of attention, a lot of traction. Looking on Twitter, how many people um on Twitter are starting to talk and and get a bias around particular stocks and a sector, having my um certain scanners and filters and seeing um a bit of a irregularity of of how many names within one sector are performing well on the day. Um, and also looking at the volume traded within, you know, a basket of stocks in a particular sector, are they all trading abnormal volume?

Um, does it look like someone is starting to accumulate a position and then keeping keeping an eye on on those stocks for a couple of days until you have absolute confirmation that okay, this is

You know, this is this is turning into something. Obviously with this theme, Bitcoin, you know, that that was really obvious because it's Bitcoin and the whole world's talking about it. But with other themes, that aren't so obvious um would be it would be what I just mentioned, you know, talking with traders, um, having all of the relevant stocks in a basket so you can track them each day and and see if they're Trading abnormal volume and percent gains on the day and just keeping track of them.

Next in line is Nick Fabrio from episode 164. Nick is a talented, active trader with a bias for short selling and playing catalysts on the Australian stock market. It was tricky to extract a standalone clip from our interview, so I suggest you just go back and listen to the full thing. But this short recap of a specific trade is actually a great example of how reactive day traders can exploit unique opportunities.

Yeah, I guess that's the good thing about day trainers, there's always so much happening and you can always Each day's a new day. Yeah. Yeah. Uh is there been any other trades recently which maybe checked all the boxes again, which um, you know, was a a good setup that you would take any any day of the week?

Yeah, there was probably that uh ISD trade which um I think the ASX made a mistake. They released um uh some price sensitive news as non sensitive. Um and I just saw it straight away and bought Uh and then the thing went from like I think I bought it at seventy and a half, I kept adding to about seventy five cents. And then uh it went up to like

uh eighty three cents or whatever and I I held that one pretty well. Um so yeah, I guess the catalyst there is news and I've just got speed of execution. Um saw the news quickly. Yeah, uh shoot first, ask questions later mentality. What was the news on that? Uh it was just uh they reaffirmed their um their four year guidance and it been a stock that had like been constantly downgrading, downgrading, downgrading. So

my like quick thesis in my head was, uh, you know, the downgrades have stopped now. So that can only be a positive thing. So I was yeah, tilted. Like my bias was to the upside, so I just bought Okay. So you said I think you said you bought it seventy cents initially. Seventy and a half and I added so I had an average price of around seventy two, seventy three cents, around that. Okay. Okay. So how did you add going up to was it 75 cents when you stopped adding? Just lifting offers.

Yeah, but like what the entire offer or It wasn't like super liquid. There was a so I remember there was a drip seller at seventy and a half when the news hit. So you could have got like a decent amount of liquidity on that iceberg seller. Um and then he lifted and then once he lifted, I was like, Oh, okay. So there was like maybe fifty thousand shares between seventy and a half and seventy five cents. So I just kept adding, um and then I went to sell some at seventy four. I sold like

I try to sell maybe like one fifth of my position there or something and I'm like, crap, what are you doing? Like this is dumb. So I cancelled the order, some other seller came in and I bought it. Uh Again and then I added seventy five I think from memory. And what are you doing when you're When you're in a tr in a position like that, are you just doing market orders?

Uh yeah, but I'm doing it all manually. So I'll just have like a bunch of buy tickets up and I'm uh adjusting the um the price with it. So but I'm not like I'm not sweep I wasn't sweeping the the order book. I was just taking them as the bid is stepped up. Like in front, so mm-hmm. And what if that trade hadn't have worked out like what was your exit plan in that sort of situation?

There was a fair bit of um fair bit of liquidity there. Okay. But I at that point, like once I saw how quickly the buyers stepped up, like I just knew I was right, it wasn't gonna go down. So This following bit is taken from episode two hundred and thirteen with John Robertson from Kirschner Trading Group in Austin, Texas.

John originated as a discretionary click trader in two thousand seven, but over the years has automated more and more. In this particular clip, John retells a nightmarish, account draining, pull the plug moment. Yeah. You know, once you kind of moved on from that and started to do uh build this out a bit further and automate more things. What proved to be rather difficult? I mean, you already sort of gave that example where

Um, you'd given a bunch of instructions to the developer and you'd done exactly what you asked for, but there were things which you hadn't thought of. I mean, was there anything like that which, you know, went on to to cost you money? Yeah, so very very frequently stuff like that would happen. There was one Oh gosh. Yeah, I guess it's it it's sufficiently related. I was the the silly way of putting it is that I I am a conspiracy theory on zero.

What was it? It was September 2013. In September 2013, so I had this. This was actually a generic stop loss. This wasn't even um this wasn't even a particularly interesting stop loss. And so this stop loss. Got triggered. Um, I was in Chevron. I don't know. I wasn't even in that much. I was like, Mm. twenty five thousand shares or something. So I'm in like 25,000 shares of Chevron in uh in September 2013, and this this stop loss gets hit.

And so I had always been obsessed with risk. That's that's probably the one thing that I'm really good at in trading is I I I can take a loser, like I've got a real strong chin, and uh and I'm really good being obsessed with like what's your edge, what's your risk reward? Um, what what are your potentials to have a a big tail loser? Um, how do you mitigate it? That kind of thing. And so I talked to the folks who were in the software.

about what the risk limits were. And I'd set my risk limits really, really low. I mean, it was like I want to say it was single digits percent of my account or something like that. And it was like whenever I lost that much, it was just supposed to completely shut off and I wasn't supposed to be able to trade. Um, unless I sort of called them up and said, let me trade.

So um my stop loss gets hit and the stop loss started acting wild I started acting wrong for sort of some complicated reasons, but the but the basic but the basic net effect of it was that Uh I think I was short. And so what it would do was it would cover the short, okay, but then it would mark it by the same amount again. Okay. So I'm short. 25,000 shares and now not only did I cover that 25,000, but now I'm law.

Then it decided, oh, well, I'm in a new position, so I got to get out of that. So it sells the 25,000 shares and then short sells them again. So now I'm short 25,000 shares. So it does this recursively as fast as a computer could do it for 7.3 seconds. During which time it lost a pretty significant amount of money. Um, I mean, it basically zeroed out my account. I think I had six grand left in my account or something like that.

And it was, I'm very grateful the the guy sitting next to me, I'm like, I'm like looking at my screen and my screen is just doing weird things. And the guy next to me is just like, he's like, pull the plug. Uh and so We uh So I I managed I I managed to stop it only because my friends said. what's the word, the the composure uh to tell me pull the plug, you know? And so so I did that. So that was that that was a big loss. I'd had a bunch of those.

Um and the and the basic lesson that I figured out was If you're a trader, what you really want is you want to control every single thing that can possibly affect your PL negatively. So, like, I don't mind if somebody else, if let's say I have some interface, right? Like I have a backtesting interface. If somebody else writes all of the code to print the chart on the backtesting interface.

then I'm he can write that and I'll just barely test it and whatever, because that doesn't actually directly affect my PL. Um, but if it is a risk limit that should have been triggered, right, the moment that I hit whatever percent of my uh of my account, the moment I had lost that, it should have stopped, but it did not. It didn't, it didn't work right, right? So I figured out all of that has to be a hundred percent under my control. I can't trust anyone. Well. To write that.

And so I think I think that became the most important part. And so from there I started figuring out how can I write everything for myself? How can I write my own system? the whole way down, uh anything I can't write for myself, like, you know, you can't create your own data feeds. Um you have to buy them from someone. Anything like that, how can I put in all these tests, all these redundancies to make sure that they're not messed up?

to make sure that if there ever is an error, we're, you know, we might lose some money, but we're not going to lose our account and we're certainly not going to lose the firm. Okay. So just for some clarification here, this stop loss which went rogue and was buying and selling just as fast as it could. What was that stop loss? That wasn't something that you had you had built that was a like an an order through your trading system or your your platform or

Yeah, yeah. So part of it I had had built for me and then part of it was just sort of built into the platform and I was just kind of stuck with that, right? And so the thing that I had built had mistakes in it. Uh however I thought You know, foolishly. Mm-hmm. I I thought I thought that when when we finally hit that mistake, I have so many other things in place um that it'll be okay. And so it So it had a mistake and then there were mistakes there were mistakes at like nineteen different levels.

Okay. And uh and they they they all kind of it it was sort of like I think I've counted it out and yeah, it it was in the teens, the number of things that all had to go wrong simultaneously. Um, if any one of them had not failed. than uh then at some point the the risk would have been stopped and I would have just lost, you know, twenty grand or seventy grand or whatever.

Coming up next, a clip from episode one hundred and eighty-two with Nico, also known as Inefficient Market on Twitter. I guess you could say Nico is almost the poster boy for Perseverance, as it took him near eight years to hit his stride as a day trader. Which actually made for great conversation in our first interview, see episode ninety six.

But those days are long gone, proving full-time trading wasn't just a pipe dream. Today Nico is trading with seven points capital and heads up the firm's San Diego office. Yeah. One of the things you highlighted there was kind of having a bit more patience and almost timing your entries a little better. uh, which is maybe perhaps one of the things you've fine tuned over the past three years. And this is one of the things which really impresses me.

about you is when you post like um you know some of your trades on Twitter, uh, which you uh plot your entries and exits, you know, how you how you traded a particular name. uh is is just how well you actually time some of those entries. You seem to get it. uh y you know, you seem to just be getting in at optimal points. How do you uh obviously not in all cases, but you know, when you get it right, you really do. What are some of the the ways which you

have helped you to better time your entries. Like is there certain things you're looking for in the tape or uh, you know, do you have a rule of thumb for, you know, how extended these stocks are or What helps you to better time your your entries? Sure. So back in twenty sixteen, around around then, like I said, I was seeing consistency, but I'd often be too early. And

You start looking over your executions and you start going, man, I really got squeezed pretty good on that one. And oh man, I got squeezed on that one again. And you know, you start saying that over and over and over again. You start looking at the data. The numbers don't lie. The stats are there. The the data doesn't lie. And I found, you know, God, I'm really early a lot of the time. If I would just remain patient, there's a certain point where the chart It's just

begging you. It's just it's like as though it's talking to you and it's like Right now, like of all the moments, right? You've been staring at this thing all freaking day. You've been watching the tape all day long. You know, you're being patient and you're like, I'm not gonna get involved yet. And I'm not saying I do this every day. I I you know, I I slip up all the time, but my best trades

are definitely where I have the discipline to remain patient and not get involved too early. And I'm waiting for that moment. The reason that's such a huge edge. Is because that's where you can put size on. So if you see the tides changing. In the market that you're trading, if you see the shift, the turn, so to speak, and you see, and you're going, wait a minute. All these buyers that have longed all this volume all day long so far.

I'm pretty sure they're gonna start selling, you know, I I know if I was one of'em, I'd f I'd pretty sure I'd take that signal as a sell and I'd be looking for the exits. If I'm not involved to that entire point to get there. Now I'm clear headed. That's a huge edge. Huge edge. If I'm involved early on.

I'm focused on getting bent. I'm focused on I'm in the red. I'm focused on my size. I'm trying to get small, but I'm too big and it's going against me. I'm focused on losing money. I'm focused on all this stuff. If I can avoid all that and just not get involved and go, you know what? If this sets up, if this turns up into this. If it does that, it will be a mega opportunity. Like the opportunity will show itself if it gets there. You know, who knows? No one's got a crystal ball. But oftentimes.

You see wild things happening. And if you focus on, you know, I want to focus on being a market timer. I want to focus on avoiding being early. I don't want to be involved. I don't want to have skin in that trade. And like I said, I'm not doing this every day. Sometimes I'm you know, sometimes I am, sometimes I'm not. It's it's a moving target. But my best trades are are when I have the discipline to stay away until

The tape in that chart is just begging me and I can't even help myself and I'm just I just get in there. I just, you know, you're just seizing the opportunity. You're it's like um something. It's like you've you've seen it so many times, so on a subconscious level that You've seen it so many times on a conscious level that when you get back into that moment and you're not involved, you have a clear head and you're just willing to go full risk on it right there in that moment.

I mean, that's cause you're not even trying to scale because you think that might be the turn. Uh those are the best ones. Those are the ones that I I'm not even saying they're perfect, but I mean those, you know, nothing's perfect. You always wish you had more size on when you're right and less size on when you're wrong. But those are the trades that make being a market timer, I think, really challenging.

I know some people are going to listen to this and they're gonna say, Well, how do I know if I'm too early? It's like it's one of those things you literally cannot even describe. Right. Like I could literally try to describe it for you, but I'm not sure that would have any relevance to like I mean, we're we all have different per like I I I can't I won't even bother trying to describe it. It's just all I can say is you will know. Like the the chart and the tape will just

be screaming at you like now, now, now, now, now. Like it's it's like that it's this tiny, tiny, tiny window of time where If you got involved with the amount of size you want to put on at any point before that.

You'd be upside down and trying to figure your way out and you'd be fighting the thing and you'd be Or you'd be taking a ton of small lot paper cuts on the way up and before you know it, by the time the the real opportunity came, you're already down multiple more R's than than you you wanted to be. It it it's that small window of time staying uninvolved. You're not involved, and then it's like

I don't I just don't know how to describe it. It just the chart the tape, it's like you see it in real time and you're going now, now, now, now, now, now. And a lot of the time in those

influx moments, it's it's a lot of the time it's like these sharp reversals where a bunch of sh a bunch of stops will go off and it'll help kind of the tsunami move turn into a bigger tsunami. And If you pick your spots right, what I like to do when I pick these spots is I'll like to what I call slip into them where I'll I'll um basically stop my way into them, stop entry and get bigger with more stops as it's going in my favor. And the other advantage to that is is

You know, bringing my aver you know, if I'm shorting it, it's bringing my average down of my position. The great news is, and everyone wants the best average, I get it, but the great news is is price is going in my favor. So I'm only getting bigger. Going in, you know, the direction I want it to go. Um, and and the fact that there's an influx of stops helping create that.

That explosive move, uh, just makes it even even better.'Cause those are the moves that really scare the longs, make them want to turn into sellers. That's basically it.

Finally, closing out this episode is a snippet from the widely popular Episode 39 with Tom Dante. Tom is a well-experienced futures and FX trader, and in this snippet he describes what he's looking for when it comes to day trading opportunities, one of those being trapped traders. Yeah. Tell us what are you looking for and how do you identify opportunities?

Okay, so um on any given day I have certain things that I look at. So I look at, for example, basic support and resistance levels um in the market, like on the higher time frames, like weekly and daily. I also look at them on sixty minute charts and I look at the basic structure of the market. So where are, for example, major trend lines, where are the major Fibonacci retracement points?

And what I try to do is I try to um map the market and essentially what I'm doing is I'm trying to play the market from one level to the next as it were. Um but The big thing with me, what I think about a lot of the time when I'm trading is where does the market have to go? to facilitate trade because that is all that the market is there to do. So I try to think, where's this market gotta go? Where's it got to

to try and advertise for a larger amount of buyers and sellers than normal. And I find um that a lot of the time the best trades often really kind of fall in the face of what you would expect. So for example, um I like to see a resistance being hit multiple times and then I like to see price just Stopping and just going quiet and just trading very quietly just underneath that resistance level. Now when I see that, I know that that's often a really good opportunity to try and buy.

But a lot of traders will look at that and they'll say, a resistance level hit multiple times, that must mean the resistance is really strong. And now price is just stopping just underneath it. That means that, you know, the the the market is running out of steam. Uh there's no momentum up here, and we're about to roll over and go to the downside. And so they get short. In actual fact, in that kind of situation, the market is often not very likely.

to probe above that resistance area to try and take stops. It will try and get traders up there to initiate and buy the breakout. And it will try and get the shorts to puke. So it will try and probe that area. Um note that I say probe, not breakout, okay? Because a lot of people, even if they do get the idea right that we're that we're likely to trade up through that area, they get shafted expecting a 200 tick.

So they buy it as it goes through and they get caught. So what I like to try and do is a lot of time try and anticipate that the market is going to break out of a range. And oftentimes I will take a position in a range. And it's weird because I found that to be highly effective over the years, but it again it flies in the face of what a lot of people are taught because a lot of people will say, well, you know, you don't buy in a range. You wait for price to confirm before you buy.

But but oftentimes once it confirms it's too late. So

That's just a g kind of that's one of the things I look at. Um, I'm I'm very keen on finding trapped traders, traders that get caught. Um and you often see this at at kind of uh key reference points on the charts like major swing highs or swing lows. Um And I like to try and take advantage of them. In fact, one of my actual favourite uh setups is when you get a large gap on the open. That's why I'm always watching the the Sunday night open, particularly in forex.

is when you get a large gap and the price travels in the direction of the gap. So for example, if we gap up and the market starts then exploding to the upside. And then we get an auction failure beyond the big reference point. So for example, it pushes up, we get a big uh key swing high, the market breaks that swing high, but can't close above it.

And so we we've got failure up there. And when I see that, particularly with an open gap, um I will usually look to fade that uh that market momentum back towards a gap. And it's just one of the setups that I see a lot of which has a you know which has a very high expectancy. Um but the thing is the market. It's inherently curious. That's something that

You have to understand as a trader, the market is just very, very curious. And a lot of the time, um it needs the comfort of knowing what is beyond certain areas before it can move with confidence. in in in another direction. So for example, a lot of people say uh they'll notice that the market will break a support level before it can rally, right? It needs to break the support level to know

Is there any sellers down there? Is there anyone doing business on the short side? If there's not, great, we can move to the upside now with confidence. Um But the market, you know, the a lot of the time the market likes to probe these areas. It likes to see what's going on before it can move. And that's what I'm that's what I'm looking for when I trade. I'm looking to see what is going on at these areas. Um are people getting caught?

um getting caught short, getting caught long, and and and what is the what is the market doing um based on what everybody thinks it should do. So to give you an example of this, sometimes you get um you get sentiment, right? You get very strong sentiment on a market.

So let's say for example, uh well i there's a good example the other day in the Bund, right? Now the Bund had broken on a daily chart, it had broken a key swing low on the daily timeframe and it closed below it and it was a very wide-ranging down day. Now I have my ear to the ground. Uh I'm I'm listening to other traders. I I use Twitter a lot for this.

And I'm I'm listening to what the professional traders are saying. Um and again going back to prop, what are the prop traders, the guys that I've worked with that I know uh make a lot of money, what are they thinking about this market? And I would see that you know the vast majority of them are bearish. Right now that gives me information that the professionals, the guys trading size, think this market is gonna go down. So now what I'm really interested in is what the market does.

And then on that particular day, you'd see that the market just could not break lower. It just couldn't go. And that was a really interesting sign and you get armed with a lot of information there because if people are if the chart is technically very bearish and the sentiment is very bearish, but the market won't break. You need to be long. You need to be looking for a long. And you know, if you're not long, well, okay, fine, but God forbid you're short that much.

So um I try and take on a lot of information uh from from different angles to try and make a decision. But in short, could to kind of summarize, I'm looking to find out, I guess. where um where traders' pain thresholds are and try and really capitalize on them, which is not a very nice thing to say. But if you can take advantage of a trapped trader, you can, you know, there's there's money to be made there. And people, you know, people get caught.

on a daily basis and it's it's not too hard to tell once you've studied the market what the signs are when they're likely to be caught.

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