Mystery Man Moving Japan Made More Than 1M Trades (2014)
bloomberg.com
bloomberg.com
I always felt that being single and without dependents gave him an edge. I was never comfortable not having a really really safe hedge as a stop loss. Of course it could be I was just too chicken to "go big" :-)
[1] The Boxter from Porche was going for about $50,000 each at the time.
Conversely, it is possible to have more winning trades than losing trades and still lose money overall.
I have know two Day traders in my life. One blew his inheritance on day trading, and is currently living in his van. The other, I met in a bar. He wouldn't give out much information, except he was always bragging about this office electrical grid is on the same main feeder that supplies San Quentin. I haven't seen him in years.
So yes, I would love to know the truth about this line of work, from someone who has actually done it? I don't expect details, or any incriminating information. I see so many people loosing money on Stocktwits daily? I all looks like gambling to me--so much so, If I got into the game, I would seriously consider being a contradiction investor.
You have to learn to manage your own psychology, so that you can stay calm under stress and minimize errors. This is far easier said than done. In particular, you have to overcome certain human instincts we have regarding risk. People prefer a small certain gain to the possibility of a much larger gain in the future; conversely, we will accept the possibility of a large loss in the future in order to avoid a small but certain loss now. Both of these attitudes are ruinous for traders.
Most people have to have a system -- perhaps, multiple systems. A system is a set of rules for buying and selling that give you a statistical edge over the market. Here is an example system. This is only an example -- it will not actually make money. Do not try to trade it! You take two moving averages over two different time frames -- say, the last 15 minutes and the last hour. When the shorter-term average goes above the longer-term average, you buy, and when it goes below the longer-term average, you sell. Systems get much more complex than this, but perhaps this will give you the idea.
A completed trade gives you a gain or loss proportional to the amount of money you placed at risk (let's ignore commissions and slippage for now -- they're usually minor). The amount at risk is normally controlled using stop orders, which close the trade automatically if the price trades below a specified level (or above a specified level, for short positions). Call the amount at risk, R. Then the result of each trade can be characterized as the gain divided by R; this is called an R-multiple. A trading system, when used repeatedly, generates a distribution of R-multiples, which can be characterized by a histogram; a typical system generates a lot of trades between -1R and 0, a smaller number between 0 and 1R, a still smaller number between 1R and 2R, etc. It's possible for systems to have win rates (the ratio of winning trades to losing trades) less than 50%, but still be profitable because they generate enough multi-R gains.
Once you have a profitable system, you then have to decide how much to risk on each trade. The more risk you take, the larger your potential profit, but also the greater your chance of a significant drawdown if your system generates a string of losing trades -- as it will from time to time. Risking between .5% and 2% of capital on each trade seems to be the usual range AFAIK. If that doesn't sound like much, consider that a day trader may make 4 or 5 completed trades per day. If their system has a .5R expectancy (average R-multiple) and they risk 1% per trade on 4 trades, their expected gain on the day is 2%. With compounding, and given 20 trading days in a month, such a trader can make almost 50% on their capital per month. This level of success is very unusual, but not unheard-of.
And if making 4 or 5 trades a day sounds like you would spend a lot of time just sitting around watching the markets and waiting for the right moment to strike, then you have the right idea :-)
[0] http://www.amazon.com/Trade-Your-Way-Financial-Freedom/dp/00...
How does one determine the 'true' value of a share of stock? — what is the current perceived market value of that stock and how are anticipated influences going to change that perceived market value?
I don't trade as I believe it's a bit rigged in favor of HFT & hedge funds with deep insider sources. [1] [2]
I'd recommend investing in tangible business assets and infastructure. Do something real, make real things happen.
[1] http://www.washingtonpost.com/blogs/wonkblog/wp/2013/09/24/t...
[2] http://www.zerohedge.com/news/2013-09-20/gold-einstein-and-g...
* ZeroHedge is an introduction to the insane culture of stock trading.
It's possible he had been spoiled by the big bull market and didn't know how to trade successfully in a bear market. Different tactics are required.
(Human beings are great at finding patterns that aren't really there)
Wow. Such an error could easily have been detected by software before the order went out. Does a professional trading company really not do any order sanity checking at all? I bet they do now, ha :-)
Fat finger trades like that happen all the time in all markets. People fuck up with probability 1.
Now, automation of trades to look for these errors is a great idea... until you get one that isn't an error (say, an earthquake in Kobe).
I had to stop and think about what actually happens when someone posts an order like that, well outside the current bid/ask. What price(s) does it get filled at? Apparently -- if it works the same in Japan as here -- each bid already in the book would execute at its existing price, despite the fact that the asking price on the new order is far below that. You might think that they would execute at the average of the two prices, but that doesn't seem to be the case, from what I've managed to dig up. An example like this suggests to me that an even better choice would be the geometric mean. But the difference would matter only when someone had screwed up very badly.
The problem with disallowing your trader from ripping through a lot of the levels of an order book is that it can be a risk reducing move and what you intend to do sometimes. This trade is a clear fat finger but there are times when you will want to sweep the book to get hedged.
For instance, let's say your desk just got slammed with a ton of risk on an OTC (over the counter) option trade. You can immediately alleviate a lot of that risk (while paying through the nose) by selling 2000 contracts or 5 price levels of the ES (SP500 future). You can immediately place that order and get it filled and be hedged. If there were multiple points of human intervention required then you might lose a substantial amount of money. 2k contracts on the ES is $25,000 a tick. If word leaks that people are going to need to start hedging big then it could easily move 10 or 20 ticks away from you while waiting for your risk management team to approve your trade as not a fat finger.
Generally it's cheaper to just fire error prone traders. Heh, and anyone that is about to execute a 2k contract option trade generally has their hedge order queued up and ready to send to the market as soon as they hear the other side agree to their price.
If word leaks that people are going to need to start hedging big then it could easily move 10 or 20 ticks away from you while waiting for your risk management team to approve your trade as not a fat finger.
That's why I would expect it to be done in software. Yes, I understand that software can be buggy, and hard-and-fast rules sometimes need to be bent, but I would still expect it to be cheaper overall. But I haven't actually worked in the business, so this is just my $.02 :-)
And yeah it makes sense to have an extra prompt pop up if it's an order over X contracts or Y ticks from the market. And I've seen a lot of systems set up like that.
A lot of times traders will just punch the "OK" box and do their trade though.
That's of course if traders are manually hedging their portfolio/trade. A lot of times they just set their portfolio to auto-hedge based on certain parameters (ie at Z deltas or we've moved C ticks in a time period).
Usually, this is out of reach for casual traders. I've seen one exchange publish order book snapshots every 5 minutes on their website, but this data is hardly useful for frequently traded instruments if your strategy is based on the order book dynamic.
So the Mizuho blunder couldn't happen again today.
>Another day trader, Takashi Kotegawa, who’s known as BNF, made more than 2 billion yen, according to a Bloomberg News report at the time. Efforts to reach Kotegawa were unsuccessful, and it isn’t clear whether he still trades.
IIRC "BNF" now owns a prominent building in Akihabara (he likely still trades). I forgot the details of the reasoning, but I remember reading something about the purchase about 5 years ago on 2chan.
I have nowhere near enough knowledge on the subject to suggest a workable method of regulation or anything like that, but i really wonder how something that boils down to somebody gaming the market (as somebody else said, the only gambling which is legal in all states) to the tune of millions is anything but detrimental.
It has always been a fantasy of mine that a boatload of 25 brokers would be shipwrecked and struggle to an island from which there could be no rescue. Faced with developing an economy that would maximize their consumption and pleasure, would they, I wonder assign 20 of their number to produce food, clothing, shelter, etc., while setting 5 to trading options endlessly on the future output of the 20?
Simple example; company issues 100 shares and makes $1000 profit per year. If you could buy those 100 shares for $1 each, you'd basically own 100% of a company that makes $1000 per year cash profits for $100. Good deal. Usually too good in fact, and that's why this stock would not be priced at $1 per share for long.