Trader Meetups (Part 14)

In the past few posts, I have made several observations about JD’s meetup presentation on February 28 that make me think of him more as a salesman for a mediocre service than as a successful, full-time option trader.

From an educational standpoint, I would rate the presentation an F because of his persistently smug and overconfident tone.  Many in the crowd identified themselves as “beginners” when asked.  Beginners get sold relatively easily and don’t know what due diligence to perform.  I wonder how many attendees thought to check the web site to see how well JD actually does with his trades?  I thought about asking why his stated performance was so poor, which contradicted his cool and confident underlying tone, but I could not remember the exact numbers and thought it might be rude and land me on the street outside.

Besides, I smelled the pizza and hoped to get my fair share.

To recap the flaws:

–Extensive time spent illustrating a complex trading system with only one chart
–No backtesting of system performed (“it just makes money”)
–Arrogant representation of option trading (like an ATM machine)
–Hardly any discussion of risk management implies trades rarely lose or lose very little (false!)
–Well-known option myth presented as fact (twice)
–Earnings plays described as easy and consistently profitable (at least 15 other traders disagree)
–Pizza, pop, and beer made for an oasis of refreshment

Taken together, this presentation seemed to be more about sales and marketing for a $79/month service than anything else.  This is optionScam.com and pretty much everything I don’t like about meetup groups being organized by people with commercial interests.

Trader Meetups (Part 13)

I have spent the last three posts discussing JD’s meetup presentation from February 28.

As mentioned previously, JD spoke very little about trades gone bad or about how to manage them.  I discussed his brief mention of keeping tight stops, which is controversial.  He spent one minute explaining that you don’t want to risk more than 5-10% of your account on any one trade.  This is also highly controversial.  To lose so much with one trade would put me at a very high risk of ruin.  I challenge you to find an experienced trader anywhere who would recommend 5-10% position sizing for beginners (or experts!).

I keep telling myself that JD is supposedly a full-time option trader with over 10 years of experience but his performance as shown on the web site is no more encouraging:

Kudos to JD for not losing money with this service.  Aside from the initial two weeks that lost, all money made was in the first four months after inception, though.  He lost money from March 20, 2012, through February 27, 2013:  344 days of losing during which time the S&P 500 was up over 10.5%.  At 18 trades per month, I would have lost money over the course of 203 trades.  As performance numbers don’t usually include transaction costs, I probably would have lost more than the 0.6% loss shown in the graph.

For this service he is charging $79/month.

Why did he imply trading to be like taking candy from a baby if he can’t do it successfully himself?

optionScam.com, anyone?

Trader Meetups (Part 12)

I have spent the last two posts discussing a new meetup I attended on February 28.

Consistent with the “trading is like an ATM machine” theme, the meetup presenter JD talked quite a bit about earnings announcements as another “slam dunk” approach to option trading.  He talked about the volatility crush that occurs after earnings and why this is a windfall for anyone applying short option strategies.  JD represented no significant effort required to place these trades:  even if the market moves against, you will likely profit.

I have listened to discussion by many about trading earnings announcements either directionally (verticals) or nondirectionally (time spreads before or credit spreads through the event) and only once have I heard a trader claim to have consistent success.  She attributed her success to extensive time spent studying option chains to see if she could place trades for a requisite profit potential based on past earnings moves.

JD seems to just slap the trades on haphazardly and collect profits.  If trading were easy then wouldn’t all market makers (and associated firms) be out of business already?

At best, earnings plays should be treated as speculative:  trades to be done in extremely small contract size.  Regard them as lottery tickets.  They will not pay your mortgage or recurrent living expenses.  This is all about risk management and JD discussed none of it.

With regard to risk management, on two brief occasions JD did mention keeping a tight stop near the entry level.  He never went into depth about what a portfolio can actually lose by implementing this stop-loss over many trades.  The educated trader will tell you that tight stops, which imply low risk, aren’t necessarily a good thing because more often than not due to the market’s random volatility, they will get hit for small losses.  One may suffer death by a thousand cuts just as one may suffer death by one huge accident.

I will discuss this meetup further in the next post.

Trader Meetups (Part 10)

Until recently, I had only attended four different meetup groups.  In the name of research, I attended a new meetup group on February 28.

This meetup was held at the offices of the sponsoring company.  Three of the co-organizers work for this company.  The employee who greeted me described the company as “still a startup and many of us pull 14-16-hour shifts, which is why we have this Foosball table and Nerf guns… we like to have fun.”  The fourth co-organizer, John Doe (JD for short) works for a sister company.  He was the evening’s presenter:  a full-time trader who runs a premium service.  For $79/month, one can subscribe and get his trades.  Several employees (co-founders?) of the startup sat in on the presentation.

The meetup had over 20 attendees, six pizzas, three cases of pop and one case of light beer.  Oh–Crazy Bread too!  They spared no expense.  I would rate the provisions an A+ (red flag… remember what I said about “eat, drink, and be merry?”).

The presentation content was rich in smiles and cool optimism as many winning trades (types) were discussed.  JD started by discussing a five-indicator Bollinger Band strategy for intraday scans, which was illustrated using a single chart example.  He spent at least 30 minutes analyzing this one profitable trade, which helped to give the chart template a “holy grail” feel (pop quiz:  how useful is a sample size of one?).  He also talked about other spread trade strategies and smiled liberally when describing profitable endings like 50-100%+ trade returns.  Within the first 45 minutes, I really wanted to raise my hand and say “you make option trading sound like an ATM machine.”  I exercised staunch restraint.

Given a trade with so many moving parts (five indicators), I did ask JD how he backtested the Bollinger Band strategy.  He didn’t.  He said that he ran backtesting “a long time ago” but said that he now just runs his intraday scans, places the trades, and makes money.

Does this seem at all suspicious to you?  Why or why not?

Trader Meetups (Part 9)

In the last post, I mentioned that beginners would not be appropriate for the real trading group.  I want to spent a bit more time today talking about beginners.

Goals for the real trading group include sharing ideas with each other, working together to develop actionable trading plans, and holding members accountable for their trading.  By definition, beginners have few/no ideas available to share.  Beginners do not have actionable trading plans nor may they even know what one is or why it needs to exist.  Beginners are not ready for live trading with real money.  They have yet to do the laborious work previously described.

For all these reasons, beginners have little to offer the real trading group.

In my opinion, the beginner looking to learn is welcomed with open arms by meetup group organizers with commercial interests.  These organizers care most about finding new customers:  the greatest sales potential lies in someone who knows the least.  By focusing on details of making money without mentioning aspects of risk management or potential loss, a trading seminar can be impressive.  If done under the guise of an educational presentation on option basics, the impact may be nothing short of breathtaking.

Unfortunately, this is nowhere near the reality of option trading and is precisely why I feel trader meetups organized by those with commercial interests are optionScam.com.  Conflict of interest cannot be ruled out.

Aside from the misleading presentation, I believe invocation of the “eat, drink, and be merry” atmosphere is another leading sales tactic.  Get people to celebrate before any hard work has been done.  Who wants to do hard work?  Beginners don’t realize hard work is a prerequisite to consistent income.  Beginners want something easy like a newsletter or e-mail service that tells them what to trade.  This is not the road to consistent profits and those who fall prey to such claims will discover themselves optionScammed.com sooner or later.

Trader Meetups (Part 8)

A main theme of my last post was that while a Meet & Greet sounds nice and full of good cheer, I need something more to progress as a trader.  Today I will define that “more” by offering a template for a real trading group.

The real trading group (meetup) would be comprised of advanced traders each having a good work ethic.  Everybody must have something to contribute.  I mean no offense to newbies just looking to learn.  I was once a beginner.  I am a beginner no more as a result of the laborious work described here.  Consider that part of the undergraduate material.  The work to be undertaken by the real trading group is more akin to graduate study.  Members should ideally have live trading experience.  At the very least, members should have knowledge about how trades work and react in different market conditions.  Members should have some academic knowledge about different aspects of trading/finance and be willing to take the extra steps necessary to get educated about important elements they don’t know.

The real trading group would be comprised of individuals willing to share expenses rather than being sponsored by any company or service.  This group is a collaboration with the potential to develop new and improved trading plans for all involved.  The potential for consistent profit over time should far outweigh the costs.  Even food/drink costs should be willingly shared by all.

I strongly believe that food and drink should kept to a minimum, though.  Just humor me and consider it a matter of karma.  Provisions fall under the “eat, drink, and be merry” category.  I do this at parties and celebrations.  To invoke this here is putting the proverbial cart before the horse.  Much work awaits and only when complete do I have reason to celebrate and reward myself.  In my opinion, celebrating before accomplishment is just the sort of arrogance that Mr. Market would eagerly avenge in full force and losing large sums of money is not good business practice.

Trader Meetups (Part 7)

Yesterday I mentioned that all trader/investor meetups in my area have been organized by people with commercial interests.

In this regard, a “Meet & Greet/Business Card Exchange” (see here) would be useful for the organizer because every attendee is a potential new customer.  While it sounds like fun people and good cheer, the event threatens to distract me from the real focus unless it provides something more.  At the risk of sounding repetitive, my real focus pertains to the laborious work mentioned here.  Mr. Market doesn’t give one iota about networking or good cheer.  It’s actually a little-known secret that Mr. Market will eagerly take my money if I mistake too much good cheer for a means to consistent profit.

Can I find someone able to help me become a better trader through this networking event?

The deck is already stacked against me in finding other traders with whom to work (see here).  This particular event was a joint production of Power Trader Investment Group (PTIG) and Metro Detroit Business Networking Group (MDBNG).  Only two people RSVP’d from the former and one of these was the organizer (of both groups).  Recall that I already attended a PTIG meetup (as described here), which provided little more than yummy chocolate chip cookies.  The organizer runs a subscription web site.  If he were interested in anything more than my business then he would be have been trying to get inside my head like everyone does (and vice versa) to find out what I know about trading rather than simply representing himself as a professional guru.  This leaves just one RSVP from PTIG:  a beginner I already met.

I believe any serious traders involved in MDBNG would be involved in PTIG.  Why waste time associating with a variety of entrepreneurs when you could associate specifically with traders?  Since PTIG didn’t help me and MDBNG probably lacks traders, I estimated the potential utility of this Meet & Greet as slim-to-none.

Trader Meetups (Part 6)

As you may recall from Part 1, this thread was inspired by an invitation to a “Meet & Greet/Business Card Exchange” through the Power Traders Investment Group (PTIG).  Part 5 summarized my take on the laborious effort required to become a successful trader over the long-term.  I do not believe participation in the former qualifies as part of the latter.

In Part 1, I mentioned that for many years, meetups have been used by IBD as a marketing tool.  I believe the main goal of all trader/investor meetups to be sales and marketing rather than helping me to become a better trader.

I recently attended a meetup of the PTIG that provided no actionable trade ideas and no new networking contacts.  I met a handful of new people who were beginners or hobby traders but no other full-time traders.  We analyzed some charts and talked some technical analysis but everything was evident only in retrospect or subject to curve-fitting (i.e. fallacy of the well-chosen example).  To be fair, we did not go around the room and have everyone share their leading trade idea(s).  We were not asked.  All discussion was led by the organizer:  a kind gentleman who provided cookies, veggies, dip, and who runs a subscription trading web site.  By his own admission, he has recently become interested in “internet marketing:”  a subject I hope to revisit later.

All trader/investment Meetup groups in my area have some for-profit bias.  Michigan Options Traders is a Meetup group organized and sponsored by a company that promotes itself as “the stock idea network.”  Michigan Market Traders is a Meetup group organized and sponsored by a trader education program.  The Detroit Area Day Traders Meetup Group was organized by “an independent Registered Investment Advisor offering a diverse blend of quantitative investment strategies.”

I will continue the discussion tomorrow.

Trader Meetups (Part 5)

Parts 2 and 3 of this series included thoughts and experiences of an advanced option student on the road to full-time trading.  I was somewhat appalled in reading them and you can see my response here.

I went on to cite Malcolm Gladwell’s book Outliers and the “10,000-hour rule.”  This is consistent with my experience of working 50-60 hours per week over the first four years.

Trading for a living requires a tireless devotion toward learning the craft.  One does not become a pharmacist, a physician, or a lawyer overnight.  Any professional discipline requires years of study.  Human greed makes it difficult to ignore the plethora of advertisements offering fool’s gold like “great money investing that takes just a couple hours per week.”  This is optionScam.com.  It’s not going to happen.  It’s not reality.  If you fall for the sales pitch then you can expect to lose money in the pursuit each and every time.

Learning how to trade is easily stated and hard to do.  Follow the suggestions given here.  Do hundreds of backtested and paper trades.  Execute tens upon hundreds of small, live trades.  Monitor these trades.  Analyze them.  Think hard about how they are working and what leads to different outcomes.  Think about generalities and apply tenets of System Development as I have discussed in numerous blog posts.  When you see something, is it curve-fit and specific to that trade or is it robust and applicable to different types of environments?

Do all this and you will have your hands full.  I can guarantee that you won’t be thinking about other things to occupy your time or about how to be perceived as busy (absurdly suggested here).  Your brain will hurt many times over from analyzing and studying everything there is to know and putting yourself in a good position to succeed over the long-term.

Tomorrow I will return to the beginning.