I've got a new episode of Daytrader's Diary up on iSpec, which I've copied below:
intelligentspeculator.com
I second the positive comments on Marty Schwartz. Great book - insight into the personal quirks of a top trader, which is probably more illuminating than specific techniques. He doesn't give away any secrets because there aren't any.
I'm heading to NY tomorrow to take the Broadway Trading course next week, so I hope to let you all know how it goes.
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November 13th, 1999 - A Shotgun Trader
I would like to share my observations about a very successful trader, whom I will refer to as "A." I knew "A" back in 1996-97, when I was a private trader working out of Broadway Trading's office in Vancouver. "A" originally traded with Broadway in New York, but I take it that Broadway provided some financial incentives for "A" to trade for a time in some of their satellite offices as a sort of "head trader." So "A" would fly out for a week, then go away for a week, etc. "A" had traded with Broadway for, I believe, just over a year when I met him. In a previous article I stated that, despite my losses, I was nonetheless one of the best retail clients in the trading room. However, "A" was a far, far superior trader and it was sometimes a humbling experience to trade in the same room as him. I am more comfortable with the dollar amounts now, but several years ago, despite my brokerage experience, it totally amazed me to see a guy my age throw around as much money as "A" did. "A" could lose $20,000 in a day, and, while he wouldn't be happy with the fact, he would come in unfazed the next day and make it all back and then some. His losing days were usually quite small, and most of days were profitable (even after commission - "A" would often do 50-100 round turns per day).
"A" essentially traded the market indexes, a technique which I will try to dissect a little bit. He never really employed technical analysis on stocks, although often he would put up a basic intraday bar chart of the Nasdaq Composite and the S&Ps. His staple stocks were the top twenty Nasdaq market leaders such as INTC, MSFT, ORCL, DELL, CSCO, USRX, CSCC, COMS, ALTR, AMAT, etc? "A" followed the rule of only buying stocks that were up on the day (higher than the close from the previous day), and only shorting stocks that were negative. The very few times I saw him break this rule were when the market got slammed and he was picking up stocks for a rebound. "A" had enough capital to take ten to twelve positions (position = 1000 share lot). If the market began to trend, he would open a few positions in the best trending market leaders. By that I mean, suppose the semiconductors were strong on the day, and the Nasdaq and S&Ps started to break out above their intraday highs. "A" might buy 1000 INTC, 1000 AMAT, and 1000 ALTR to start. If the market trend continued in his favor and gave a small pullback, he would add to his existing positions or open up a few more stocks. "A" would continue to add positions as the market moved his way until his buying power was used up. If the market trend began to look "tired," he would look to offer out stock on the Island ECN on a rally. He would therefore make the most money on days when the Nasdaq was trending strongly one way or the other. If the market was choppy, "A" would make or lose a small amount. The big trends gave him the profits. Another technique that added to "A's" profitability was to hold positions overnight; holding positions that were at a profit which closed near the highs (if long), or near the lows (if short). "A" took some big hits from time to time when he did this, but overall he made a great deal of money from the overnight strategy. As far as risk control, I believe that "A" monitored his P&L on a portfolio basis, rather than have a specific stop loss for each individual stock. If he was long and the market started to roll over, he would start to sell out. Additionally, if the market was going up, and one of his stocks was not participating, he would sell it if it began to break down - usually if a stock moved against him by a point, then he would start to exit.
I always admired "A's" aggressive personality and his fearlessness. I remember when I once bought some MSFT and got shaken out for an eighth and "A" told me not to be "such a pussy." He told us that he lost tens of thousands of dollars when he was first starting out. My feeling is that since he was able to come back from that early loss, he is now able to approach the markets without fear. He knows that he has the capability to be a profitable trader, and this knowledge empowers him to make money - to get in just a bit ahead of the fearful masses and therefore maintain an edge. But "A's" fearlessness came with a good dose of discipline. I never saw him ride losses or average down. He was very flexible and rarely had an opinion on the market beyond what was happening in the present.
"A's" technique of trading with the general market might be termed a shotgun approach, since he was not trying to time individual stocks precisely, but rather looked to buy and sell a basket of securities. Nowadays, a more efficient way to trade like "A" might be to use the Nasdaq 100 index futures, if the Nasdaq 100 futures could develop more liquidity. The Nasdaq is a much more "trendy" index than the S&P. For myself, I think that "A's" approach would be particularly useful in a declining/bear market, since it is much easier to get short the high volume market leaders. If you want to learn more about "A's" way of looking at the markets, I would suggest reading one of the current daytrading bestsellers, and you may be able to figure out who I'm talking about. |
