8/1/2008
In order to be successful as a trader over the long term, you need to have a theory on how the market works and how you are going to capitalize on it. This theory will be your guide, year in and year out, as to the kind of trades you will take and the tactics you will use to exploit this belief.
The vast majority of traders never try to understand the markets.
Instead, most traders search for tactics that “work”.
When I was in the proprietary trading business, we had a new trader who was the best we had ever seen. He made money nearly every day and we quickly increased his trading size to capitalize on this wunderkind. We held him up to the other traders as the ideal trader.
He had a system that worked.
It worked beautifully and, then, it did not work.
When his system did not work any longer, he was lost. He did not understand the markets. He had just stumbled on a set of tactics that worked for a time.
It is clear that tactics come and go.
Any combination of moving averages, stochastics, MACD and other technical analysis tools will often work until they do not. Traders who rely on any set of these tactics, without understanding the working of the market, will be caught flat-footed when last month’s successful tactic stops working because the trader did not really understand the market; he just found a trick that temporarily worked.
What should you do?
You should develop your own theory of how the market works and how you will capitalize on it.
To help you get started, you can receive a copy of “My theory of trading” simply by e-mailing me at jq@fptrading.net. I will be happy to send you my theory of how the market works, not in an attempt to convince you that I am right, but to serve as a guide for you in developing your own unique theory.
By developing your own theory of the market and implementing strategies and tactics to capitalize on your theory, you will have taken a giant step toward finding long term success through your trading. In this way, you will join the minority of traders who can reliably predict that they will be successful in their trading in the future, even when they cannot predict what that future will bring.
Wishing you success in your trading, Jeff
Copyright © 2008 by Jeff Quinto
All rights reserved 7/23/2008
I have never been long term in anything, except my marriage. (I should get some brownie points when my wife reads this), so it is hard for me to think like a long term investor.
What brings this to mind is the segment a minute ago on CNBC in which someone explained the logic of dollar cost averaging. The segment explained the advantage of repeatedly buying a stock on the way down as long as everything seems the same. This creates a lower overall cost per share albeit on a larger position.
Don't you love CNBC?
What a great idea, except of course for two things.
One - the current price of anything in free, competitive markets, whether it be stocks or futures, is not a mistake. The current price represents the combined opinion of all of the market participants who are not just talking about what is happening (a la CNBC); they are risking their money based on their belief. You can hear a phenomenal explanation of the accuracy of group opinion in the current WNYC Radio Lab titled "Emergence".*
Two - Dollar cost averaging is a more appealing name for what we call in futures "adding to a loser". Adding to a loser in short term trading just creates a bigger loser. Adding to a loser may bail you out in a few problem trades, but, over time, it will only assure that your inevitable losing trades will be larger than they would otherwise be. In point of fact, adding to a loser means that your worst trades will also be your biggest trades.
So, I am willing to give CNBC the benefit of the doubt and concede that it is possible that long term investors could benefit from buying stocks at various times and at various prices, but I am convinced that adding to a loser in short term futures trading, however it is described, is just another way of avoiding a short term loss in favor of a larger, longer term loss.
* When you check out Radio Lab for the podcast on "Emergence", listen to their "War of the Worlds" podcast. The War of the Worlds radio phenomena started by Orson Wells and the Mercury Theater of the Air in 1938 has been repeated to even greater effect over the years.
Wishing you success in your trading, Jeff
Copyright © 2008 by Jeff Quinto
All rights reserved
If you would like more information on improving your trading in the Electronic Trader Mentoring Program or are interested in finding out more about trading in the Photon Trading Room, please feel free to contact me, directly, at jq@fptrading.net or +1-312-987-8124. 7/14/2008
Last week, my wife and I visited Ken Gaus, my partner in Transformative Trading, at his home in Rhode Island.
On Monday , we attended the first day of the Hall of Fame Tennis Tournament in Newport, Rhode Island.
The first match was between Rohan Bopanna from Bangalore, India (serving in the picture above) and Kevin Kim from the USA.
As I watched these two professionals play, I could not help but think of the parallels between tennis and trading.
In the tennis match, each player tried with all his skill and might to get the ball past his opponent who was trying with all his skill and might to make sure that he did the same. Each serve and return attempt was the best the player could do.
Sometimes his best worked and sometimes it did not.
Just like trading, each player was giving his all in the clear understanding that a percentage of his best shots would result in points and a certain percentage would not.
Each player knew that he needed to stay focused and not dwell on past losing points or congratulate himself on recent winning points. He needed to stay focused on the point at hand knowing that if he was able to consistently perform as he had practiced, he would be rewarded.
Trading is like that.
You stay focused. You keep doing what you know you should do and, as long as you stay at your best, you will be rewarded on average for your disciplined performance.
There is another interesting comparison between the professional tennis match, we saw, and trading.
Imagine, yourself as a novice tennis player trying to keep up with either of these professionals on the tennis court. I cannot speak for you, but as for me, I would have no chance to hold my own against these professionals. If I was playing against them, the only good thing would be that the inevitable loss would be quick, if not painless.
In trading, you are competing with the best professional traders in the world, but in trading you do not have to be the very best in the tournament to win. You just need to consistently do what you have planned; keeping your discipline and exploiting the opportunities presented to you and you will be a winner.
The day after tennis, we reverted to full-fledged tourist mode and visited two of the great seaside mansions of Newport.
I feel a kinship to Newport as Lake Geneva, where I live, is sometimes called the Newport of the West.
The highlight of our tour of the mansions was visiting Cornelius Vanderbilt's 70-room, 65,000 square foot "cottage", The Breakers, pictured below.
The scale of the cottage is hard to describe.
The dining room is 50 feet by 50 feet and the ceiling is 50 feet high.
I am proud of my dining room here in the Newport of the West, but, I have to admit, it is noticeably smaller than Vanderbilt's 50 foot cube.
Wishing you success in your trading, Jeff
Copyright ©2008 Jeff Quinto
All rights reserved
If you would like more information on improving your trading in the Electronic Trader Mentoring Program or are interested in finding out more about trading in the Photon Trading Room, please feel free to contact me, directly, at jq@fptrading.net or +1-312-987-8124 6/25/2008
Trader Ted from Toronto and I have a bet on losing weight.
If either of us fails to lose the pledged amount, he must donate $300 to a charity designated by the other.
Ted is taking this seriously.
So seriously, in fact, he has cut off all his hair.
I admit that this was not exactly what I had in mind when we talked about the need to lose weight, but I guess I should have thought of it earlier. I will only shave my head as a last resort, if wishing the weight off, as I am doing now, does not work.
As for my progress, I have been trying to lose weight for two weeks and, so far, I have lost 14 days.
I might do better if I behaved differently.
I should not have ordered the special at the only restaurant in Odebolt, Iowa on Friday night. It was their idea of surf and turf ($16.95) - a gigantic slab of prime rib along with a half dozen deep fried shrimp. I think this works on my diet, but I am not sure.
You can become involved in this world-class weight loss contest. All you need to do is pledge to lose so much weight by August 31st and, then, you can join me in wishing it off on my DELI® diet.
It is simple. All you have to do is:
Don't Eat Like an Idiot.
Let me know if you want to become part of this International (Canada and the US, so far) phenomena.
Your pal, Jeff
Copyright © 2008 by Jeff Quinto, all rights reserved
If you would like more information on improving your trading in the Electronic Trader Mentoring Program or are interested in finding out more about trading in the Photon Trading Room, please feel free to contact me, directly, at jq@fptrading.net or +1-312-987-8124. 5/21/2008
My youngest daughter started taking piano lessons when she was five years old. She started learning with a Suzuki piano teacher in Kansas City. When we moved to Chicago, we found one of the leading teachers and our daughter became one of her star pupils.
I used to love to see her perform at recitals, usually held on in an elaborate recital hall at the Fine Arts Building in downtown Chicago.
The only problem, and it was a real problem, was that although our daughter liked the attention she got at her recitals, she hated practicing. This problem was exacerbated by the fact that her teacher insisted that she practice several hours a day.
The teacher said our daughter had real talent.
Insisting that she practice started our, now-infamous, piano wars.
We would ask, beg, cajole, threaten, and, lastly, scream at our daughter to get her to practice. Our daily emotional outburst would result in either our daughter grudgingly practicing, or my wife and I exhausting ourselves explaining the importance of the piano practice.
Even with her uneven practice schedule, she became quite an accomplished piano player.
My wife and I were happy.
We traded in our baby grand piano for a grand piano. We envisioned our daughter some day thanking us for forcing her to learn to play the piano. Our efforts seemed worth it.
Our daughter became so proficient that her teacher insisted she enter a citywide piano competition. Our daughter was 12 and would compete against the best in her age group from around the greater Chicago area. The competition was held at Triton College, somewhere in the western suburbs of Chicago.
Because I did not know where Triton College was, we arrived late and mistakenly sat in the room with the 14-16 year old pianists. As we missed our daughter’s age group and she was two years younger than the children in the group, they let her play.
When her time came to play, she was amazing.
When she finished her performance, I clapped so loud that I thought they might ask me to leave. She came in second in the citywide 14-16 year-old age group.
That was the last time I heard her play in public.
We still have the grand piano and somewhere we have her awards, but she quit because, as good as she was, there was no joy for her in her playing.
I lost the piano wars because I failed to appreciate that excellence in anything should bring joy, as well as awards. Whatever you do may be hard, but it also needs to be fun.
No one can reach and maintain the high level of performance necessary for excellence in anything unless what they are doing brings them joy.
If you are a serious trader, your trading should bring you joy – the kind of joy that comes from doing something well - the kind of joy that comes from effortlessly executing your plan and knowing that if you just follow your plan and make good trades, the market will reward you with profits and joy.
Your goal should be to advance your trading to the point where trading is joyous.
Wishing you joy in your trading, Jeff
Copyright ©2008 Jeff Quinto
All rights reserved
If you would like more information on improving your trading in the Electronic Trader Mentoring Program or are interested in finding out more about trading in the Photon Trading Room, please feel free to contact me, directly, at jq@fptrading.net or +1-312-987-8124. 5/9/2008
Fighting back – aggressively fighting back from adversity must be in our shared DNA as traders because so many traders pride themselves in their ability to fight back from a loss.
Some traders say they only trade really well when they are fighting back from a loss. They say they wish they would be so focused and effective without having to first be down for the day.
My take on all this fighting back is that it is wasted energy.
On a bad day when the market is not rewarding you, lose a small measured amount and quit for the day. Return the next day and concentrate on getting ahead so that you can press your advantage.
Exploiting your advantage, pressing, is where the money is.
Fighting back from a loss is where the frustration is.
Successfully fighting back in the afternoon, after a low volatility morning that did not reward you, has two chances, as they say: slim and none.
If you could not make money in the morning, when trading is typically more productive, what is the chance that you will emerge victorious from what is likely to be the lower probability afternoon?
I have a solution that is easy to take and simple to implement. If you are down after the morning session and volatility is at or near today’s low levels (VIX <20), then go out in the beautiful spring weather and take a walk, go to a Cubs game or skip rocks across a pond. Your time will be better spent recharging your batteries than heroically fighting with a market that is unlikely to reward you.
Once again, success in trading is achieved fighting forward and building profits, not endlessly working to reduce losses. When the market is rewarding you, you need to press. When the market is taking away your trading capital, you need to walk away.
Wishing you success in your trading, Jeff
Copyright © 2008 by Jeff Quinto
All rights reserved
If you would like more information on improving your trading in the Electronic Trader Mentoring Program or are interested in finding out more about trading in the Photon Trading Room, please feel free to contact me, directly, at jq@fptrading.net or +1-312-987-8124. 4/28/2008
Generally, I am against being negative on the market. After all, the best days come at the oddest times. However, this week may be an exception.
First, the VIX (the CBOE’s volatility index) has spent most of the year in the high twenties and was over thirty in early March. Today, the VIX dropped below 20. This is less volatility than we have had since last summer.
Second, the FOMC is meeting, this week, and will make a rate announcement on Wednesday at 1:15PM CST. Absent some sort of market news or event, all day Tuesday and Wednesday until the announcement should be quiet. However, after the announcement on Wednesday should be good for trading, if only for less than an hour and a half.
Third, Thursday is May 1st, May Day, and for readers familiar with European Holidays, it will be obvious that this spring holiday in Europe will mean reduced trade in the US markets. Here in the United States, we sometimes lose track of the fact that the world does not celebrate exactly the same holidays as we do.
As for May Day, there is an odd, abstract statue outside the International Studies Building at the University of Chicago that casts the shadow of a highly-stylized hammer and sickle to its right on May Day at noon. My daughter and I were among a group of about twenty people on May first some years ago who witnessed the shadow. I have to admit that it took some imagination, but, to me, it was a hammer and sickle.
So, there you are. Don’t trade on May 1st, but come to Chicago and ride a bike down the lakefront to the University of Chicago at noon and be among the few who will ooh and ahh at what might be a hammer and sickle. Granted, it is cheap entertainment, but it will be time better spent than trading on Thursday.
Wishing you success in your trading, Jeff
Copyright © 2008 Jeff Quinto, all rights reserved
If you would like more information on improving your trading in the Electronic Trader Mentoring Program or are interested in finding out more about trading in the Photon Trading Room, please feel free to contact me, directly, at jq@fptrading.net or +1-312-987-8124. 3/29/2008
Some of you reading this may recall that the title to this post is somewhat similar to a post I wrote a year ago.
The title of last year's, similar-sounding post was "My case against stops".
Like a politician campaigning for election, I can change my tune.
In my case, not to appeal to one audience versus another, but because the facts have changed. My reason for being against using stops in the previous post was that I did not want to wait for the market to decide when I would get out of a trade by hitting my stop. I wanted to take responsibility to liquidate the trade.
However, in today's much more volatile markets, very often the market moves too quickly for even the fastest trader to react. By the time the trader sees the market moving against him and decides to get out of the trade, the market may have moved five or ten ticks. Today's markets can move at such speed that a planned four tick loss can easily morph its way into an eight or ten tick loss.
I advise newer traders to use the tactics on Photon to automatically place a three, four or five tick stop when a trade is entered.
Whether the trade goes in their favor or not, I advise moving up the stop so that the stop is a few ticks behind the current price. Should the trade backtrack these few ticks, the stop will be elected and the trade will end either capturing most of the profit or resulting in a small loss.
I do not like giving any trade much room.
I prefer having a close stop and taking two tries at a given trade, rather than giving a trade much room and trying it only once.
As to politicians changing their story to match the audience, I think that the following quote from Fuller Warren in a debate while he was running for Governor of Florida in 1948 takes the cake.
When asked what he thought of alcohol, he famously said:
"If you mean the demon drink that poisons the mind, pollutes the body, desecrates family life, and inflames sinners, then I'm against it. But if you mean the elixir of Christmas cheer, the shield against winter chill, the taxable potion that puts needed funds into public coffers to comfort little crippled children, then I'm for it. This is my position, and I will not compromise."
Of course, he won.
Wishing you success in your trading, Jeff
Copyright © 2008 by Jeff Quinto all rights reserved
If you would like more information on improving your trading in the Electronic Trader Mentoring Program or are interested in finding out more about trading in the Photon Trading Room, please feel free to contact me, directly, at jq@fptrading.net or +1-312-987-8124. 3/15/2008
In our proprietary trading business, we had many good traders, several excellent traders, and one extraordinary trader.
A great deal of what I have learned about electronic trading came from training this extraordinary trader and watching his progression from neophyte to world-class trader. Over time, he became one of the largest and most consistently successful traders in the market that he traded.
Unlike many traders who do not want anyone to know what they are doing, this trader was happy to tell anyone who would listen what he did and why he did it. He even suggested that we place new traders on either side of him so that the new traders could see what he was doing, as he did it, and learn to trade from his example.
At his suggestion, we placed new traders on either side of him using the same trading software and looking at the same charts. Additionally, this extraordinary trader would shout out what he was doing as he was doing it for the benefit of the entire trading room. In time, he brought his nephew and his best friend to sit on either side of him. He was committed, as we were, to the success of the traders he was training.
However, the traders on either side of him, even his nephew and best friend, could barely hold their own trading after watching him trade for months. They had a master trader telling them exactly what to do, in real time, while this master trader was making real money and they were barely able to break even.
How could this be?
Everyone wants to be able to watch what a successful trader does so they can see what they should do. How could these new traders be given what everyone else would judge to be the opportunity of a lifetime and not be able to make anything of it?
After much thought, I believe that the reason that sitting next to a world-class trader, who shouted out the trades he was doing, did not work because successful trading must come from within the trader. Certainly, you can learn from other traders, but you must find your own path to success.
In a way, having the obviously-successful trader telling the new traders what to do thwarted their progress because they only learned to rely on the great trader and never developed the great trader within them.
There is no easy way to learn to trade, but one thing is clear, in order to be successful at trading the skill must come from within you.
Wishing you success in your trading, Jeff
Copyright © 2008 by Jeff Quinto
All rights reserved
2/10/2008
Can you picture yourself as James Bond in a tuxedo sitting at the Baccarat table at the casino in Monte Carlo with a beautiful girl by your side?
The first time I was ever in a casino, I wanted to be just like James Bond.
Of course, I was in Reno, Nevada (the biggest little city in the world), not Monte Carlo. I did have a beautiful girl by my side (my wife) and I had invested five minutes, or so, reading an explanation of Baccarat in the little pamphlet I found on the table beside the bed in our hotel room.
So, I was ready.
My wife and I agreed to limit our investment in my pretending to be James Bond to a few hundred dollars, which we split between us. We arrived at the Baccarat table well-dressed, confident and ready to break the bank at Monte Carlo - I mean, Reno.
As it turns out, I should have invested more time reading the pamphlet explaining Baccarat because I did not have any idea what I was doing. However, through no fault of my own, some of my bets seemed to work. My wife was similarly winning some of the time.
After what seemed like a long time and many winning and losing bets, I was nonetheless out of chips. My wife gave me a few of her chips and we played for a while longer until we were both out of chips.
I suggested we adjourn to the bar so that I could get a Martini (shaken, not stirred).
At the bar, my wife opened her purse and I saw that it was filled with chips. Unbeknownst to me, she had taken a few chips out of each winning pot and stowed them in her purse.
I was elated.
I was indeed James Bond, not some chump from the suburbs. We cashed our chips and went to a late show where we saw Alan King.
Being smart about money in trading is just like that.
You need to take your profits off the table and play with a set amount of money. When your account is ahead by some predetermined amount, take the money out. Trading with a larger amount of money than you planned can cause you to trade with less discipline. Do not leave more money in your account than you need to reasonably trade.
Lastly, I love sending out checks for profits. When your account is ahead by $1,000, $5,000 or whatever you decide, please give me a call and ask for the overage to be sent to you.
Just think of it as doing me a favor.
Wishing you success in your trading, Jeff
Copyright © 2008 by Jeff Quinto
All rights reserved
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Veteran trader and world-class trading coach, Jeff Quinto, gives his valuable insights to professional traders in his popular trading blog. Jeff began his trading career as floor trader, where for 10 years he traded wheat and stock index futures. Following his career as a floor trader, Jeff served as President of Rand Financial Services for seven years. After Rand, Jeff managed and trained electronic traders for a proprietary trading firm in Chicago and Vienna in which he was a partner.
In 2005, Jeff joined FuturePath Trading as the manager and trading coach in the Photon Trading Room in Chicago. Through one-on-one coaching in his Remote Mentoring Program, Jeff has helped dozens of professional traders from around the world to be as successful as they are able.
In Jeff’s blog, he uses his insights gained from helping hundreds of electronic traders over the past eight years. Jeff’s discussion of how to be successful is seen by hundreds of traders and has provided concrete help to both experienced and new traders.
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