New Study on Day Traders Misses Mark on Main Conclusions but is Still Insightful

A study was recently published about the performance of new Brazil Day Traders. They looked at traders who just started trading on their first day, to those who have traded for up to two years.

Performance levels were noted based on the amount of days traded, and the concluded from the results that day trading to be “virtually impossible”.

Here is part of the data they tabulated:

Number of Days Trading: Percent Profitable:

1 day: 29.8%

2 – 50 days: 15.5%

51 – 100 days: 8.9%

101 – 200 days: 6.8%

201 – 300 days: 5.4%

Over 300 days: 3.0%

Of the persistent day traders who exceeded the 300 day mark:

1.1% earned profits exceeding Brazilian minimum wage (US $16/day)

0.5% earned profits exceeded starting salary of Bank Teller (US $54/day)

Highest earning person made US $310/day on average

From all their data they came to the conclusion that day trading is nearly impossible to learn, which contradicts the claims made by the brokerage and trading course providers.

I believe the main point the study failed to consider is day trading is not a “linear learned” skill, meaning gradual, incremental improvement over time. It requires a completely different way of thinking. One gains insights in “stair step” jumps rather than a gradual climb.

In addition, it can take several years of study and research before any true insights are achieved, so the study made wasn’t long enough to allow for an extended look over several years.

So yes, day trading can be concluded to be very hard to learn within a period of two years, but that doesn’t mean it remains that way over an extended time.

Here’s what they got right:

Brokerages, authors, and companies flood the market with ads claiming one can become wealthy through day trading in a relatively short period of time without much work involved. Pictures of tropical islands, exotic travel, and luxury cars are shown as being within ones reach with the “right” trading course or book. This study shows you what a SCAM those ads are. Day trading mastery is NOT a “get rich quick” endeavor and requires a massive amount of time and commitment.

Next, a key insight is the fact that trading success rates went DOWN over time rather than up, which is counter intuitive. How could it be that the more time one spends on trading, the worse the performance?

The answer is what I said earlier- trading success requires a different way of thinking. You have to essentially reprogram your mind to properly understand price action.

The data shows that a trader at their most “ignorant” level (one day experience) is much more likely to succeed than their more experienced counterparts over time. In the beginning one knows little and acts more by natural instinct to price action. Then “thinking” starts kicking in and one tries to “out analyze” the market and loses those initial natural instincts. The mind needs to be reprogrammed to allow those natural instinctive solutions to guide your way. The natural mind can’t do this which is why performance grows worse over time.

This is the main reason why mastering trading is so difficult, it requires a new way of thinking as opposed to just standard rote learning attempts over time.

Study Link: Link

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The Dark Side of Hedge Funds

An interesting vid detailing the growth in power and influence of the top hedge funds.

I blogged earlier about the incredible wealth generated by the top hedge fund managers.

As can be expected, areas that produce great wealth attract all kinds of people and all moral temperaments.

So what happens when a hedge fund decides to ignore ethics and the law in pursuit of greater gains? They will be eventually pursued by the Government, but as hedge funds are so enormously wealthy and can afford the best legal team in the world, who will win is not so easily determined.

In a world where the law has determined that unlimited campaign contributions are allowed, those with more wealth have increasing influence over political outcomes for better or worse.

An author discusses her book about the inside world of hedge funds and what happens when the US Government went after one of the Top Hedge fund owners for insider trading.

Here’s the shortened version: Interview 1

Here’s the chock full of details interview: Interview 2

Former Waitress & School Drop Out Says Making Β£100K/yr Trading: Legit or Scam?

I just read an article about a woman who changed her career from being a waitress to successful trader and according to the article, is on track to make Β£100K pounds this year, and all this from taking a Forex trading class.

If true, this is a stupendous achievement and she deserves all the high praise and credit. However, I noticed several red flags when reading the article that make me think all is not as it seems and it may be an elaborate advertisement to pay $$$ for a trading class.

First off, learning how to successfully trade is an endeavor that many try, but only a choice few succeed. The odds against reaching the point of being able to trade for a living have been reported as low as 3% and that even the best odds are at ~20%, as in out of 100 people who attempt trading, only 20 will succeed in not losing money and even fewer will be able to achieve high returns on a consistent basis. So the odds of someone just casually walking in and trying and succeeding at trading are very slim.

Next, while many trading courses are offered for sale for prices that range from a few hundred to tens of thousands of dollars, the internet is full of sorrowful tales of those who spent big bucks on these classes, only to not gain any new skills and still not be able to successfully trade. Personally speaking, I have yet to meet anyone successful at trading that got their skills from a class rather than being self taught or having been lucky enough to have a friend/relative as a mentor.

The vast bulk of trading classes are mostly set to lure in the “get rich quick” type of folks who are looking for shortcuts to success. As we know in life – there are very few if any shortcuts in achieving highly sought after goals/rewards. So I have a high amount of skepticism that a school drop out can take a trading class on a whim and instantly find such huge success.

The pictures included in the article also stand out as red flags in that they mostly show conspicuous lavish spending- as if to set the mood that she is now living a life of luxury and easy living.

The typical tell-tale sign of “potential scam” is when trading “guru’s” show pictures of ostentatious wealth, suggesting that “you too can have this lifestyle if you pay for their course/training”. In reality, successful traders and those from other professions don’t go around showing off their wealth.

Like I said earlier, if the story is legit, then congratulations are in order, but I get more of a vibe that this is really a commercial for paying $$$ for a Forex class rather than a genuine financial success story.

Article: Link

Trump Tariffs 101: They Raise Prices on Americans

Last Thursday evening Trump, self described as “Tariff Man”, declared he would start imposing a 5% tariff on Mexico this month because he was not satisfied with the way Mexico was dealing with illegal immigration crossing over into America. Furthermore, the rate is set to increase by 5% every month through October that Trump remains unsatisfied, for a maximum tariff of 25%.

To no one’s surprise, the market tanked on the news of this new set of tariffs to close out the week on Friday in the red:

The market has been in decline since Trump began ramping up tariff rhetoric against China, whom he has set a 25% tariff on.

When Trump refers to his tariffs, he always makes it sound like the country getting the tariff is the one who will be paying the cost of them. That’s not how tariffs work.

A tariff raises the cost of the selling price of the product. If a product being sold in America that was imported from a country with a tariff, the price of the product for sale will be increased by the amount of the tariff. Who pays it? You the consumer if you normally buy that product. So for example if some imported thing you brought previously cost $1.00, it will now cost $1.25 with a 25% tariff. A $200 item will now cost $250, and so on. The main point is the American consumer will be paying the extra costs! πŸ’ΈπŸ’ΈπŸ’Έ

When the cost of goods go up due to tariffs, it will have the same effect as inflation, which slows the economy and is bad for the market.

The next time you go shopping, pay close attention to the products you buy, and where they originated from. You will find that most of the products sold in America are imported – coming from companies that have located their factories to countries where the cost of labor is less.

Much of the products we buy including many electronics like cellphones, computers, and TV’s come from China. The bulk of our autos and fruits/vegetables come from Mexico. It’s easy to see why news of more tariffs would have a negative effect on the economy and market.

So who is benefiting from these tariffs? Certainly not the American people paying the extra costs.

Wisconsin Man Wins $768 Million Powerball Lottery

The value of this lottery jackpot may be only about half the size of the winner of the Oct 23, 2018 $1.5 Billion Mega Millions winner, but it’s MUCH more interesting because this time the win is from a State that doesn’t allow winners to remain anonymous so much more details are available about the winner. πŸ‘

The winning number was drawn on Mar 27, 2019 and the winning ticket was bought on a whim because he was just feeling particularly lucky that day.

Prior to the lottery win, his financial goal was building up his savings to $1000. Goal achieved, and how! πŸ€‘πŸ€‘πŸ€‘

As also to be expected, he quit his job shortly after learning that he won.

Here’s the broadcast interview of the day he went to the Lottery Commission to claim his prize:

Article: Link

Mega Record Super Jackpot Winner Claims Prize

The Mega Millions Lottery reached a record sum of $1.5 Billion due to a string of weeks with no one getting all the winning numbers before a single ticket in South Carolina came away the winner when the numbers were drawn on Oct 23, 2018.

There was great mystery into who possessed the winning ticket, which grew even more when it was revealed that South Carolina is a State that allows lottery winner to remain anonymous.

The ticket winner remained mum for months. Lottery winners have six months to claim their prize before the ticket expires. This March, the ticket winner came forward to claim the prize and asked to remain anonymous.

What we know is it was a single person that won, making it the largest single jackpot payout in US history. πŸ’°πŸ’°πŸ’°

Rather than annual payments, the winner chose to get the “lump-sum” of payment of $877,784,124.

Can you imagine winning that much money? Overnight, your entire life, and those of your immediate family and loved ones completely changes. πŸ€‘ πŸ€‘ 🏦

The winner likely took the extra time before claiming the win to get their household and financial plans in order- a very good move before embarking on this amazing new chapter their life. πŸ’²πŸ’²πŸ’²

Article 1: Link1

Article 2: Link2

Bitcoin Bear Market – Millennials Experience their Own “Dot Com” Meltdown/Boom-Bust

After the go-go heady days of 2017 where Bitcoin and other cryptocurrencies took off to the moon, 2018 was a cold dose of reality as the value crashed back down to Earth. While its current value is nothing to sneeze at in the $3K – $4k range, compared to its all time high in 2017 at $19,065, Bitcoin has lost over 80% of its value.

The tragedy lies in the fact that many people got swept up in Bitcoin mania in 2017 as prices went parabolic and bought in at levels much higher as prices skyrocketed. Many people new to the world of investing started putting money into Bitcoin and believed there was little if any downside risk- sentiments very similar to folks entering the dot com boom 20 years earlier, or the housing market boom 10 years earlier. With their lofty dreams came lofty egos – I tried warning some eager Bitcoin enthusiasts of the inherent danger when prices begin to go parabolic, but I was dismissed as someone who “just doesn’t get it”.

More experienced professionals got sucked in as well, as noted by an article detailing the sad case of investors buying into a fund at double the cost at the very top of the market because they were so frantic to get into the market no matter the cost.

One thing I have learned in the market is that they always run the same pattern related to greed and fear. You have fear of missing out, followed by a greed to make as much as possible, followed by a fear of losing money and closing out for a loss. The pattern of fear and greed is consistent throughout generations:

 

Look at the above charts similar curves.

Here’s the dot come bust chart in detail:

 

The reason why similar market moves keep repeating is that people to fail to learn lessons from the past, and then are replaced by new generations of investors to motivated by our ancestral fear and greed, fall into the same boom and bust investment behavior.

Court Case:Trader Tries Trading Millions on Demo Acct, Does it on REAL Account Instead. Can he Keep $$$ Gains?

Here’s a situation that’s hard to believe- a trader opens up a trading account in France with $23,000 and wants to practice using the brokerages demo account that he had been using to learn on.

So he engages in trading, but due to some crazy errors, he winds up trading on a live account and by the time he realizes he is NOT in the demo account, he is $1 million dollars in the hole. 😬

Now this is pretty crazy stuff, since I have NEVER heard of ANY brokerage that would allow a person with just $23,000 in their account to be allowed to trade in the BILLIONS and incur so much debt- likely because they would soon be out of business with those type of lax safeguards.

Now once he finds out, you’d think he’d immediately call the brokerage and tell them the situation and that he wants no part of this…..and you’d be wrong.

Instead, he decides to continue trading and we get to some more crazy stuff happening: he actually does extremely well and winds up making $11.6 million in profit! πŸ’°πŸ’°πŸ’°

Once the brokerage learns about what happened, they decided to keep the money since the trader was supposed to be on a demo account. πŸ’Έ The trader is now taking the brokerage to court claiming that the money he made should be rightfully his to keep.

So the question to consider is- who has the best claim to the money, the brokerage or the trader? What do you think?

I would reason it out as follows:

While on the surface it one could make a case that since he was trading, he should be able to keep it. But further analysis finds problems with this.

If he had lost millions, would he also claim the responsibility to pay it back, or would he claim he was free of liability because he believed he was on the demo account? The knife cuts both ways.

The key though is his account size. At only $23,000, it would be clear to all that he does not have the equity to be allowed to trade in the millions for a real account and therefore the brokerage should be on the hook for those losses. This also means they get to keep the gains as well.

Now having said that, I have these conclusions:

  1. Clearly this guy was either very lucky or knows what he’s doing and should be offered a trading job.
  2. Since it was the fault of the brokerage for allowing him to trade such large amounts on a real account, and he did earn them a nice amount, it would be nice if they gave him some type of payout since he could have also bankrupted them.

Here’s the article:

https://www.cnbc.com/2018/06/21/trader-builds-5-billion-position-after-realizing-it-wasnt-a-demo.html

 

 

 

End of Year Post

It’s so hard to believe that 2017 is hurtling towards the close in its short remaining hours. Time certainly does fly when you’re busy. Of course this has been quite an event filled year as well. The November Surprise of 2016 was just the opening act of unanticipated shocks, tumults, and surprises experienced in 2017, and 2018 promises even more dramatic upheavals.

I haven’t been talking about my trading much at all, but it’s been my primary focus throughout the year. I spent some time reading the opinions of other traders on trading message boards, and I’m always surprised by both the negativity and lack of open mindedness in quite a few of the posts there. Negativity in the sense that so many people think successful day trading isn’t possible (why would they hang out on a trading site?), and that they are certain as to what works and what doesn’t. For example they will act as an authority that “method A” in figuring out trading isn’t possible. They base this on the fact that it didn’t work for them, and they don’t know any one personally who is using that method successfully. This type of thinking is absurd. There are many things I’m unable to do, that I know those around me can’t do either, but that doesn’t mean that particular skill hasn’t been mastered by someone outside my field of knowledge. Thinking in absolutes of what will or won’t work will limit one’s mind growth. I guess you would call that thinking “inside” the box.

My trading growth in understanding has made good progress this year. I was fortunate to be able to obtain some insights that allowed me to connect the dots with other observational recurring market behavior. So much so that I expect 2018 to be a breakout year.Β  It’s amazing how a key insight can help bring all the other discoveries into their proper order to make for a big picture revelation. The time needed to arrive at these insights has taken far, far longer than anticipated, and makes it very clear to me why the failure rate in reaching trading success is so high.

I could delve into my thoughts about Trump’s 1st year, but that would take up too much space and seriousness, so I’ll save that for the New Year. What a year though – chronicled via Twitter!

 

Here’s a video I found that sums up the year of Trump:

 

 

 

 

 

Good Read on the Rise of Automated Systemized Trading/Investing Vs Humans

We can see the effects of automation all around us and how it is impacting the job market. The advent of self driving cars will soon be upending the taxi industry. What many people may not be aware of is automation is moving into many job categories previously thought to be “robot proof”. There are inroads being made in law with automated systems replacing the tasks done by paralegals. Robots can now perform complex surgeries that most thought could only be done by a human doctor. Some news articles are now being generated by computer, and the list goes on…

The trading and investment industry has certainly not escaped this phenomenon. Discretionary traders and portfolio managers are under pressure from automated index funds and system trading programs that are proving to be superior, at least under current market conditions over the last few years.

Here’s an interesting read on the rise of automated systems squeezing out human traders:

https://www.linkedin.com/pulse/revenge-humans-how-discretionary-managers-can-crush-leigh-drogen