Ask mrbaseball about trading for a living

[Isura]

- How did you learn? How helpful are books? How hard is it to learn trading one your own?

- What are your typical hours? How much study do you do outside of work hours? What is the compensation structure?

- Your most proud of accomplishment? Biggest setback? Biggest obstacle during your career?

Thanks for doing this.

[Butcho22]

If you had every last cent taken away from you right now, as well as all of your higher education and knowledge you've gained since starting trading, what would you do?

[mrbaseball]

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-What is the most you'll risk (% of your a/c) on any given trade?


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Most of my managed and arb trades have very small or set risks. When scalping very little. I am very risk averse. If a trade looks or feels bad I puke it. Since my goal when scalping is very small I have to set my risks very tight as well.

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-And on any given idea?


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This depends on the trade in question. Most of the managed trades have a set amounts allocated to them. So I have X amount of dollars setting the size of the options portfolio and X amount of dollars set for another managed options trade I do. The general rule of thumb (for short option plays) is 3 times. If it triples against you then you dump it.

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Do you use a monthly stop-loss? ie - some traders stop if their a/c drops a certain percentage for the month.

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No. Just keep churning away trying to get it back. However in some times of frustration the best strategy is to walk away for an hour or a day or 2 or 3.

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If for example you are willing to risk 1% on each trade, how many open trades (in different/not so correlated markets) are you willing to be exposed to at any one moment (as a % of your portfolio)? Portfolio heat? I guess this would be similar to your monthly stop-loss if you use one

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I have a lot of stuff going at the same time just from the nature of the trades. The 2 managed option trades are always there and always going as well as a couple of the arb trades. For daytrading and scalping I generally only do one or two things at a time. Usually I am scalping spreads and usually in stock indexes (ie Midcap/russell or Dow/spu) but also do some interest rate, currency and energy spreading. I usually only watch 1 or 2 spreads at a time. If I take a directional (outright) play I will usually only do 1 or 2 of those at a time but I prefer the spreads.

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Do you employ stops placed in the market or in your head? (Some larger traders find it a disadvantage to have their stops available for MMs to view).


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I use physical stops when I can. I always use them for directional trades but have to use "head" stops for spreading. This is the main disadvantage of spreading for me. The fact that you can't use a physical stop. Sometimes spreads will just bolt away from you which is my main risk and chasing them can be very frustrating at times. As I have become more and more experienced I have gotten pretty good at spotting this and can "usually" get out before it gets too painful.

[mrbaseball]

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How did you learn? How helpful are books? How hard is it to learn trading one your own?

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I learned primarily through the school of hard knocks. My initial training was a series of videos on options trading. Then they gave me a stack of trading cards and sent me into the pit.

Books are very helpful. I read a lot of trading books and have a rather extensive trading library. Some are great and some are useless. I generally find most value in the psychology types of books rather than the nuts and bolts types.

It's hard. Like they say trading is very simple but it aint easy. That said it can be learned if you work hard enough and study hard enough. Some things I think you just have to experience and until you do you won't understand. It's easy to look at a chart and see all the indicators and say you shoulda done this and that this. But when you are over on the righthand side of the chart in a live ticking market with real money in play it is a totally different universe.

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What are your typical hours? How much study do you do outside of work hours? What is the compensation structure?


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My typical hours are 7am to 3pm or 8am to 3pm. If there are early economic numbers (7:30am CST) I go in earlier. If not a little later. A lot of the big numbers (unemployment, CPI, PPI, GDP etc.) are released at 7:30am and I want to be there for that. Although I wish I woulda missed it yesterday [img]/images/graemlins/smile.gif[/img] But I have plenty of flexibility and leave early if it's slow or seemingly unprofitable to be there.

I usually read one or two new trading books a month as well as the magaizines "Technical Analysis of Stocks and Commodities" and "Futures" every month.

I get a salary, bonus and percentage.

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Your most proud of accomplishment? Biggest setback? Biggest obstacle during your career?


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Accomplishment would still being in the game 20 years later. I have seen 'em come and I have seen 'em go. Sometimes they go in spectacular fashion! Setback would be when my first firm closed the doors and I had to scramble to get a chance to stay in the game. The biggest obstacle would be the changing nature of the markets. Sometimes when a very lucrative trade or idea dries up it's like a punch to the gut. Nothing seems last forever and some of the better trades just stop working so you have to scramble to find a replacement. This just happened to me recently as my bread and butter trade of the past few years evaporated last winter. I have high hopes that the new program I just started this week will fill that gap. In the mean time I just keep chugging along with my arb trades and options portfolio while scalping spreads and futures.

[mrbaseball]

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If you had every last cent taken away from you right now, as well as all of your higher education and knowledge you've gained since starting trading, what would you do?


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Cry? I don't expect to become pennyless or uneducated anytime soon so I don't have an answer. A person my age with no money or education would have few options other than "bum".

[kimchi]

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I started in June of 1987 as a market maker in the US T-Bond options pit at the Chicago Board of Trade.

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Can you tell me a little of your personal experience of October 1987. It must have been a very educational month for a newb.

[mrbaseball]

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Can you tell me a little of your personal experience of October 1987. It must have been a very educational month for a newb

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It was quite terrifying. I was new and very inexperienced. The bonds were in full bear market mode and crashing hard that morning. I was short a little too much premium and taking some major heat. More heat than ever before. So I bought some in. I was also long calendar spreads (long back months and short front months) and these work real well in and environment of rising volatility. And boy was volatility rising.

As the stock market continued to break bonds started to reverse and we had a major flight to quality. Bonds had touched limit down (3 full points) and the reversal got them lock limit up. They would lock limit up for the next 2 trading days. Everyone was in shock and panic and option volatilities went through the roof. 10 handle out of the money puts were rising in value despite the market locking limit up.

Our orders were to liquidate. So the next day we had to clear all positions. We had about 12 guys in the TBond options at my firm. Bonds were locked up again and not trading but options had no such limitations. Basically everyone was just trying to get flat or out. I got out of everything and had survived. Didn't make any money but didn't lose much either. The long back month options I held were my savior. The mega volatility spike effected the back months more than the front months because that's the way impled volatilities work. I have always had a soft spot in my heart for long calandar spreads ever since [img]/images/graemlins/smile.gif[/img]

Anyway of the 12 guys we had in the pit, 2 of us survived. It was a tremendous lesson in what can happen and just how devastating it can be when it does. It has effected the way I look at risk ever since. A lot of real big shooters went down extremely hard and were forever done. Having gone through that experience helped me a great deal.

[kimchi]

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I got out of everything and had survived. Didn't make any money but didn't lose much either.......Anyway of the 12 guys we had in the pit, 2 of us survived.

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nh

Thanks for an interesting thread mrbb

So, I assume you have some form of contingency plan for when something nasty happens again, as it maybe did for you again during the Asian economic collapse and bond defaults of the late 90s.

[Fishhead24]

First off, thanks for the time.

I'm an active grains trader and also own farmland in Iowa.

My question to you is what is the sentiment surrounding the sugar market, beings that it will eventually overtake corn as the main commodity(imo) for ethanol usage.

Also, do you hear many individuals in your line of work involving farmland in their investment portfolios........guessing you have a very good sense with this being so involved in the grain markets.

Thanks,
-FH-

[kimchi]

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I'm an active grains trader and also own farmland in Iowa.


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We've been waiting for your segue [img]/images/graemlins/smile.gif[/img]