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Traderconstructionkit - Chapter 1 - Know Yourself
Traderconstructionkit - Chapter 1 - Know Yourself
Contents
Introducion
Chapter 1
Chapter 3
Congestion Levels
July 10, 2018
A congestion level is an area on a chart where the market trades a substantial
amount of volume within a compressed area. While not a defined pattern with
implicit predictive implications, congestion levels are interesting for technical
traders as they represent the creation of vested interest at or around a price
level. Any rapid move away from that level will create winning and losing
positions, which the winners will want to keep and the losers will be desperate
to unwind. Congestion levels are particularly interesting in markets with low
intraday liquidity, where a temporary surge of participant enthusiasm can create
a volume of new positions that cannot easily be unwound without moving prices
sharply higher or lower.
Consider the following tick chart, which depicts 500 individual trades:
The first 234 trades on the chart are clustered between $99.30 and $102.15. As
soon as the market breaks below $99.30 there are 234 winning short trades and
234 losing long positions. While not all losing traders will immediately seek to
exit their position, many certainly will. If the market makes a low volume move
away from the congestion level it may be difficult for the losing traders to exit,
which will continue to drive the market lower. This type of self-perpetuating
market move is sometimes called a “rolling stop-loss,” where the actions of
traders closing out positions push other traders past their point of comfort,
motivating additional buying or selling. It can be very beneficial for traders to
monitor the volume accumulated during a congestion formation, as even a
rough estimate can provide a sense of the losing positions that will need to be
unwound and give some perspective on the potential magnitude and duration of
any buying/selling motivation.
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Figure 8.1 High and low volatility price paths around the same central trend.
In the low volatility case it is possible to establish a long position early and hold
it with minimal suffering. The move from $101.00 to $108.00 is relatively linear,
with no material pullbacks to cause doubt or inflict mark-to-market pain. When
the market plateaus between $108.00-109.00 there is a prolonged period of
time to evaluate the position and exit the exposure.
In the high volatility case the trader is faced with daily fluctuations ranging
between $2.00-$4.00 that severely distort the appearance of the in-progress
trend. With perfect execution, it is possible that a skilled trader who recognizes
the choppy conditions and is proficient at operating in dangerous markets could
buy at $100.00 and, after riding out a material amount of volatility, sell at
$110.00. A less-skilled (or less lucky) trader could easily buy early in the trend
at $104.00 and sell late in the move at $106.00, making a paltry $2.00 (or about
half a typical day’s trading range) for enduring a significant amount of suffering.
In a non-volatile market with tight bid-offer spreads there is often little difference
between executing at the market bid or offer and exercising good tradecraft and
negotiating a better price or providing liquidity by posting a two-way. The slight
difference in price will not materially impact the profitability of the overall trade.
In a volatile or panic-driven market the bid-offer spread can widen appreciably,
forcing the trader to execute efficiently at both entry and exit or risk significantly
eroding the potential inherent in the trade.
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On a macro level, the slow rotation of global money flows from asset class to
asset class and country to country have huge impacts on both the absolute
level of prices and the relative number of people paid to trade and analyze
them. Any hot or up-and-coming market will see massive inflows of capital to
the detriment of established mid- and late-stage products. From bonds (1970s-
80s) to equities (1980s) to derivatives (1990s) to technology stocks (1990s-00s)
to commodities (2000s) to cash (2008-2009) and riskless assets (2009-10) back
to equities (2010 to present), one market will capture the collective imagination
of institutional investors. Firms with an established presence in the hot market
will assume a leadership position and see an influx of customer business, which
will lead to investor interest, which will inevitably lead to growth and expansion.
Those not participating will feel left out of the market, the profits, and all of the
cool cocktail party conversation. They will panic, and try to buy their way in at
any cost, raising the price of talent and, usually, the product itself. The
inflationary effects of new capital are particularly intense for any ownership-
based product, like equities or real estate. Contractually backed markets like
derivatives can expand much more easily, which is one of the reasons why
jumbo-sized institutions prefer financial products. It is significantly easier to buy
a billion dollars worth of mortgage bonds than a billion dollars worth of houses.
From Chapter 2 - Know the Enemy, Page 55.
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The relative simplicity of directional trading reduces the number of moving parts
while dramatically increasing the relative importance of each remaining variable.
By definition, every position is a trader-constructed subset of the total market
risk-reward space. A directional position is unique in that it creates an
unmitigated exposure to the totality of the market’s price movement, unlike the
inherent exposure limitations of an option or the self-hedging characteristics of a
spread. Directional trading is about control and execution, and requires a
degree of engagement and commitment not necessary with other, more limited
forms of exposure.
Good directional traders are extremely skilled at the basic, unglamorous
blocking and tackling that, while not flashy, is often the determining factor
between winning and losing. For this reason, many of the basic topics covered
in this chapter will be assumed as prerequisites for the sections on spreads,
options, and quantitative trading that follow. The more complex strategies allow
the trader to express subtler, more nuanced views of the market, but all either
retain a directional component to their performance, or can also be used to
express directional views.
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Excerpt from Trader Construction Kit Copyright © 2016 Joel Rubano. All rights
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mechanical means, including information storage and retrieval systems, without
permission in writing from the publisher, except by reviewers, who may quote
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The risk-reward can also shift with the movement of price over time. Consider a
position entered into at $100.00 with an initial $5.00 of downside and $35.00 of
upside for a very favorable 7:1 risk-reward ratio. The market moves in the
trader’s favor and earns $10.00 from the entry point. The trader is now risking
$15.00 ($5.00 initial possible loss + $10.00 unbooked profits) to hopefully make
another $25.00, if everything goes as planned. The downside is that the risk-
reward ratio has eroded significantly, from 7:1 to 5:3. As a position nears the
profit target, the ratio can become skewed toward risking (much) more than
could possibly be incrementally gained. In this case, when the price reaches
$130.00 the trader is risking a total of $35.00 ($5.00 initial possible loss +
$30.00 unbooked profits) for only an additional $5.00 gain, for a thoroughly
terrible 1:7 risk-reward ratio. Paradoxically, great trades with favorable risk-
reward characteristics that perform perfectly will have, at the end of their life,
evolved into bad trades that should be taken off immediately. [60]
Figure 14.1 The risk-reward ratio of a trade will evolve during the holding
period.
[60] The trader can (and should) use a rolling stop-loss to control degradation of
the risk-reward ratio and protect profits.
Excerpt from Trader Construction Kit Copyright © 2016 Joel Rubano. All rights
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The bid-offer spread acts as a transaction tax; the amount paid is a function of
the market conditions and the trader’s skill. In general, traders assume that
under normal conditions they will have to pay one full bid-offer spread, half
when entering the position and half on exit. It may be possible to pay less in a
negotiation-friendly market, or if a sudden uptick in interest acts to temporarily
narrow the spread. In contrast, market-making traders attempt to earn the bid-
offer spread by posting numbers that they hope other market participants will hit
or lift, allowing them to get paid for putting on positions.
Slippage is the amount of value wasted between the time a trader starts
executing and the time he amasses or distributes the desired exposure. A
certain amount of slippage is unavoidable, unless the trader somehow manages
to do 100% of the volume transacted in the market during the execution window
and gets it all done at the same price. Slippage is almost impossible to quantify
in advance, but the more deeply immersed in the market the trader is, the better
he is able to gauge the potential impacts of transactional activity.
Most trades will involve paying a fee to the trading platform or brokerage for
arranging the transaction. The trader may have to pay exchange fees for
processing the transaction and clearing fees for routing it to the clearing broker.
In most evolved markets the brokerage, exchange, and clearing fees will be a
non-trivial but not onerous cost to the trader.
Credit and/or collateral costs can vary significantly from strategy to strategy,
and have a large impact on the relative attractiveness of an array of
alternatives. Unlike transaction-based fees that are paid once, the cost of
financing the trader’s position across the anticipated holding period will depend
on a host of factors, including the volatility of the product (which will impact the
base-level margin requirements set by the exchange), the firm’s credit rating
(which will impact the extra or the multiplier the clearing broker applies to the
basic exchange margin requirements), the directionality of the exposure relative
to positions already held by the clearing broker, etc.
Consider a trade with a potential $3.00 of upside and $1.00 of downside and a
two-month intended holding period. A 3:1 risk-reward ratio would generally be a
proposition that any trader would immediately seek to execute. When evaluating
the relative attractiveness of the exposure the trader must also take into
consideration the $0.25 bid/offer spread that she will have to pay away to a
market-maker, a $0.01 brokerage charge and $0.01 clearing fee on both the
buy and sell transactions, and $0.13 per month of financing costs to maintain
the position. The $0.55 (= $0.25 + ($0.02 × 2) + ($0.13 × 2)) total that the trader
must pay away in fees and costs adds to the cost of a loser and subtracts from
the profits of a winner. In reality, the trader is risking $1.55 ($1.00 projected loss
+ $0.55 costs) to make $2.45 ($3.00 possible gain - $0.55 costs) for a risk-
reward ratio of 2.45-to-1.55, which most traders would typically not entertain.
Traders have a tendency to underestimate the fees and costs inherent in their
transactions for a variety of reasons. Some, like the bid-offer spread and the
slippage, are difficult to fully assess without actually attempting to execute the
transaction. Others, like the financing cost of holding the position, frequently
end up being larger than expected as the trader clings to an exposure that with
the hope that it will pay off someday.
From Chapter 12 - Evaluating Trades & Creating a Trading Plan, Pages 485-
486.
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Excerpt from Trader Construction Kit Copyright © 2016 Joel Rubano. All rights
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If there is time, the trader needs to immediately notify management and the risk
group as to the position, the estimated P&L impact, and the mitigation plan. This
demonstrates that the trader is aware, engaged, and to the extent possible,
managing the position. Managers hate losses, but they will never forgive being
blindsided by a trader. Just as a trader has to deal with the immediate market
consequences, the manager has to deal with the subsequent organizational
consequences, which may involve shifting exposures or requesting additional
resources if the trader’s loss is impactful to the firm as a whole.
With the immediate reporting taken care of, the trader needs to fix the problem.
There is no point in hashing through the logic, re-examining the underlying
rationale, or engaging in any other time-wasting activity. The exposure that is
currently destroying the P&L is no longer a decision item; it is a problem that
needs to be solved as quickly and efficiently as possible. In the aftermath of an
unusual market event there is only a certain amount of liquidity to be had,
typically significantly less than normal. The trader needs to capitalize on
whatever narrow execution window exists to take off or neutralize the position
before the market becomes untradeable.
Once the exposure has been mitigated, the trader needs to start working on
organizational and career damage control. There will be questions from
management about the decision-making process, the size and composition of
the exposure, and the overall handling of the risk. The trader should pre-empt
these as much as possible by giving the rationale, the market events that
unfolded to impact the trade, the P&L estimate, and the lessons learned going
forward. By providing this information before it is asked for, the trader appears
engaged and in control of the situation. This is critical, because senior
management will certainly be reevaluating the trader’s future risk-taking
activities in terms of both size and scope, and possibly his future on the desk.
They may stop by to have a chat to see how the trader is doing. They do not
care how the trader is doing, they are checking to see if the trader is broken,
defective, or is worn out and needs to be replaced. It is permissible to be
unhappy, it is never permissible to be out of control, throwing a tantrum, or
acting like a child. Management will want to see that the trader has accepted
responsibility, understands what happened and why the trade was not
successful, and has a plan for incorporating this information into going-forward
analysis and future risk taking.
Once the dust has cleared, some traders immediately want to jump into the
market and try to earn it all back as quickly as possible. This is a temptation that
most traders should probably resist, as their decision-making process is likely
highly compromised and their market view cannot be robust. There will also be
a temporarily skewed personal risk-reward relationship, where making back
some small quantity of money is marginally useful, but losing incremental
dollars while under heightened management scrutiny will look very, very bad.
A trader’s first post-disaster trade should be a model of risk-reward assessment,
clear analysis, and flawless communication about the rationale, goals, and
execution strategy. It should be appropriately sized for the trader’s new
economic reality and standing relative to allocated limits and goals. This can be
frustrating, particularly if the trader had been running well and accustomed to
larger bets with the house’s money. Starting from zero, which is in many ways
what every trader is doing post-disaster, is all about rebuilding credibility and
confidence along with P&L. Large losses are part of the game, and on a long
enough timeframe they will eventually happen to everyone. Having a career as
a professional trader is highly dependent on developing good crisis
management skills to ensure that the first bad position isn’t the last.
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Excerpt from Trader Construction Kit Copyright © 2016 Joel Rubano. All rights
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The trader must make a clear and intellectually honest assessment of his skill
and that of the analysts at their firm, relative to the market, or he deceives
himself into a proposition where he is operating from a perceived advantage but
an actual disadvantage. It is difficult, but possible, to beat the market with
average information. To do so, the trader will have to compensate by leveraging
other strengths to make up for the lack of an informational edge. His analysis
will have to be better than the rest of the market’s, his risk assessment superior,
and his trade selection more creative. He will need superior position
management skill and iron discipline.
For any position that requires management or senior management approval, the
ability to clearly articulate the view will frequently be the primary reason that the
authorization for the exposure is approved or denied. A trader that cannot
clearly explain and justify why she wants to create a position will not be given
the latitude to do so.
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A trader with a fundamentally bullish view of the market and core long position
would observe a trend in motion in a well-defined channel, the width of which is
defined by the alternating higher lows at (L1) and (L2) and higher highs at (H1)
and (H2). When the market retraces to support, the trader would purchase an
incremental volume (B1), which he would hold with a tight stop, re-selling once
the market reached the top of the trend channel at (S1). This process would be
repeated at (B2) and (S2), and continue for as long as the trend remained
viable. When market reaches the profit target or the trend ultimately ends, the
trader would exit both the core position and any incremental trades held at the
time.
Trading around a trend has several advantages:
1. The trader maintains a core positioned with the trend, and is incrementally
adding in the direction of the trend and decreasing the position size prior to
potential countertrend moves.
2. The trader buys “cheap” and sells “expensive” within the context of the
trend.
3. There is a good balance between aggression and risk-reward.
The principal risk of trading around a trend is that, if the trend abruptly fails
immediately after an incremental addition, the trader will be taking losses on a
larger-than-core position.
The relationship between the size of the core position and the magnitude of the
incremental trades is also important. If the core position is not materially larger
than the incremental buys and sells, the trader will effectively be attempting to
derive the majority of the P&L by trading the swings in the market and not the
more predictable central trend.
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Excerpt from Trader Construction Kit Copyright © 2016 Joel Rubano. All rights
reserved. No part may be reproduced in any form or by any electronic or
mechanical means, including information storage and retrieval systems, without
permission in writing from the publisher, except by reviewers, who may quote
brief passages in a review.
How The Market Gets From Point A to B
Matters
January 11, 2018
How The Market Gets From Point A to B Matters
A trader must examine the texture of the chart, as a whole. If it is making lower
highs and lower lows, the market is in a downtrend. But how is the market
making the highs and lows? Is it grinding higher in small increments over many
days, only to give it up in sudden, massive sell-offs? Does it drift lower only to
be blown skyward by intermittent stimuli? Is the pattern regular and predictable,
bouncing back and forth between channel lines, or does it surf the top then
crash to the bottom before re-establishing somewhere in the middle? These are
critical distinctions if the trader intends to utilize the intermediate trend to get
positioned (generally a good idea) or to trade against the macro trend (possible,
but risky). If the trader intends to ride the macro trend, understanding the
“normal” intra-pattern characteristics is crucial for risk to reward assessment
and execution strategy. A seemingly obvious trend may, on closer examination,
not be tradable at all. Assessing the tradability of a market move will be covered
in much more detail in Chapters 7 and 12.
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Excerpt from Trader Construction Kit Copyright © 2016 Joel Rubano. All rights
reserved. No part may be reproduced in any form or by any electronic or
mechanical means, including information storage and retrieval systems, without
permission in writing from the publisher, except by reviewers, who may quote
brief passages in a review.
Response to Stimulus
January 10, 2018
Response to Stimulus
The trader will need to monitor and evaluate the degree to which the position
responds to the underlying fundamental and technical motivators. It is possible
that the trade will outperform the trader’s expectation, perform as expected,
underperform, or have a problematic negative outcome or puzzling non-
response.
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Excerpt from Trader Construction Kit Copyright © 2016 Joel Rubano. All rights
reserved. No part may be reproduced in any form or by any electronic or
mechanical means, including information storage and retrieval systems, without
permission in writing from the publisher, except by reviewers, who may quote
brief passages in a review.
To read more, click here. To purchase Trader Construction Kit, click here. To
see future updates about new Excerpts, follow @TCK_JRubano on Twitter.
Excerpt from Trader Construction Kit Copyright © 2016 Joel Rubano. All rights
reserved. No part may be reproduced in any form or by any electronic or
mechanical means, including information storage and retrieval systems, without
permission in writing from the publisher, except by reviewers, who may quote
brief passages in a review.
Vitruvian Trader
January 9, 2018
Everyone wants to know what it takes to be a trader, what intangible
characteristics separate the winners from the losers. For the vast majority of
successful traders, there is no single thing that steers them down the path
toward either the penthouse or the outhouse. If there were a perfect trader, her
approach might look like this:
Vitruvian Trader
• The ideal trader has a clear sense of what she is trying to achieve at all
times.
• The trader expects a particular market response when a base set of
fundamental and technical conditions are disturbed by incremental change or
the influence of external stimuli. This informed perspective on the future of price
is called a view.
• The trader considers a variety of strategies to implement her view, selecting
the one with the closest response to the underlying driver with the best potential
reward, the lowest probable risk, and the best performance characteristics.
• The trader sets the position with a defined profit target and a stop-loss.
• The trader monitors the position for changes to the underlying thesis while
maintaining an alert, intellectually engaged but emotionally detached state.
• If action is required, the trader executes with the maximum possible
efficiency.
• The trader evaluates the results and adjusts the operational parameters
(trade selection criteria, stops, targets, etc.) of the methodology as necessary.
• Repeat.
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permission in writing from the publisher, except by reviewers, who may quote
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The evaluation process begins with the trader’s view of the market and a set of
potential implementation strategies. From there, the trader must determine:
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permission in writing from the publisher, except by reviewers, who may quote
brief passages in a review.
Most technicians will ultimately spend the majority of their time on a chart
resolution and study timeframe that works well in their market and for their
methodology. It is important to look at the same product through a different lens
from time to time, dropping down to a faster chart for intraday patterns or
zooming out to a multi-year perspective to look for long-term trends.
Tipping Points
The tendency of technical patterns to appear at all resolution levels of the data
can lead to a circumstance where a small intraday pattern can have an outsized
influence on the longer-term trend. Imagine a long-term downtrend experiencing
a normal countertrend retracement to near the top of the downtrend channel,
where on an intraday chart the market forms a bull flag. If the bull flag breaks
out to the upside it may provide enough impetus to extend the countertrend and
push the market outside of the downtrend channel, a neutral signal if not
outright bullish. Conversely, if the bull flag fails then the countertrend movement
is likely at an end and the long-term downtrend is intact.
[18] The best-known example is the Mandelbrot Set, named after renowned
mathematician (and sometime financial theorist) Benoit Mandelbrot.
Excerpt from Trader Construction Kit Copyright © 2016 Joel Rubano. All rights
reserved. No part may be reproduced in any form or by any electronic or
mechanical means, including information storage and retrieval systems, without
permission in writing from the publisher, except by reviewers, who may quote
brief passages in a review.
In the first chapter of Trader Construction Kit (which can be read here) I assert
that succeeding as a professional trader is a two-part problem: personal
evolution to become the best possible risk taker and developing, refining and
deploying an efficient process for interacting with the market. Given the recent
widespread popularity of Behavioral Finance, most aspiring traders are aware of
the need to improve their decision making and avoid common biases in risk
taking behaviors. There is significantly less material available on how to develop
a robust trading methodology, which I describe in idealized form in the following
excerpt from the chapter:
The ideal trader has a clear sense of what she is trying to achieve at all times.
The trader expects a particular market response when a base set of
fundamental and technical conditions are disturbed by incremental change or
the influence of external stimuli. This informed perspective on the future of price
is called a view.
The trader considers a variety of strategies to implement her view, selecting the
one with the closest response to the underlying driver with the best potential
reward, the lowest probable risk, and the best performance characteristics.
The trader sets the position with a defined profit target and a stop-loss.
The trader monitors the position for changes to the underlying thesis while
maintaining an alert, intellectually engaged but emotionally detached state.
If action is required, the trader executes with the maximum possible efficiency.
The trader evaluates the results and adjusts the operational parameters (trade
selection criteria, stops, targets, etc.) of the methodology as necessary.
Repeat.[1]
A trader must have a clear sense of their goals, as without a defined set of
expectations it is impossible to calibrate their allocation of resources and
relative level of aggression. A firm grasp on their capability to take risk is
essential when formulating position sizes and evaluating resource-intensive
trading strategies.
A trader must incorporate all of the available relevant information into their
decision-making process, given their stylistic predilections. While I feel that it is
logical to incorporate both fundamental facts and technical information, many
traders prefer to start with a more curated set of purely fundamental or technical
inputs. Whatever works for the individual. One universal constant is that the
trader’s analysis and interpretation of the informational inputs must lead to their
view on the future of prices, not be an after-the-fact justification for a pre-
conceived notion that the market is going higher or lower.
Once the trader has developed a view of the market, they must evaluate the
options available for establishing an exposure to capitalize on the anticipated
price fluctuation(s). Different traders will have different resource allocations and
products approved for use, and their ability to employ them will be a function of
their relative year-to-date performance. A trader must consider all potential
implementation strategies, evaluating each alternative on how much capital it
puts at risk, the potential reward, and the unique performance characteristics
that will impact its response to market fluctuations. The ability to accurately
assess the relationship between risk and potential reward is the key
determinant of a trader’s long-run success. Typically, a trader will require a
reward that is a multiple of the amount they have put at risk to justify a position.
Having evaluated a variety of options to arrive at the optimal strategy to express
their view, the trader must develop a plan to implement it in the market. A good
trading plan will include (among other considerations) a stop-loss level beyond
which the trader will concede that the position is not working and exit and profit
target where they will happily book their winnings. The stop-loss and profit
target must be derived prior to establishing the exposure, as this allows for a
more clinical, unbiased assessment.
When entering and exiting the position the trader will seek to execute as
efficiently as possible to minimize slippage and other transactional costs, which
act as a tax on the profitability of the exposure.
Once the position has been closed and the P&L realized, the trader will
forensically re-examine their decision making across the entire process,
regardless of positive or negative outcome. While this type of methodological
tuning is valuable for experienced traders, it is absolutely critical for younger
traders who are still developing their approach to the market.
When all is said and done, the trader will start over at the beginning: watching
the market, taking in information, and using it to re-formulate a view of the future
of price.
From this basic blueprint the trader will add, subtract or modify elements as
needed to adapt it to the demands of their particular market, take maximum
advantage of their unique strengths, and de-emphasize their inherent
weaknesses. Every trader should seek to leverage their comparative
advantages relative to their peers in the market, wherever and whatever they
may be. If they are a talented fundamental analyst, their methodology should
over-weight fundamental inputs when deriving a view of the market. A skilled
option trader might be able to contemplate constructing complex non-linear
positions that might not seem as attractive or viable to a directional or spread
trader, etc.
[1] Excerpt from Trader Construction Kit Copyright © 2016 Joel Rubano.
@TCK_JRubano
Risk Tolerance
Another topic that emerged from the Q&A of my last lecture was the concept of personal risk
tolerance and matching it to the firm you are seeking to work at.
As a trader’s career progresses in the industry, they typically increase the size of the risks they
take either as a result of growing competence/confidence or in response to ever-larger profit
targets given to them by management.
Somewhere along that evolutionary path, most traders encounter their natural comfort level
with risk. Usually, they realize it in hindsight after realizing they are taking too much risk.
Symptoms of taking too much risk include feelings of panic and fight-or-flight, degraded
cognitive function, increased agitation. All of the usual stress symptoms. The most important
one is the reduced ability to process & act on new information, which usually leads to losses.
The best traders recognize that they have moved out of their comfort zone and dial back their
risk taking to a level they can maintain. This is critical, as operating beyond that threshold is by
definition sub-optimizing your trading performance.
There is absolutely no shame in this. Far better to recognize that your upper limit is making $5-
8M of P&L per year and building a career around that than trying to make $25M and blowing
up and losing your job.
Once a trader has an understanding of themselves as a risk taker, they must be sure that when
switching jobs/firms that they not put themselves in a position where they are set up to fail.
A trader used to slowly and carefully accumulate $4-6M would not do well in an environment
that wanted to see instant production, or else. Conversely, an aggressive trader looking to
print $50M would become frustrated at a firm that did not tolerate significant drawdowns.
First a trader must understand themselves, and with that knowledge in hand they can chart a
productive path through the industry.
..
Different types of traders have radically different methodologies built to the demands of their
market and product of choice. Algorithmic market makers and physical metals traders have
very little in common, other than the basic principles of risk, reward, etc.
Jim Simons & Co. are the closest to “solving the market”, as far as anybody knows, and chances
are if you saw their algorithms in all their glory, they probably just do 1-3 slightly better than
their peers. And that’s all it takes.
The real challenge is doing things 1-3 well. I can assure you, that is all the challenge you need.