Trading and Consultants

“Our indicators tell us, we’re very close to a Lehman-like drawdown,” argues Larry McDonald, a former strategist at Société Générale who now runs The Bear Traps report.

Financial Times, February 20, 2020

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“I’m not saying consultants are inherently evil or anything like that (laugh in the audience, sarcasm), but… Without owning something over an extended period time, where one has a chance to take responsibility for one’s recommendations; where one has to see one’s recommendations through all action stages and accumulate scar tissue for the mistakes along the way and pick one’s self up off the ground, dust one’s self off. Without that process, there is very little real learning.”

Steve Jobs on “Consultants”

When you are training someone to be a trader, at a certain point you can’t hover over every trade. You have to give the trainee space to “get into the zone”, as they say, to feel, independently and assertively, a profitable transaction rhythm. It’s hard to describe until you have experienced it, but it is clearly focused yet at the same time semiconscious. It’s exciting for a newbie, and of course, that is why it usually ends in a risk position error, which is fine, because you want both the success and its devolution into failure to happen, within bounds you have created, as part of the training. This is the key question you must ask the trainee after the close: why do you have the position on? Usually, the response is incoherent, self-contradictory babble, which you need to patiently and calmly organize in the trainee’s brain. Easier said than done! But sometimes a wise-punk will say: “Because the people who hit my bid are idiots! They don’t understand that…” This is where you blow up and yell in the most violent terms, not because you are actually upset, if you have half a brain the capital allocate is trivial, but so that the arrogance in your pupil receives a flaming arrow in the forehead never to be forgotten. The sellers may be stupid, but so what? But above all, hubris will bring the downfall of any new trader. The beast inside the market will at some point humiliate all of us. So stay humble, learn, and grow.

“Higher prices bring out buyers. Lower prices bring out sellers – size opens eyes. Time kills ALL trades. When they’re cryin’ you should be buyin’. When they’re yellin’ you should be sellin’. It takes years for people to learn those basics – if they ever learn them at all.”

Larry McCarthy, Former Head of Distressed Fixed Income trading at Lehman Brothers

Round Numbers

There is something about round numbers that make traders want to sell. Sometimes it’s just a four-hour pause that won’t even show up on a daily chart. Sometimes it provides days, weeks, even several months of resistance before the round number is superseded. Sometimes it will traverse the round number but refuse to close across it for the longest time. Of course, sometimes the round number has no trading significance at all. But it happens often enough, and dramatically enough, that often the only common-sense reason for the selling is simply because it is a nice, fat, obvious round number. Now, it happens too, that days after the failure at the round number, some actually bad news does come out. And, people being people, traders will say, “Aha! So that’s why there was selling there!”, and occasionally they might even be right, but more often than not the retrospect is false since the news didn’t even begin to develop until after the profit-taking. Sometimes round numbers are convenient price targets and people take profits there out of mental efficiencies. The most common phenomenon is for two more attempts over a period of time before finally overcoming the number. Not a law, just a guideline

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