by Brady Dahl
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MOMO TRADERS
Tips, Tricks, and Strategies from Ten Top Traders
Brady Dahl
with
Nathan Michaud
miltona
Miltona Publishing
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Some names in tins book have been chanced to protect the privacy of the individuals involved.
Cover design: Josh Andrews
Copyright © 2015 by Brady Dahl. All rights reserved.
Published by Miltona Publishing LLC.
No part of this publication may be reproduced, distributed, stored in a retrieval system, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the ease of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law.
For permission requests, contact the publisher at
www.MiltonaPublishing.com.
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate.
Neither the publisher nor the author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
Orders by U.S. trade bookstores and wholesalers, please visit www.MiltonaPublishing.com. Special discounts are available on quantity purchases by corporations, associations, and others.
Printed in the United States of America Also available as e-book at www.MomoTraders.com
ISBN 978-0-692-51080-3
First Edition
10987654321
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For Sonny, Sawyer, and Marlo May you always dance like nobody's watching. .
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Contents
Foreword...........................................................................................ix
Preface............................................................................................xiii
Acknowledgments............................................................................xv
Note From Nate.............................................................................xvii
The Storyteller....................................................................................3
The Gambler....................................................................................39
The Youngster..................................................................................63
The Scanner......................................................................................89
The Rock........................................................................................115
The Tape Reader............................................................................147
The Student....................................................................................171
The Steadfast..................................................................................199
The Resilient..................................................................................227
The Swing Trader...........................................................................263
Afterword.......................................................................................285
About the Author............................................................................287
Traders4ACause.............................................................................289
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Foreword
Brett N. Steenbarger, Ph.D.
It’s an honor to be able to write the foreword for one of the most practical and real trading books I’ve encountered in a long time. In these pages, you’ll read about real people and their all-too-real trading: the blow-ups, the big wins, and everything in between. Most of all, you’ll gain a window on some very dedicated and successful traders that I’ve had the pleasure to meet thanks to Traders4ACause. In a world full of promotions and self-hype, it’s refreshing to hear real traders talk candidly about their paths to success.
As a psychologist who works with traders on their performance, I’ve had the privilege of working full time with day traders at Kingstree Trading in Chicago and then with portfolio managers at Tudor Investment Corp. in Greenwich, Connecticut. Along the way, I’ve gained experience in both prop shops and hedge funds, seeing the many ways in which money is made and lost.
One thing that experience has taught me is that trading is different from portfolio management. The trader who is scalping individual names from a Level II display plays a different game from the manager who holds many positions for weeks and balances those exposures in a portfolio. For the trader, the name of the game is pattern recognition and the ability to see situations develop in real time and then act ix
decisively. It’s all fast thinking and quick information processing the portfolio manager, it’s much more about slow, deep thinking, macroeconomic analysis, and detailed portfolio construction.
These are very different skill sets, and the market participant who shines at one is not necessarily going to succeed at the other. Indeed, I would argue that many problems for traders occur when they get away from their cognitive strengths. When the fast thinker slows down and overanalyzes, it usually leads to trouble. When the deeper thinker starts staring at screens and reacting to price movement, bad things happen.
In the pages that follow, you’ll meet a number of traders who epitomize fast thinking and rapid information processing. You’ll get a sense for both the personality traits and the cognitive skills that contribute to successful day trading.
For me, five themes cut across the interviews and are hugely valuable takeaways:
1) The importance of early blowups — An unusually high proportion of the interviewees started their careers by going through difficult periods of loss. Typically they bet big and lost. Their success came, in no small measure, from learning from those losses and becoming more disciplined and focused as traders.
2) The importance of risk-taking — The traders interviewed are willing to take significant risk when the factors that define a good trade line up. They’ve learned to not bet the farm on any single opportunity, but they aren’t afraid to aggressively pursue opportunity. This risk-taking quality means that they have to have the mental and emotional fortitude to weather P&L volatility.
3) The importance of being well-capitalized — A number of the traders pointed out that you need to start with money to make meaningful money. One reason for this is that, without some financial cushion, it is difficult to truly trade aggressively when the edge is present.
4) The importance of independent thinking — A common theme among the interviewees is the importance of trading your ideas and not those borrowed from others. With Twitter and chat rooms going non-stop, it’s easy to get caught up chasing other people’s trades. The successful traders can take meaningful risk, because they’re able to own their trades.
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5) The importance of intrinsic motivation — To a person, the traders interviewed don't trade for a job, and they don’t even trade as a career. Tor them, trading is a calling — a fundamental part of who they are. It is precise
ly because of this intrinsic motivation that they are able to sit in front of screens for hours a day, day in and day out, and internalize trading patterns.
This last point is extremely important. There’s a myth in trading psychology that success is a function of finding your edge and trading it with discipline. The reality of both trading and portfolio management is that markets are ever-changing. What worked in 2000 is not what is working in 2015; OTC microcaps may make great trading vehicles during one period and then die out in another. The truly successful trader is the adaptive trader. Yes, that means trading your edge with conviction and discipline, but it also means looking at markets through fresh eyes and finding new sources of edge.
So allow me to offer a somewhat novel interpretation of trader success: The traders you’re going to read about find their ultimate edge in perceptual creativity. Their cardinal strength is the ability to see new tilings in old data. Yes, discipline is important. Yes, money management is essential. Yes, risk-taking is necessary. At the end of the day, however, what sustains trading over the long haul is the capacity to see what the herd does not. That perceptual creativity is the ultimate source of edge — and what turns a trading gig into a lifelong source of income and fulfillment.
Day trading may or may not be your path. After reading these interviews, you’ll probably find yourself either inspired or appalled. It’s all good—you’ll only find your own success by immersing yourself in a field that speaks to your greatest strengths. At the very least, the following pages will open your eyes to a unique niche in the world of creativity: one that, for the right people, can be rewarding in more ways than one.
I wish you the best of luck in your performance journey!
Brett
@steenbab
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Preface
So why the book? I asked myself that same question after spending the better part of a year arranging, transcribing, and editing over 30 hours of interviews. Why? Why! But there’s a good reason —
I’m a day trader. I have been more or less since 2008. I’ve had good years and I’ve had bad. I’ve read dozens of books and hundreds of articles about the biggest, most famous traders in the world. Most of them use some kind of a system and trade commodities or futures.
They hold trades for months or years. They have dozens of assistants.
They’re on TV regularly. None of it was relatable to my situation.
I wanted to know more about traders who were successful at what I did — sitting in a home office, alone in front of the monitors, trying to eke out a living trading stocks. I wanted to know how the elite day traders I knew from social media got to be so successful. Fortunately for me, the 10 interviewed here are such charitable people, after learning a portion of the proceeds would go to Traders4ACause, they readily agreed to my prodding.
Some of them have been successful for more than a decade, others for only a few years, but they have all somehow accomplished what the rest of us strive to do each day — trade for a living. They wake xiii
up with a desire to seek out momentum — stocks about to momentum, stocks currently with momentum, or stocks where momentum has recently died. These traders know how to take advantage of, and profit handsomely from, “momo” in a myriad of ways. So in an effort to find out how they did it, I pried into as many aspects of their trading as they would allow before being respectfully told to get lost.
I asked how they were raised, why they got interested in the market, how they got started trading, what strategies they use, which of their setups are the most profitable, how they enter trades, how they exit, how they protect their capital and minimize risk, how they prepare, how they approach each open, and how they plan to stay so successful. I even wanted the mundane details of what their trade desks look like, what tools they use, which accounts and which platforms, because like a carpenter wouldn’t show up without a hammer, you shouldn’t trade without the right tools.
We sometimes fall into the fallacy that people who are great at what they do somehow had a leg up or were given a head start, but most of the time that’s just untrue. Each trader in this book has had a journey that is different yet completely normal enough to be replicated by you. Believe it or not, their origins and subsequent successes are within your realm of attainability.
So every time you nod your head in agreement, every time you come to a personal realization, every time you learn something new from these great traders, dog-ear the page, highlight the words, and scribble in the margins. It’s time to deface the hell out of this book in your pursuit of becoming a better trader…
Brady Dahl
@MiltonaTrades
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Acknowledgments
Thank you — First, to the ten charitable traders featured in these pages, for answering all my questions openly, honestly, and without expectation.
To Sarah Michaud, for pouring over the pages.
To Brett Steenbarger, for writing the foreword and providing insight into the whole process.
To my beautiful wife, Charlynn, for somehow managing to remain sane and actually thrive while raising three kids alongside an obsessive writer/trader.
To Nathan Michaud, without whom this book wouldn’t have been possible, for his support, collaboration, generosity (Psst! He’s giving all of his proceeds from this book to charity!), and friendship, which is easily the best return I’ve gotten in my eight years of trading.
And finally to you, the reader, for buying our book and helping support Traders4ACause!
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Note From Nate
Let’s start with the facts: I probably have the worst form of ADHD known to man when it comes to reading, especially geography and history. It’s not that I don’t care or want to know, it’s just that after a few pages I get bored — fast. There’s absolutely no comprehension going on and I end up giving up (unless I need to cram for something, of course).
I find this to be true for just about everything, unless it has to do with cars or stocks! Put an interesting book about a Ferrari in front of me and I can regurgitate the exact horsepower, how quickly it accelerates from 0 to 60 MPH, and a whole lot more a week after I’ve read it. Different topics store differently for me.
Books about trading? I had always wondered what trader in their right mind would write a book? Every book I’d ever seen was about multi-hundred millionaires or billionaires—which was fascinating in and of itself—but let’s be honest, how many of us are going to manage a $500 million dollar fund? Or even want to for that matter?
But at our inaugural Traders4ACause event in 2014, we had psychologist Brett Steenbarger present because Gregg Sciabica (who you’ll meet in the coming pages) had read his book and couldn't recommend it highly enough. Although I had my doubts, we all agreed xvii
to have Brett speak — why not? Well I was absolutely blown away —
not only by the speech Brett gave but also, most importantly, by his ability to relate to each and every trading mistake I’ve ever made! I could not put his book down. Chapter after chapter, I realized he was right — “Why did I sell there?” or “Why did I cover there when the trade was working?"
I started to realize just how much we can learn from others. As hill time traders, we NEVER stop learning. We must ALWAYS adapt.
When I first approached Brady with the idea for this book, we discussed different trading books we had read. I said, they’re great, but how many normal guys who pick up this book are going to be trading hundreds of millions of dollars? What if we put something together with guys who came from nothing and made it work? What was it that helped them succeed? How many times did they fail? How did they get back on their feet?
Brady has done a wonderful job speaking to each and every one of these inspiring traders and putting this book together. I’m so incredibly excited to launch Momo Traders, the first of (hopefully) many books that will instruct and inspire traders of every skill level. And the best part
? Yes, my portion of the proceeds goes to chanty!
Enjoy!
Nathan Michaud
@InvestorsLive
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MOMO TRADERS
3 The Storyteller
The Storyteller
“The correct decision to make at any point in time on a trade has nothing to do with my profit or loss.”
Gregg Sciabica (@
l x21) is a Tucson, Arizona trader who has been the #1 trader on profit.ly for several years and has quickly grown to be one of the most well-respected traders on Twitter.
Both his parents worked as computer programmers at Bethlehem Steel in Bethlehem, Pennsylvania and passed that passion for numbers on to their son. As a child, he reverse engineered formulas like the NFL QB passer rating and knew one day he wanted to make a living betting on football games while trading stocks during the off-season.
An extremely thoughtful trader, he considers everything from the psychology of other market participants to the ergonomics of his desk. He believes in taking full advantage of trading opportunities and even traded with cash advances from credit cards during the Internet bubble. His method of compounding profits has served him well, resulting in profits of over $5 million in each of the last two years.
What first got you interested in trading?
Well I was always into numbers, even as a child. I had this naive idea that I could figure out a pattern or some kind of method for picking
4 The Storyteller
the right stocks. In 8th or 9th grade our school ran a 10-week market competition where you started with $100K in paper money. I knew I wasn’t going to win making a 5 percent gain on IBM in l0 weeks. I had to pick low-priced stocks which would make the biggest percentage moves. Well that put me at odds with my teammates, who thought investing in Playboy was the coolest thing in the World. Needless to say we didn’t win with their strategy. I wanted to win, so for the next year’s competition I found two people who didn’t care.
That’s great.
The rules called for a 3-person team, so I found some complacent people who let me do whatever I wanted. And then over the first six weeks everything I did backfired. I was dead last in the regional competition of hundreds of teams. My strategy was backfiring. My account went from $100K to $60K before I found a new pattern with four weeks to go. I started using it, and by the last week I took first place in our school and was within $1K or $2K from winning the whole region. If I had one more week I would have done it.
