# Online trader begs for help after his short goes south



## baby_swallow (20 November 2015)

*Help! My short position got crushed, and now I owe E-Trade $106,445.56*

His name is Joe Campbell, and he claims he went to bed Wednesday evening with some $37,000 in his trading account at E-Trade. One notable development on the pharma front later, and Campbell woke up to a debt of $106,445.56. Now, he may end up liquidating his 401(k). And his wife’s.

That’s where you come in. At least where Campbell desperately hopes you come in. Of course, sympathy in the trading community over such gaffes is typically in short supply.

His is a cautionary tale of getting caught on the wrong side of one of the riskier bets on Wall Street. When you’re long, the worst you can do is lose is everything. But when you’re short, everything and a lot more is at stake. He should have known better, no doubt, but you have to feel for this poor guy.

http://www.marketwatch.com/story/he...we-e-trade-10644556-2015-11-19?dist=countdown


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## Vixs (20 November 2015)

Selfish crowd funding drives me insane. I get crowd funding capital for an idea, I get crowd funding support for a charitable cause to help others, but this rise of "I made a bad decision, can you please help me out?" is just shameful.

I recently came across a crowd funding page for a young mother and her infant child to help them keep their house after the husband died suddenly in his 20s. Life insurance for him to pay off that house in full and support his family through until his kid was grown up? $650 a year or so based on what I knew about his job and age. At the time I saw it the page had about $7,000 in donations, with people climbing over each other to donate $100 or $200 to them. Maybe they should have crowd funded their life insurance premiums instead. The emotional tragedy of unexpected loss can't be avoided, but the financial aspects could have been if not for poor decision making. If that seems cold to some, I have these conversations with people every day and while most see value, you do get the occasional superman - invincible, immune to all harm.

"Oh no I shorted a biotech company and lost $100,000" isn't a worthy charitable cause, it's a joke.


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## Modest (20 November 2015)

The best part is at the end of the article: "my plan is to liquidate my wife's and my 401k, then make it all back trading again"


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## Gringotts Bank (20 November 2015)

I wonder if it was a Tim Sykes inspired move.  All I can do is feel sorry for him, which is really no help at all.  If he gets fully bailed out, he won't learn the lesson.  If he doesn't, it's a very painful lesson to absorb.


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## ThirtysixD (20 November 2015)

Net liquid assets of 9m announces a liquidation and he shorts when the market cap is only 8m


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## cynic (20 November 2015)

I'm guessing that those traders profiting from the long side of his short trade won't be pitching in, so why should anyone else be expected to take responsibility for another's folly, particularly when they had no part in it!


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## skyQuake (20 November 2015)

Modest said:


> The best part is at the end of the article: "my plan is to liquidate my wife's and my 401k, then make it all back trading again"




This can only end well.


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## Valued (20 November 2015)

It reminds me of this guy: https://barefootinvestor.com/lost-money-trading-cfd/ 

IG offers a guaranteed stop loss product. You have to pay more on the spread, so I doubt it could be used by day traders but on positions you plan on holding for some time, I think it is a really good idea. On markets like gold the extra spread is so small and on very volatile markets it can be double the spread and potentially I have seen more. If you're holding for weeks though a spread of 2 points vs a spread of 5 points doesn't matter to you. It ensures you can load up the position and never go bankrupt and hold it comfortably for weeks or months. It is even better if it is a position where IG is paying you interest and you expect it to go in your favour. Given that there are no carrying costs you can hold that CFD indefinitely. 

It is amazing people are willing to risk bankruptcy on positions that plan to hold overnight or over the weekend because they didn't want to pay an extra couple of points on the spread! You have to be careful it doesn't erode your profits, but I assume if you're holding over the weekend you're in for the long haul otherwise you should have closed Friday and reopened Monday morning. I find though if I am going to close and reopen I check how much that will cost and usually it is cheaper just to get the guaranteed stop loss given that it is mostly double the spread or less. If I plan to hold a position for weeks then a guaranteed stop loss is a no brainer as an insurance policy. I am not concerned about say +2 on the spread on positions on high risk/reward ratios.


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## cynic (20 November 2015)

Whilst a GSL may seem attractive for the reasons mentioned. They are generally offered by OTC derivatives providers whom often quote a grey market outside of hours. Has anyone else here experience a >200 points out of hours price spike that just touched your stop order?


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## skyQuake (20 November 2015)

GSL's cost a pretty penny. Usually 50-150bp depending on the stock. And they have to be placed x% away. 5% on a bank or bhp. 10% on a midcap, 20% on a small cap. And often they just won't do GSLs. (esp around earnings and announcements)


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## Valued (20 November 2015)

skyQuake said:


> GSL's cost a pretty penny. Usually 50-150bp depending on the stock. And they have to be placed x% away. 5% on a bank or bhp. 10% on a midcap, 20% on a small cap. And often they just won't do GSLs. (esp around earnings and announcements)




I actually have never used them on a stock themselves. You are right that they have to be liberal stops. I don't trade individual stocks. I despise the stock market in general. However, you can use GSLs on commodities and indices and they are very affordable. Often the minimum distance is far lower than a single ATR so you shouldn't have a stop as tight then anyway. They are good for counter-trend swing trading, e.g. if you think coffee is going to have a rally in its long term down trend you may place a GSL on the long position in case it crashes when it rains, that way you can hold for a couple of weeks if you have enough confidence in the weather being dry at certain times of the year. If you trade spot arabica coffee it's an extra 20 points on the spread but the standard spread is 30. A 50 spread on arabica coffee is fine for positions you will be holding for a while (like a week or more/over the weekend). The extra spread is the same on futures, being 20 but the base spread is 40, so it is actually cheaper in percentage terms on the futures spread.


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## cynic (20 November 2015)

Valued said:


> I actually have never used them on a stock themselves. You are right that they have to be liberal stops. I don't trade individual stocks. I despise the stock market in general...




It's good to hear that you've found an instrument and trading approach that works for you. GIven your aversion to other instruments, I cannot help but wonder about your reason for volunteering your posts in an effort to mentor experienced trader/s of same on their approach to risk mitigation!


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## Valued (20 November 2015)

cynic said:


> It's good to hear that you've found an instrument and trading approach that works for you. GIven your aversion to other instruments, I cannot help but wonder about your reason for volunteering your posts in an effort to mentor experienced trader/s of same on their approach to risk mitigation!




Look, I don't mean to be mean here but you did something that I consider insane. I would like to hear TH's view on this, since that may be someone you might listen to since he appears to be well respected. The reason why I made the posts in the other thread was because I genuinely don't want people to be wiped out. I can't imagine the feeling of losing your trading account and how horrible it would feel. 

You held a position on the Dax over the weekend, so you are trading I assume based on a daily chart. You account got wiped out by a 200 point gap on the Monday morning open. 200 points is the minimum ATR of the Dax. It is between 200 - 300. Your stop was significantly less than the ATR and your position sizing was based on your stop order being filled. However, it was not based on the fact that it could gap down on Monday morning after fundamental events occurring from two non-trading days. I believe the DAX is capable of gapping down the ATR on a Monday morning open often enough that you're going to be wiped out. Now I don't know how often it happens but even if it is once every 2 or 3 years (I imagine it is more common than that) that means you have a very high risk of ruin and that is exactly what happened. Therefore, for trades on the daily chart you should be setting your stop further out. As I explained previously, it is not because the stop helps when the market is closed but rather it changes your position sizing to something that can withstand a gap. I also disagree with your assertion that this means you can't use leverage or have to have the money to cover a 100% loss. That is simply not true.

I have a bit of an aversion to equities but I still trade index futures, but sparingly. I more so lean towards forex and commodities and most of my trades are in those markets.


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## fraa (20 November 2015)

why would he liquidate his 401k? I thought eTrade cant touch that ? and he is volunteering to liquidate it?

doesnt add up


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## Trembling Hand (20 November 2015)

I'm with you 100% Valued. I cannot see how two moves within normal expectations can inflict so much damage on a trader trading overnight if correctly sized. But it seems Cynic likes these swing for the fences trades by his often emotionally distraught post and complaints. So I'm not sure my view will be of much use. 

I would imagine Cynic thinks the current losses are the irrational markets fault not his wrong sizing.


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## CanOz (20 November 2015)

Well I'm on hopium that Cynics losses, which are the only thing he usually speaks of, are much smaller than his wins...


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## Valued (20 November 2015)

CanOz said:


> Well I'm on hopium that Cynics losses, which are the only thing he usually speaks of, are much smaller than his wins...




Apparently not. He said the last loss wiped out a five figure profit and sent him into a five figure loss and it wiped his trading accounts. He may very well be an experienced trader with a positive expectation, but he is trading with too high risk. I am really trying to help him. I don't pretend to be an expert on risk management. I don't have a phd in mathematics so I can't calculate risk of ruin with complex equations, but common sense tells me a gap down of the ATR probably happens often enough that you're going to be wiped out within your trading life if you don't account for that. Just because I lack the mathematical knowledge to be able to calculate the chance exactly over a given time frame doesn't mean I am wrong on this. I don't need to calculate whether risk of ruin is 5% or 6.7% or 12% or whatever to know there is a good chance someone will be wiped out over the next few years.


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## cynic (20 November 2015)

CanOz said:


> Well I'm on hopium that Cynics losses, which are the only thing he usually speaks of, are much smaller than his wins...




Thanks for your support Canoz. In years gone past that has often been the case, however, the past 18 months have proven to be an exception for which I cannot identify a singular cause for having 6 consecutive aborted trading quarters. On a few occasions an erroneous alteration to a strategy did result in an inflated position ssituation, on others the positions though relatively small were autoclosed at a  12month extreme due to a broker error!

I do not blame the market for any of it!

Although I experienced significant drawdown this week and chose to realise some losses yesterday, my accounts were not wiped out as some here seem to have presumed. I was still in profit until the early hours of Wednesday morning, however the damage was related to a difficult decision that had to be made pursuant to a confluence of events that occurred outside of hours on Monday morning!


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## Valued (20 November 2015)

cynic said:


> Thanks for your support Canoz. In years gone past that has often been the case, however, the past 18 months have proven to be an exception for which I cannot identify a singular cause for having 6 consecutive aborted trading quarters. On a few occasions an erroneous alteration to a strategy did result in an inflated position ssituation, on others the positions though relatively small were autoclosed at a  12month extreme due to a broker error!
> 
> I do not blame the market for any of it!
> 
> Although I experienced significant drawdown this week and chose to realise some losses yesterday, my accounts were not wiped out as some here seem to have presumed. I was still in profit until the early hours of Wednesday morning, however the damage was related to a difficult decision that had to be made pursuant to a confluence of events that occurred outside of hours on Monday morning!




Oh you didn't get wiped out? From what you said in the other thread I interpreted that you did. I think it could have been interpreted that way or at least interpreted that you were wiped out at some stage in the events that followed (specifically since you shorted on the gap down and then there was a large rally). You definitely did say you turned a 5 figure gain into a 5 figure loss though so your profits were completely wiped out and then some. I don't think that's important, it was more to indicate your position sizing was too high.


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## cynic (20 November 2015)

Valued said:


> Oh you didn't get wiped out? From what you said in the other thread I interpreted that you did. I think it could have been interpreted that way or at least interpreted that you were wiped out at some stage in the events that followed (specifically since you shorted on the gap down and then there was a large rally). You definitely did say you turned a 5 figure gain into a 5 figure loss though so your profits were completely wiped out and then some. I don't think that's important, it was more to indicate your position sizing was too high.




Okay. Now I see where you're coming from!  As for position sizing it, I know from your posts that your approach to risk mitigation happens to be entirely different from mine. ATRs and chart patterns simply do not feature in my chosen trading methods and stop orders are largely ineffective and usually totally inappropriate. However I'd have to disclose key aspects of my method in order for others to appreciate the reasons for this which I am reluctant to do.


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## Valued (20 November 2015)

cynic said:


> Okay. Now I see where you're coming from!  As for position sizing it, I know from your posts that your approach to risk mitigation happens to be entirely different from mine. ATRs and chart patterns simply do not feature in my chosen trading methods and stop orders are largely ineffective and usually totally inappropriate. However I'd have to disclose key aspects of my method in order for others to appreciate the reasons for this which I am reluctant to do.




I don't use chart patterns! I look at charts to work out support/resistance zones and supply/demand, but I don't say "WOW A WEDGE!" or "THIS LOOKS LIKE THE GREEK GOD ZEUS". Fundamentals play a large part in my trading.


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## cynic (20 November 2015)

Valued said:


> I don't use chart patterns! I look at charts to work out support/resistance zones and supply/demand, but I don't say "WOW A WEDGE!" or "THIS LOOKS LIKE THE GREEK GOD ZEUS". Fundamentals play a large part in my trading.




My sincere apologies, although I must say that normally I'd include your approach under the same umbrellai.e. chart analysis.


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## Caveroute (20 November 2015)

Valued said:


> I don't use chart patterns! I look at charts to work out support/resistance zones and supply/demand,




Isn't that an oxymoron ?

If your looking at charts your doing qualitative pattern analysis are you not ?


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## Valued (20 November 2015)

Caveroute said:


> Isn't that an oxymoron ?
> 
> If your looking at charts your doing qualitative pattern analysis are you not ?




Chart patterns refer to shapes like triangles/wedges and that sort of thing. That's how I interpret chart patterns. Charts really just represent price and volume. I could make trades based on a list of the high, low, open and close as well as the volume but that's a very inconvenient way to trade given that this is not how the information is presented to me from my broker. Candlesticks represent the best way to get that information. I am interested in the ATR and I am interested in where there has been a lot of volume in trading and at what price levels. I am interested in what the trend is as well. Charts represent this information in convenient format, but with practice the same information could be interpreted and applied simply from a list in an excel spreadsheet. Trends arn't based on charts, trends are simply whether the price has gone up or down. You could figure that out with a big list of prices. I do that with bond yields, I tend to just look at the list of yields since that's how it's presented to me on the treasury website. There are charts to track the yield curves but I am now used to just looking at the list.

With patterns like triangles I think you would need to be a genius to state that a triangle is forming from raw data in a spreadsheet. Maybe it could be done, I have never tried. I also don't care since the fact that there is a triangle is irrelevant. The triangle is a mere by-product of supply/demand and the triangle is not a trading signal or all that useful.


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## Trembling Hand (20 November 2015)

cynic said:


> As for position sizing it, I know from your posts that your approach to risk mitigation happens to be entirely different from mine. ATRs and chart patterns simply do not feature in my chosen trading methods and stop orders are largely ineffective and usually totally inappropriate.




Do you have pre planned price when you enter a trade where you consider the trade is wrong and will cut it?


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## cynic (20 November 2015)

Trembling Hand said:


> Do you have pre planned price when you enter a trade where you consider the trade is wrong and will cut it?




No, quite unnecessary with my approach to trading.

Edit: It occurs to me that I've now shifted two threads away from topic with this discussion and am thinking that it may be worthwhile to shift this to a more relevant thread.


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## fraa (20 November 2015)

cynic said:


> No, quite unnecessary with my approach to trading.
> 
> Edit: It occurs to me that I've now shifted two threads away from topic with this discussion and am thinking that it may be worthwhile to shift this to a more relevant thread.




Honest noob here - how do you manage risk over a short time frame without referencing the price ? Or are you accepting that for a long position you can go to 0 and you do not do direct shorts ? (or do long puts where you fully accept you can go to 0 ?)

I understand how value investors like craft can ignore price, but trading over the short term how do you make do ignoring it ?


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## Gringotts Bank (20 November 2015)

fraa said:


> Honest noob here - how do you manage risk over a short time frame without referencing the price ? Or are you accepting that for a long position you can go to 0 and you do not do direct shorts ? (or do long puts where you fully accept you can go to 0 ?)




A time stop would be one example.  Whatever the price does, you sell after n bars.  Quite legitimate.


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## Trembling Hand (20 November 2015)

Gringotts Bank said:


> Quite legitimate.




Not if you are leveraged.


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## Trembling Hand (20 November 2015)

cynic said:


> No, quite unnecessary with my approach to trading.




How does that work with leverage? How can you possibly take unlimited heat on a position?


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## cynic (20 November 2015)

fraa said:


> Honest noob here - how do you manage risk over a short time frame without referencing the price ? Or are you accepting that for a long position you can go to 0 and you do not do direct shorts ? (or do long puts where you fully accept you can go to 0 ?)
> 
> I understand how value investors like craft can ignore price, but trading over the short term how do you make do ignoring it ?




I admire your modesty. Your post already demonstrates a greater understanding than many of the self professed experts that I've encountered over the years. Until about a year and a half ago, approximately 70% of my annual income was derived from trading using my personally tailored methods, so I'm reluctant to disclose specifics, as I do not wish to jeopardise my edge.

Interestingly enough, your very own post shows that you are already aware of a sufficient range of market instruments that would enable one to trade relatively safely without the need for stop orders!


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## cynic (20 November 2015)

Trembling Hand said:


> How does that work with leverage? How can you possibly take unlimited heat on a position?




In all your years of trading, do you really expect me to believe that you don't already know the answer!


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## Trembling Hand (20 November 2015)

cynic said:


> In all your years of trading, do you really expect me to believe that you don't already know the answer!




Well since you are trying to be mystical and secretive while still trying to be involved in a forum discussion then I will put it more directly. If you take a position and not know the 'normal' level where you will puke how can you have any confidence that you are not setting yourself up for a run straight to ruin?


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## cynic (20 November 2015)

Trembling Hand said:


> Well since you are trying to be mystical and secretive while still trying to be involved in a forum discussion then I will put it more directly. If you take a position and not know the 'normal' level where you will puke how can you have any confidence that you are not setting yourself up for a run straight to ruin?




Simple. Keep up to date records on the maximum possible drawdown across the entire portfolio to ensure that risk of ruin isn't being inadvertently invited!


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## Valued (20 November 2015)

I accept that you can use options to hedge etc but that's not really a secret.


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## Trembling Hand (20 November 2015)

I'm out here. Merry X-mass and happy new year everyone.


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## Modest (20 November 2015)

Trembling Hand said:


> I'm out here. Merry X-mass and happy new year everyone.




First we lose the Duck 


Now we lose the tribal trading elder 


ffs


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## Valued (20 November 2015)

Modest said:


> First we lose the Duck
> 
> 
> Now we lose the tribal trading elder
> ...




Not sure why. Cynic has been on this forum since 2011. TH has read many of his posts. It's an odd time to leave now!  

Cynic TH was so offended by your risk management he left! :


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## Modest (20 November 2015)

Valued said:


> Cynic TH was so offended by your risk management he left! :




You don't become a big swinging dick worrying about risk management and stop placement alright......


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## Faramir (20 November 2015)

I did not believe this story at first. How Joe Campbell get into this situation? I guess it has all been documented via the link and the following discussions.

I am very afraid of shorts. I am too uneducated: working out when a stock will fall and thus take out a short. When does someone know their limits or where their limits of understanding of trading?

Trying to following this thread, it only confirms that I don't even know what I do not know. Did Joe pick the wrong stock? Was it bad timing because some unexpected fantastic news made it rocket up?

Is this "mistake" very easy to repeat? Should I leverage a short or two on some random stock and see if I can beat his losses?  Has anyone experienced a "Short Squeeze"? Rather than tell me what is a short squeeze, please tell me the emotions you were feeling as you scrambled to cover your positions. Joe Campbell didn't even get a chance I think.

I am trying not to criticises Joe Campbell, could I be capable of repeating his "mistake"? I nearly never trade over the short term. I have never shorted a stock yet. If I was desperate, would I be driven to repeat the same actions of Joe Campbell? If I was very desperate, would I ignore risks because I am too focused on rewards? What drive any of us to make theses "mistakes"?


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## cynic (20 November 2015)

Valued said:


> I accept that you can use options to hedge etc but that's not really a secret.




Quite right no secret to it at all, it's just funny how so many newcomers think that stop orders are the only available tool for risk mitigation. 

As many here will probably already know,if a person holds long exposure over the weekend, he/she cannot limit his/her exposure to the level of any stop order  (above zero) because the market could potentially gap past it. A long put option on the other hand offers certainty that all exposure between zero and the strike is covered. The main downside to the put is that this certainty comes at the cost of the premium and there are a number of factors that influence the value of that put, however, at least the maximum possible loss can accurately determined once the put has been procured.

Edit: I forgot to mention that depending on the chosen market there are further ways to mitigate risk. Why limit yourself to expensive options or inefficient stop orders?


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## Modest (20 November 2015)

Does anyone have a link to an article about hedging using options. Not that I'd even consider trying it at this point but I am very curious. 

Or 

How would someone hedge a a long position in the ES? Price only goes up or down.... If you're long ES and you write a option and the ES goes in your favour and your option is written (i think that's short?) aren't you now haemorrhaging $ via the option?


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## Faramir (20 November 2015)

I must be such a noob, not only am I having trouble trying to follow the technical discussions; I have no idea why some people is upset with each other. It must be the heatwave.

At least I have no personality. It is nothing. Therefore no one can clash my personality because it is nothing and non existent. Clashes can only occur if there is something to clash with?

All is forgiven and everyone please return. There must be lots of people who appreciate your contributions. Please?


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## Valued (21 November 2015)

Modest said:


> Does anyone have a link to an article about hedging using options. Not that I'd even consider trying it at this point but I am very curious.
> 
> Or
> 
> How would someone hedge a a long position in the ES? Price only goes up or down.... If you're long ES and you write a option and the ES goes in your favour and your option is written (i think that's short?) aren't you now haemorrhaging $ via the option?




Buying a put option costs money but it allows you to sell at a certain price in the future. I am no options expert and it's been a while since I have looked at it and the pricing and how they work is complex and I don't pretend to know the maths in terms of working out pricing. However, say you have an instrument that is worth $1 per point and it's currently at 1000 and you buy in at the 1000 level. You could buy a put option, which is a right (but not an obligation) to sell, at 800 at some point in the future. Because you are buying a right to sell at 800 this is called an out of the money option. No one would sell at 800 since they could sell for 1000 right now. If the price drops to 801 at the date of the expiration of the option your option is completely worthless since no one will sell at 800 if they can get 801. However, if the market drops to 500 you have the right to sell what you previously bought at 800 and the person on the other hand has the obligation to buy at 800. Now you have lost 200 points but you could have lost 500. You did not. What happens though is that options get priced differently. 500 would be very out of the money. An option to sell at 900 would be more expensive. You pay the premium on the option price, so it doesn't represent the full value which means you can still profit but your profit is going to be reduced by the premium you had to pay for the option.


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## Modest (21 November 2015)

Valued said:


> Buying a put option costs money but it allows you to sell at a certain price in the future. I am no options expert and it's been a while since I have looked at it and the pricing and how they work is complex and I don't pretend to know the maths in terms of working out pricing. However, say you have an instrument that is worth $1 per point and it's currently at 1000 and you buy in at the 1000 level. You could buy a put option, which is a right (but not an obligation) to sell, at 800 at some point in the future. Because you are buying a right to sell at 800 this is called an out of the money option. No one would sell at 800 since they could sell for 1000 right now. If the price drops to 801 at the date of the expiration of the option your option is completely worthless since no one will sell at 800 if they can get 801. However, if the market drops to 500 you have the right to sell what you previously bought at 800 and the person on the other hand has the obligation to buy at 800. Now you have lost 200 points but you could have lost 500. You did not. What happens though is that options get priced differently. 500 would be very out of the money. An option to sell at 900 would be more expensive. You pay the premium on the option price, so it doesn't represent the full value which means you can still profit but your profit is going to be reduced by the premium you had to pay for the option.




Hmm interesting no doubt....Thanks Valued I appreciate you dumbing it down for me, it makes a much more sense now.


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## cynic (21 November 2015)

Modest said:


> Does anyone have a link to an article about hedging using options. Not that I'd even consider trying it at this point but I am very curious.
> 
> Or
> 
> How would someone hedge a a long position in the ES? Price only goes up or down.... If you're long ES and you write a option and the ES goes in your favour and your option is written (i think that's short?) aren't you now haemorrhaging $ via the option?




Buying a put would hedge long exposure below the strike level.

Writing a call would only benefit to the tune of the premium whilst capping the profit potential of the long, so there would still be significant downside risk on the long position.


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## Valued (21 November 2015)

A GSL is probably cheaper than hedging with options though. I know that is a huge can of worms and it depends on minimum stop distances, and maybe it's not true for some high risk stops. However, I think it's true most of the time, at least for indices and blue chips.

Cynic is going to be a cynic though and say that the OTC provider will hit your stop deliberately by marking up their price. Maybe, maybe not. That's just another can of worms.


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## skc (21 November 2015)

Faramir said:


> I am very afraid of shorts. I am too uneducated: working out when a stock will fall and thus take out a short. When does someone know their limits or where their limits of understanding of trading?
> 
> Trying to following this thread, it only confirms that I don't even know what I do not know. Did Joe pick the wrong stock? Was it bad timing because some unexpected fantastic news made it rocket up?
> 
> Is this "mistake" very easy to repeat? Should I leverage a short or two on some random stock and see if I can beat his losses?  Has anyone experienced a "Short Squeeze"? Rather than tell me what is a short squeeze, please tell me the emotions you were feeling as you scrambled to cover your positions. Joe Campbell didn't even get a chance I think.




A few key points to note about Joe's story (and shorting in general)...

- Shorting in most cases is no different to going long, especially over the short term. Long term one could argue that there's asymmetric risk/reward (i.e. longs can go up >>100% while shorts can at most make 100%)... but a stock that rockets up over 400% overnight is very rare, particularly in any stock of meaningful size.
- The stock in question, KBIO, is a tiny tiny company. Market cap is ~$45m AFTER it ran up 400%. Usually these tiny nano-cap stocks are NOT even available for shorting to the common folk. So the chances of you being able to make such mistake is small in Australia.
- The fundamental description of KBIO reads like it's a dying company. So one is not wrong to expect the price to go down. However, with the market cap being a tiny $8m... really how much more downside can you expect?
- Joe had an account value of $33k, yet his position size on the KBIO short appeared to be $18k. That's more than 50% of his account, on one tiny speculative stock. Even if his decision to short the stock is not wrong, his position sizing is definitely wrong.
- If I was shorting this stock with a $33k account... it would at most be $3k. If it rockets up 500%, I lose $15k... not my 401(k).
- So really there's a confluence a factors: being able to short a tiny stock at pretty much the physical limit of how low it could go, totally unlucky to be hit with news from the left field, and having a position size that's 5-6 times bigger than it should. The chance of the same thing happening to you and me are actually pretty low.
- I haven't really experienced a short squeeze, but I have held short positions while a stock announced the receipt of a takeover offer. The damage was ~30-40% gap in the share price, which is not that much different to a nasty profit downgrade while holding long in a stock. 

P.S. My research on KBIO is limited to reading this article and the OP's link.
http://www.benzinga.com/general/bio...0-on-penny-stock-days-after-company-said-it-w

P.P.S. Apparently he got $5,310 from his fund raising campaign. I am surprised that he ended it so soon. 



Valued said:


> You definitely did say you turned a 5 figure gain into a 5 figure loss though so your profits were completely wiped out and then some. I don't think that's important, it was more to indicate your position sizing was too high.




That sounds like my average morning.



Trembling Hand said:


> I'm out here. Merry X-mass and happy new year everyone.






Modest said:


> First we lose the Duck
> 
> Now we lose the tribal trading elder




I think TH has just had enough of this particular discourse and ready to take his Xmas break.


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## Faramir (21 November 2015)

Thank you skc. That is a very thorough explanation. Maybe I can say that I have learnt not to be greedy. Joe Campbell risked too much because he was absolutely sure his stock won't rise and he wanted to maximise his potential gain. Well, I'm not him but I am guessing that what he was thinking. Why Joe Campbell risked $33k? Why put so much (in terms of portions/percentage of what he had) into one stock? I wonder if Joe realised how much he was risking? Only those who have made similar mistakes can explain better than me guessing.

Again, thank you skc.


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## cynic (21 November 2015)

Valued said:


> A GSL is probably cheaper than hedging with options though. I know that is a huge can of worms and it depends on minimum stop distances, and maybe it's not true for some high risk stops. However, I think it's true most of the time, at least for indices and blue chips.
> 
> Cynic is going to be a cynic though and say that the OTC provider will hit your stop deliberately by marking up their price. Maybe, maybe not. That's just another can of worms.




My thousands of trades and years of experience with OTC providers and their products alone is ample justification for my assertion that one's contingent orders do indeed influence the price action. Hence my aversion to any strategy intraday or otherwise that requires the use of stop orders.


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## skc (21 November 2015)

cynic said:


> My thousands of trades and years of experience with OTC providers and their products alone is ample justification for my assertion that one's contingent orders do indeed influence the price action. Hence my aversion to any strategy intraday or otherwise that requires the use of stop orders.




If what you are saying is true... it can be done 2 ways.

1. They move the underlying market to get to your stop.
2. They simply move the quoted price specific to your account to get to your stop.

To verify which of the two, may be you can open 2 live accounts, under different names, with the same CFD provider and see if the prices offered to each account is the same at all times, especially when you have an open position with a stop order...


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## cynic (21 November 2015)

skc said:


> If what you are saying is true... it can be done 2 ways.
> 
> 1. They move the underlying market to get to your stop.
> 2. They simply move the quoted price specific to your account to get to your stop.
> ...




I am aware of a third possibility. They move the price to hit the stop and simultaneously disable trading of the instrument by others. I have observed this happening when my stop was touched and triggered. The price was quoted as indicative at the time and effectively unavailable for trading by myself or others. Promptly thereafter the price returned from whence it came and was suddenly available for trading.

It took a nuclear meltdown in Japan for me to get the opportunity to exit that short position that my devious provider had lumped me with on that occasion!


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## DeepState (21 November 2015)

I have observed that, in periods of market dislocation, the spreads widen a lot as the underlying market makers withdraw.  As the spreads widen, your stops get hit even if the underlying really doesn't get that close or even has to trade at those prices (the market makers or OTC provider may inventory the position).

This results in positions being closed despite the mid-price not reaching the stop in the underlying market (if it is even open).  The underlying market price can be created by the market maker by reference to the futures market which can also be jumpy in the pre-open.  In the most volatile situations, the market makers back off and you can't get a market from the OTC provider.

Perhaps this is what is happening to you. 

What it means is that the stop positioning needs to be super-wide.  Much wider than you might imagine from looking at the underlying market.  For indices, options without stops may be a better alternative for taking long or short positions.  These avoid the spread blow-outs.  Alternatively, sizing positions that allow for a much wider stop level needs to be considered.

The interposition of an OTC provider between you and the underlying market brings a stack of additional and non-trivial issues.  And, when you try to pin them down on what happens in various scenarios like running out of margin and holding positions anyway, or the process of closing positions in such an eventuality you get nothing.  All on a "we reserve the right to...blah blah...but offer no guarantees that...blah blah".  It is most unsatisfactory.


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## Craton (21 November 2015)

With regards to Joe Campbell in the OP.

Wonder how much I'd be able to raise if I gave out my sob stories...

Whether the story is true or false, I wouldn't give the greedy numb nut a red cent. I may be callous but greed really does have a nasty bite!

Now, even though he may have perceived a low risk/high reward trade, the fact that he was chasing high reward he surely would have been well aware of the hightened risk but, chose to ignore the possibility that the trade could go pear shape by not having a stop loss (or other stategy) in place.
Then when it does go all pear shaped, goes and cries to the Crowd Funders oh woe is me. Prft! I have no sympathy.

He was greedy and paid the penalty. Unfortunately it is a sad indictment of the world we live in, far too many live (or gamble/punt) far beyond their means and when it all goes south, oh woe is me. FFS! Grow a pair, man up and take responsibility for your money.

No doubt due to the back lash and a smattering of guilt he's pulled the page down, that's something I suppose. Nice little 5k+ pick up from the schmucks though. If I sound harsh, so be it.


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## Bill M (21 November 2015)

Craton said:


> With regards to Joe Campbell in the OP.
> 
> Wonder how much I'd be able to raise if I gave out my sob stories...
> 
> ...




Nup, not harsh at all, you said it perfectly.


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## shouldaindex (21 November 2015)

How come there are no famous traders?


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## Valued (21 November 2015)

[SUP][/SUP]







shouldaindex said:


> How come there are no famous traders?




There are. Individuals though who trade in high volumes typically become hedge fund managers or work for institutions. There can also be a grey area between trading and investing and some people do a little of both.

The most famous trader of all is probably Jesse Livermore. He was usually right but had notoriously bad risk management. I guess he traded before that was really a thing! He was referred to as "the boy plunger". 

George Soros is a famous trader still alive. He does do a lot of investing and is a hedge fund manager. In 1992 he shorted the GBP and made 1 billion dollars and has since been referred to as "The man who broke the bank of England". 

Other famous traders that come to mind are Richard Wyckoff and William Gann. Wyckoff adopted more of a trend following strategy using price and volume. Gann was the inventor of various tools for trading which I suppose can be referred to as "mathematical". He is relatively famous for that, but his methods are questionable at best (and at worst complete rubbish). 

The most famous Australian trader is probably Richard Farleigh. He appeared for a short time on Dragon's Den in the UK. He is part investor and part trader. He believes in trend following and entering and exiting at the right time, he does not believe in the Warren Buffet style of buy and hold, but also he has no issues being involved in a trend for years on end if he thinks the fundamentals are still there.


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## CanOz (21 November 2015)

shouldaindex said:


> How come there are no famous traders?




Paul Tudor Jones, William Eckhardt, Larry Williams, dozens and dozens in the market wizard series....highly recommend you read those, especially the latest 'Hedge fund market Wizards'


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## Modest (21 November 2015)

I watched the Paul Tudor Jones documentary and that guy seems like the biggest gambler - haha putting on his lucky basketball shoes before placing a huge trade haha


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## CanOz (21 November 2015)

Famous Traders List


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## shouldaindex (22 November 2015)

Being naive about it, is it considered that their 1 in 1000000 success was because of skill / system and not luck?


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## Valued (22 November 2015)

shouldaindex said:


> Being naive about it, is it considered that their 1 in 1000000 success was because of skill / system and not luck?




Skill basically but a bit of luck never hurts. Luck presents itself in many forms, such as having the right candidates for analyst positions walking through your door (as a hedge fund manager) or happening to stumble on some information you might not have otherwise found.


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## CanOz (22 November 2015)

Definition of luck = Skill + Opportunity

BTW, this Marty Schwartz book I'm reading is really good, "Pit Bull". If you want to read how one New York securities analyst turned into a spectacularly successful technical trader and was among the first to really make the new S&P500 futures work for them, this is the book.

Back on topic, from what I've read over the weekend, this chap that got himself in this spot of bother, didn't have a stop...


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## Quant (15 December 2015)

CanOz said:


> Definition of luck = Skill + Opportunity
> 
> BTW, this Marty Schwartz book I'm reading is really good, "Pit Bull". If you want to read how one New York securities analyst turned into a spectacularly successful technical trader and was among the first to really make the new S&P500 futures work for them, this is the book.
> 
> Back on topic, from what I've read over the weekend, this chap that got himself in this spot of bother, didn't have a stop...




Love Pit Bull and reread it for the 5th time just the other night , me and Marty are kindred spirits 

I am at about this stage ( page ) of Martys career  , I had aspirations of running a fund but reading ' Pit Bull ' turned me of it  . I had spent a couple years strategizing and developing mandates and skills to fulfill this dream , skills that wont be wasted though


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## grah33 (17 December 2015)

just read the first couple of posts. scary stuff.. might alter the leverage of my account so it's 2X max.  worried i might accidentally buy  a stock using 20X and if it goes against me, what then...  i guess they'd liquidate my whole account to pay it all off. but what if it gapped, would i end up in crazy debt too? seems like only the really liquid stocks i can get 20X on, but still, 7X leverage for dangerous stocks is a lot.  the thing is, though unlikely, one can still end up in debt rather than the broker just liquidating their whole account to pay for the loss. and that's scary. from a typing mistake unlikely, but it's still scary.


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## CanOz (17 December 2015)

grah33 said:


> just read the first couple of posts. scary stuff.. might alter the leverage of my account so it's 2X max.  worried i might accidentally buy  a stock using 20X and if it goes against me, what then...  i guess they'd liquidate my whole account to pay it all off. but what if it gapped, would i end up in crazy debt too? seems like only the really liquid stocks i can get 20X on, but still, 7X leverage for dangerous stocks is a lot




Why use any leverage to increase position size?

Why not use the leverage to increase some of your exposure instead, trade more positions. That will increase portfolio heat, but it spreads out your risk.


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## baby_swallow (18 December 2015)

The CEO of Kalobios Pharma (KBIO), Martin Shkreli, 32, has been arrested by the FBI for fraud charges.
Shkreli runs a hedge fund that target companies that are easily manipulated and KBIO is just one of them.

KBIO has been the darling of short sellers but when Shkreli took over the company last November, short sellers 
were squeezed and forced to cover. KBIO share price increased by 1800% in just three days.   


http://www.marketwatch.com/story/ma...-a-month-after-squeezing-out-bears-2015-12-17

http://www.bloomberg.com/features/2015-martin-shkreli-securities-fraud/


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## grah33 (18 December 2015)

CanOz said:


> Why use any leverage to increase position size?
> 
> Why not use the leverage to increase some of your exposure instead, trade more positions. That will increase portfolio heat, but it spreads out your risk.




i'm not using leverage to increase position size. the broker just happened to give me  a cheap deal with CFDSs, and at that point in time i was considering learning how to short.  but yeah, i will do that (use leverage so i'm exposed fully even if capital runs out -13% for now).  Thanks again Canoz.  You're such a great help to everybody.


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