Gobsmacked - can good educators be such bad traders?

[MichaelD]

I just got this in one of the few stockmarket related emails I bother with. The author emphasizes risk and money management as supreme, which sits well with me, but I am utterly flabbergasted by the utter lack of insight this author has into his own trading.

"Even trading is difficult. Here is an example. During our ******** workshop, I found a perfect stock for shorting. It was down and highly efficient both on a daily basis and an hourly basis. I shorted it with a stop of 10%. It went down the day I shorted it, but then in after hours trading went above my stop. And it opened above my stop. I assumed it would fill the gap, so I elected not to exit. It started to move down, so I just watched it (but remember I was teaching a workshop). During the last two hours of the workshop I was preoccupied, only to find out the DOW had moved up another 400 points for the largest daily point gain ever. The next day the market in the stock I was trading gapped up another 12%. That was it, I again felt the gap would be closed, but I didn’t want to compound my mistake. I just entered a market order to get out at the open at about a 3R loss. It took me 25 minutes to get my fill back and I was trading with a firm that guarantees a 2 second fill or it is commission free. By the time I got my fill back, the stock was already down on the day. I was filled at close to the high of the day at about $112. Three days later the stock closed at $66. Bottom line, even short term trading in this market is terrible. Most of my 3R loss occurred outside of regular trading hours."


I'm speechless.

 

[tech/a]

A fallible human educator.

If only we could all be as disciplined as yourself Michael.
That Hitchcock "I know everything" Avatar gets me everytime!

 

[cuttlefish]

Wow, if this is someone that teaches people how to trade its quite astounding that they would apply such bad trade management to one of their own trades.

Its even more astounding that they don't seemed embarassed and instead actually chose to people about it - which implies they haven't even recognised that they've broken the most basic of trading rules and instead fallen into an emotive trading trap.

So will the email subscription be continued or has he lost a reader?

 

[MichaelD]

So will the email subscription be continued or has he lost a reader?

Continued for the moment. I find some value in the email and have certainly gained much from one of his books.

I find his market commentary an excellent example of what not to do (eg changing plans on the fly) and there IS much to be learned from the extreme example above.

 

[Temjin]

Wow, if this is someone that teaches people how to trade its quite astounding that they would apply such bad trade management to one of their own trades.

Its even more astounding that they don't seemed embarassed and instead actually chose to people about it - which implies they haven't even recognised that they've broken the most basic of trading rules and instead fallen into an emotive trading trap.

So will the email subscription be continued or has he lost a reader?

haha Cos the person who wrote that is Dr Van Tharp himself! In his latest newsletter that we received today.

Yes, he made the mistake of not getting out as soon as the opening price was above his stop price. But who is perfect anyway?

MichaelD, I suggest you bring this up to him personally and wait for his response.

 

[BBand]

I think Van Tharp is one of, if not, the best educator around!!!, and I always look forward to receiving his newsletter.

He highlighted in his newsletter the current US debacle long before it it surfaced for the general public

I wish I could trade like him! NOBODY is perfect

He has proved to be human and I believe honest.

 

[cuttlefish]

haha Cos the person who wrote that is Dr Van Tharp himself!

You can't be serious?!

I'd never heard of him except to have seen his name here and there on these forums, but I'm glad I didn't waste any time reading anything he wrote.

 

[doctorj]

Isn't the old expression something along the lines of 'Those that can, do. Those that can't, teach'.

I don't think it's that unusual at all. On the one hand, the ability to break down and organise information in such a way that it can be readily taught is a skill in itself. And on the other, it's one thing intellectually knowing something, but execution is another.

Take Arsène Wenger for example. He's one of the most successful coaches in world soccer. His playing career was mostly at amatuer level, with a handful of professional matches and a single UEFA cup match.

 

[BBand]

Van Tharp can teach, AND he can trade!

If you are a systems or systematic trader, then you trade strictly by your rules which you have backtested and proved to provide a positive expectancy.

On the other hand, if you operate discretionally - you still have trading rules that must be adhered to (99% of the time), unless you know from experience that if a certain event arises, you have the option to over ride your rules, with the expectation of having an expected result

This may come about from your historic knowledge of a stock, commodity, whatever, performing in an expected manner under certain conditions / events- this is called the characteristic of the stock

Also some other outside influence(s) may cause a discrectionary trader to over ride his rules.

Over riding rules is NOT for beginners, but an experienced knowledgable trader is likely to use this option

Nobody knows what the market will do next, NOBODY.

All we can go on is probabilities as we see them.

Sometimes we are right, sometimes we are wrong
Thats life
Peter

 

[tech/a]

firstly he copped a 3R loss 3 x Risk wont break the bank.

He's no idiot.
If anyone is interested in reading the whole artical its here.

http://www.iitm.com/weekly_update_backissues.htm
No 397

 

[MRC & Co]

Plenty of good traders will sometimes hold things offside if they have conviction, only to be completely wrong. Not often and will never hold it long enough to do serious damage. As tech says, it's only 3R.

Mechanical, 100% disciplined trading is far from the holy grail. Those who have basic rules but also use a lot of 'feel' and discretion can do exceptionally well.

IMHO.

 

[theasxgorilla]

As Ed Seykota says, follow the rules, know when to break the rules. Most people assume that this means knowing when you can override your system to extract bigger profits. My take on it is that sometimes you feel like you have to override your system. Regardless of how you justify it, you are really feeling like you want to have a hand in how things turn out. It's a delusion, sure, but so are the looks you keep getting from the hot chick in the office. All part of being human.

 

[cuttlefish]

firstly he copped a 3R loss 3 x Risk wont break the bank.

He's no idiot.
If anyone is interested in reading the whole artical its here.

http://www.iitm.com/weekly_update_backissues.htm
No 397

Cheers tech. The article is interesting - I can see why people are wanting to subscribe to it - there is a lot of information in there.

In relation to the trade he outlined - the mistake to me is not so much the decision to take a discretionary intervention after it gapped over its stop - I can understand an experienced trader expecting a gap fill after an open like that. But to not trail a new protective stop behind it after it started to fill the gap, and also to not have a plan to close the trade at the end of the day regardless - seems a bit amateurish.

"Only 3R" - famous last words - emotive trading (e.g. finally exiting on fear at the peak - classic emotive behaviour) and not sticking to money management rules or trading plans is the road to ruin - isn't that what everyone on here preaches? Why is it ok for this guy?

The other thing is that he's effectively blamed 'the crazy market' for his situation, rather than his poor trade management.

If taking a discretionary intervention and overriding an exit criteria then its important to put new exit criteria in place - this didn't seem to occur.

 

[mazzatelli1000]

Isn't the old expression something along the lines of 'Those that can, do. Those that can't, teach'.

I don't think it's that unusual at all. On the one hand, the ability to break down and organise information in such a way that it can be readily taught is a skill in itself. And on the other, it's one thing intellectually knowing something, but execution is another.

Take Arsène Wenger for example. He's one of the most successful coaches in world soccer. His playing career was mostly at amatuer level, with a handful of professional matches and a single UEFA cup match.

Isn't there also research that suggests that by teaching you learn more quickly and effectively

My martial arts grandmaster teaches alot - and I KNOW he can deck alot of people

 

[MRC & Co]

"Only 3R" - famous last words - emotive trading (e.g. finally exiting on fear at the peak - classic emotive behaviour) and not sticking to money management rules or trading plans is the road to ruin - isn't that what everyone on here preaches? Why is it ok for this guy?

How do you know his 3R is not simply 0.5% of his capital? Many traders with these kind of capital bases don't use traditional money management per se. Just a daily stop and they will LOAD up quickly if they 'feel' a big move is coming and cut it quickly if it doesn't.

Agreed Mazzatelli, teaching definately helps the learning process for them and an expert can also be a very good teacher. The Wenger example was used, how about Cryuft the dutch legend at Barcelona, creating their dream team.

 

[cuttlefish]

How do you know his 3R is not simply 0.5% of his capital?

So what? Are you saying that its ok to break plan and money management under a certain percentage of capital? I would have thought that a system where 1R < 0.17% of capital would be a fairly high frequency system and thus traded fairly mechanically and unemotionally (even if it has a discretionary element). That doesn't appear to be how this trade was approached.

Many traders with these kind of capital bases don't use traditional money management per se. Just a daily stop and they will LOAD up quickly if they 'feel' a big move is coming and cut it quickly if it doesn't.

Again I'm baffled by this comment - are you saying VT doesn't recommend back testing or traditional money management but recommends trading on "feel"? That would certainly explain his trade management technique in this instance ...

 

[MRC & Co]

High frequency is far from mechanical in many instances. Many traders don't have rigid plans and rules, so they don't have to break it to let a trade run offside, even past 3R. Many also scale in/out, so traditional % per trade does not matter in the way you think of it. Trade onside and moving quickly, scale in rapidly, so you can afford to put more of your capital on the line.

Ask Rotter what form of traditional money management he uses and how much he backtests? "Best trader on earth" afterall.

 

[MichaelD]

"Only 3R" - famous last words - emotive trading (e.g. finally exiting on fear at the peak - classic emotive behaviour)

The other thing is that he's effectively blamed 'the crazy market' for his situation, rather than his poor trade management.

Exactly my concerns about this trade - the seeming lack of insight into exactly what caused the problem in the first place.

 

[kam75]

I've probably already said this in a similar post. Knowing how to trade and making money trading are distant relatives. Just ask any trader who makes their money from the markets.

You have to know yourself.
You have to develop your own set of rules that you'll be able to follow and that will be in sync with what you want to achieve as a trader. There's little point in taking someone elses rules and trading their system. Everyone's different and there's no best way to trade.

Can good educators be bad traders? Sure as Sherlock they can and most probably are. But they can be good salesmen. Otherwise they'd be traders.
regards

 

[MichaelD]

Can good educators be bad traders? Sure as Sherlock they can and most probably are. But they can be good salesmen. Otherwise they'd be traders.

A great point.

That begs the question - does the converse apply? Can a good educator be a good trader?