Day 1: The Dawn of Icarus

Vanquish Trading 2

For challenge details, click here

There’s an old video I love, a clip of an interview with a floor trader named Greg Riba:

Though it’s the words of a seemingly crippled alcoholic, the intuition is spot on — if you’re not adjusting your bets to the size of the increasing bankroll, you’re doomed to fall “in” the distribution and never “run hot”.

Thanks to the affiliate Vanquish Trading for letting me mess around with the sim. To find out more, click below.

Remember when I commented that the benchmark of 16% might seem unrealistic? Well, here was my PnL in the first 55 minutes of the first day of “real” trading:

Trading small size is more like playing craps than it is poker. You’re not looking to “ride” the size, you’re looking to pepper small scalps here and there and eventually take a big shot on a single dice roll. It just so happened that I managed to knock it out of the park on my first few trades of the day — I don’t trade the first 10 minutes of noise, but I always look for the “reversals” when book depth is built — to the point where I joked to my buddy that I’d hit the cashout threshold in one day. Well, I did fly too close to the sun — when I levered up and tried to make some DJT long trades (I don’t want to short during this challenge, but more on this later), I happened to catch the exact trades I couldn’t properly scalp, and my AAPL trade washed. (I don’t expect much trading activity of “size” to happen until after November 5th, so I figured today was a good day to trade technical reversions.) All in all, I ended the day up 2%.

There’s a very fine line between overtrading and scalping. I still think my trades were good, but there was a good ~5 hour period between 10:30 EST and 3:30 EST that I didn’t even bother looking at the price. The thing is, I know when something is going to move. The most heavily covered stock in the world is not going to get any major size smashing through the book out of the blue. It’s why my favorite “indicator” is looking at spread width on options — if the HFT algos feel comfortable tightening the spread to a tick, there’s almost certainly no risk of unexpected market impact to come.

Overwhelmingly, the two biggest mistakes traders make is overtrading and overleveraging. The way I think of stock price movement is almost bucket-shop esque — I trade “point to point” rather than “real time price”. This is why I love recommending shares trading — if you’re drawing down on shares, it’s not really a big deal. AAPL is not going to zero, even a basic brownian motion argument generally indicates that you’ll roundtrip at some point. The reason why I closed out DJT is because inherently, betting more when you’re winning is leverage. You don’t want to blow out your gains waiting for a roundtrip, ever. This is also why I don’t like shorting — markets are upward biased. They will drift up rather than down, or follow the market, which is passively biased long due to the way price-insensitive inflows work. This is precisely why BTC used to trade semi-nonlinearly, rather than like a stock, as I’ve wrote a while ago:

“Beyond pure "inflows and outflows", here's the model I use for crypto, and why the moves are so rapid: While tokens are built on 'hot air' - there isn't an underlying cash flow/debt to coins - the fact that there is liquidity *is* fundamental value. I think of tradable crypto as essentially a put on central bank stability - <1 delta in, say, the U.S., much higher delta in, say, Turkey. Specifically, they are far dated, far otm puts. This would imply that the extrinsic 'value' crypto has (bc there's no intrinsic for these options, obviously) is almost entirely IV (given that they're on the extremes of the volatility smile), and there is no 'exercisability'. As a result, crypto "inflows and outflows" are more akin to rapid bidding/crushing of the implied volatility of an option rather than normal delta one products, which exponentiates the nature of the move when it comes due to the nonlinearity of option movement itself.”

I don’t think I’ve ever traded this style in my life — I’ve always been a win big and lose often type trader, rather than a scalper (just the pure, innate contrarian in myself) —

but the number one rule of beating these challenge is always being deployed in some manner. Unless there is a specific reason to stay short, you should be net long. Even on an intraday basis, “time in the market” beats “timing the market”, which is why I was comfortable sitting on an AAPL long that wasn’t moving anywhere. There’s no cost of capital intraday, and when it’s not volatile, why not try to catch the bottom of the intraday drift and see if the market pushes stocks up in your favor?

By all measures, this was a very successful day 1, but the failed scalp to push myself into the cashout territory still frustrates me. There’s pretty much nothing I hate more than “at least you came away with profit” mentality, honestly.

I also failed the 14k steps today because, well, I got a fever. Probably shouldn’t run around all day in ultra humid weather after intercontinental travel. I’ll probably sit in a movie theater all weekend (or not, I have some more essays I want to write.)

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