TradingMarkets: 40 Keys to Successful Trading from Hedge Fund Managers
Jack Schwager talking about what he learned from the top hedge fund managers. It is not really a video. It is just a recorded conference call interviewing Mr. Schwager. The talk is mainly about the hedge fund managers (and traders) in the book Hedge Fund Market Wizards: How Winning Traders Win.
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This was really good I thought – thanks for the post.
I actually like the way Jack presented the materials here, complement the book well.
Lawrence, being in the industry as long as you have – could you share any of the finer points on ‘trading around a core position’. Schwager spoke of a Jimmy Balodimas that broke all the rules. I assumed that to mean he was averaging in frequently (or scaling-in as some people prefer to call it). How do guys like that define their ultimate risk?
For positions that one holds longer than a day, one can trade in and out around important price levels if you are proficient at day trading already. It is more advanced form of money management where ability to read the chart / price actions dictates the actions necessary with the disadvantage of not being able to take position in one direction.
In this sense Schwager is wrong about Jimmy has broken all the rules. Majority of so-called trading rules are there for people to learn to trade. They are guidelines taking people from knowing nothing to a level of proficiency. They are also there to safe guard traders from making mistakes they cannot afford to pay for.
Some of these rules if broken are sure ways to end your trading career. Some can be broken because they are made to protect traders from themselves if they do not have a handle of all the possible scenarios.
Mr. Balodimas has mastered his skills to the point that he knows his risk well thus he can take advantage of intraday / short term swings around his core position to improve the average entry cost. Ultimately if the idea is wrong, he may end up with a losing position but not as bad as everyone thinks.
Market makers from the old days almost always have to deal with this one way or another every week when they choose to take a directional bias.
The difference between amateurs and pros on this aspect is that the pros keep their heads above them and accept failure when evidence says so. Amateurs will have their accounts cleaned out because their money management has leave them no room to do this properly.
“Scaling in” is NOT averaging down, as many people confused about that.
See this for the explanation,
https://www.daytradingbias.com/?p=118430
As a comparison,
1. Jim Rogers “scales in” on his long term fundamental plays and he always says that his market timing sucks.
2. Mr. Balodimas is “trading around his core position” to improve his overall average cost in the positions
3. Pure market making is “averaging down” against order flow