Training Program

^{(Continued from Scholarship)}

It’s June of 2011. My dad and I are staying in a Best Western Inn in Long Island City. At night we watch the NBA Finals and I can’t believe the Mavericks are actually winning. I don’t have a permanent place to stay yet because I have no idea what I’m doing when it comes to real life stuff. My parents reached out to what few family friends we had out in the east coast to secure temporary summer housing, with the plan being I’d search through StreetEasy and Craigslist to find a more permanent solution later on. But I have a one-track mind and it’s been dialed in on trading. I’ve read the MBC introductory PDF file dozens of times.

“Welcome to the Major Leagues of Trading.”

It would start out like that. And each time I read it, I got a burst of motivation to study more charts and watch more pattern trading videos. I’m going to be MBC’s highest earner within 2 years. I wrote that down on a 4×8 notecard and kept it in my wallet.*

*I’m so tempted to write about how the current 34 year old me thinks about this shit, but I’ll spare you that. That’s how I was at age 22, laugh if you want.

The week starts with the first day on the desk and we were about to begin the vaunted MBC training program. There were 10 of us. The summer class of 2011.

There’s Billy who I met at my winter visit to MBC, trading on “half scholarship“.

There’s my old buddy Clockwork, who sat next to me. Spoiler alert: we’re the only two traders from this class who still trade for a living.

There was Imran, the only one of us who was not a fresh college graduate. He was a business owner who wanted to pivot into day trading.

There was Reid, who was the only other person in the class to have a “full scholarship”. Like me, he started his own trading club in college and had also been trading his own account on a daily basis.

Then there’s Terrance, who talked too much and had no idea how to carry on a conversation without bringing up his life story or mentioning his stupid fucking algo.

There was also a guy named Michael. I never got to know anything about Michael because he left within 1 week of the program starting. Just didn’t show up and never came back. So that made 9 of us.

As trainees, we all sat together in our own tucked-away area across the room from the pro traders. The first month, all trainees were on simulated trading or “demo”. They even gave us rules on the demo, like not trading stocks over $50 or having postions over 1000 shares–as to mirror our first month trading live when we would have to trade under those safeguards until demonstrating profitability. You had to first setup hotkeys and get acclimated to the trading software. I looked at the other side of the room and speculated on who were the good traders with the cool nicknames. The training program’s portal website consisted of various PDFs and videos with subjects ranging what to trade, how to trade it, and general concepts about price, edge, and a little about the mental side of trading. Compared to what was out there at the time on the subject of day trading (hot garbage), it all sounded very technical, very nitty-gritty, nuts-and-boltsy kind of tone to it–which to me, gave it some credibility. It wasn’t promising a big secret on how to make money forever, you had to develop skills. They broke up these concepts into multiple sub-headers:

• Stocks with Newsflow — they wanted us to focus on stocks with fresh news or recent catalysts, so you could A) trade a stock with better volume and volatility for that specific day/week and B) understand why that stock was moving. This was better than finding a random stock and having no idea why you’re trading it. It was also acceptable to just find stocks with unusual movement/flow through MBC’s proprietary software scanners.
• Technical Analysis — they broke down chart patterns into 4 sub-categories: trend continuation, trend termination, support/resistance breaking, support/resistance holding.
• Trading the Tape — reading the order flow to get superior short-term entry/exits and understanding the micro behind a stock’s momentum

The third category was what the firm was known for. TGP really hyped up this part of the firm’s strategy, with traders all over the desk shouting out what they saw on the tape while trading distressed financials in 2008. The training portal had a stockpile of videos from 2006-2008 with traders narrating their positions as the level II would flip around orders. “$80 drops out on RIMM and I hit the bid on my position, my plan is to get back in if $80 is a drop buyer.” Real micro “hit the button quickly” type of trading. These tape videos would go over concepts like held bid. A held bid is basically a buyer absorbing size at a specific bid price. A refresh buyer is a held bid that is exhausted down to 0 on the level II but still soaks up hidden size without moving. A drop buyer is a held bid that drops the price (possibly to stop out scalpers) then comes back to soak again later. Then there were 500 more sub-concepts and variations of this stuff and I won’t go over all of them. In all of this tape chit-chat was an underlying belief that institutions with large orders that move large cap stocks would leave “footprints” in the tape in their activity. These held bids were signs of larger accumulation. I ate this stuff up, I couldn’t get enough.

So there we all were, trading on the demo and thinking we were hot shit for finding a held bid, getting make-believe executions at that price, and then flipping it 30 seconds later to make a useless $300 in fake money. One of the trainees, Imran the business owner, got addicted to demo trading. Despite “rules” saying we shouldn’t do this, Imran started trading 10,000 share clips per button click. He seemed hellbent on making as much money as possible on the demo even though we were told to take the demo PnL with a massive grain of salt. Here’s a good post btw, on why demo trading is bullshit unless you can find the unicorn situation where it’s not. Imran would invite Clockwork over to look at his screen and they’d giggle about how he was up a gazillion dollars in paper trading. I don’t know if I did this out of the goodness of my own heart or if I just wanted to show someone what a serious hardass of a 22-year old I was but I actually got in Clockwork’s ear and told him: Don’t fucking clown around man. Don’t let that dude suck you into bullshit games.

I still had my fully funded IB account so I was balancing my time between demo trading exercises and trading OTC penny stocks. In the beginning years, I was basically split into two different traders… you had “pro trader” Pete, junior trader at MBC Securities, who would trade NYSE/NSDQ large caps. Then you had “OTC-bandit” Pete who would trade pink sheet bullshit that you’ve never heard of on his old college trading account.

After lunch break, Victor said we’d be doing the pyramid exercise. Classic corporate team building thingamajig. Victor rounded all the trainees into a meeting room and told us to assemble a pyramid of values that would be fundamental to our success as traders. The most important values would be at the top while the more supplemental values would be at the bottom. I always thought the most important part of the pyramid was the foundation, but I digress. There was a whiteboard with magnets and lying on a table were sheets of paper labeled with words/phrases like:

• Discipline
• Patience
• “Two Great Positions” (yes, the title of his book was on one of the pieces of paper)
• Passion for Trading
• Teamwork
• Humility
• Technical Analysis
• Process-oriented mindset
• Growth mindset

And many more… and then all of us trainees would decide on the pyramid’s composition via committee and discussion. Initially, things started off cordially and took turns with our suggestions. But then one of the trainees, Terrance, would constantly butt into the conversation flow to make his presence known. Once Terrance started yapping, he wouldn’t let a discussion breathe even the slightest bit. He just kept going and he kept referring to his own experiences as if they had some kind of supreme authority on the matter.

I think this (points at whatever sheet of paper) should go into the second pyramid tier. It’s pretty important. Have any of you ever tried to design an algo? I was doing that for my senior year of college, right after I came back from Japan. It’s really difficult but I managed to get a lot of things right, including how I backtested it into a 62.5% annual gain. It was actually super neat how I figured out how these stocks would move exactly like this, in they would first move in 3rds and then 4ths and then 8ths, and blah blah blah blah.

At the time, I was thinking to myself: this guy talks so much yet he knows so little. He’s not sleeping on a massive pile of cash every night, he’s in this training class with the rest of us, what the fuck does he know? It’s annoying. Even the young version of me… let’s just say I had values too, beyond making money. I thought traders should approach themselves a certain way. I read Taleb’s books. I read about LTCM and Niederhoffer. Nobody knows anything and markets can humble you quickly. Smarter people have fucked up hard. Don’t speak like you know everything when you don’t. That was one of my core values as a person. And this guy is just the total opposite of that, trying to project knowledge he doesn’t have.

Anyway… after some exhaustive discussions, we eventually finish the pyramid. I don’t remember anything about it so I couldn’t tell you what we put on top or on the bottom of the pyramid. Victor came back in to see how we were doing. He asked why everything was where it was and a multitude of us gave the “committee-backed” reasons. He made one change. He put “Two Great Positions” at the top. I didn’t think that there was a “correct answer” in this exercise.

^{(to be continued here: Management)}