“If a man didn’t make mistakes, he’d own the world in a month.” -Jesse Livermore
Reminiscences of a Stock Operator is an absolute pleasure to read. Jesse is one of the sharpest punters to ever live. Running up over a billion and running it back to a negative number before killing himself, only to have his granddaughter become a pornstar. There’s a cautionary tale in there somewhere. He reminds me of Stu Ungar in terms of mythical, flawed predecessor who made mistakes I (hopefully) can learn from reading about rather than living myself. Also an interesting parallel that reminds me that we are all just people people’ing on this planet- during his come up years, Jesse used to go trade in “bucket shops,” bookies mimicking trading floors, one time passing through a shop in New Haven, CT almost like a rounder. When I was going to school, I used to moonlight at mob run underground poker rooms there and clean up. I stumbled across an old external hard drive that had some photos on it from back in the day, including this shot from that club below. (Young Rick!)
Jesse is right though, if I didn’t make mistakes my graph would be straight up (instead of straight down). My time spent developing my trading provides me with a wonderful opportunity. I’m going through growing pains of all kinds. I feel the sinews stretching and joints popping. One of my favorite aspects of learning a new intellectual vocation is the connections that my mind makes, not just metaphors across disciplines, but when I realize that ideas within that discipline which were previously distinct actually have some kind of substantive touching point that makes them part of some grander unified understanding.
For chess it might be how openings relate to mid game decisions which impact the relative expected value of end game positions. For Starcraft, it might be how differences in build orders can delay or advance your mid game economy and its interaction with being able to withstand or not specifically timed aggression from your opponent’s strategy. For poker it may be how deviations to overweight certain types of preflop combinations will result in imbalances in your postflop strategy’s board coverage and value to bluff ratios across certain types of boards.
Each strategic discipline has some version of this concept and this morning in the shower I had my first substantive realization for trading, in this case how a negative result from a catalyst group can provide a downstream opportunity for a core setup that I’ve been identifying, implementing and tweaking. But more broadly, the connection that catalysts can inform scanning to find setups, while relatively simple in retrospect, had not been made before.
On the one hand, I love it. I really truly love it. This is what my brain lives for. Eureka moments are one of the joys of life I pursue. On the other, it reminds me of how novice I truly am which is simultaneously terrifying and motivating.
I woke up at 230a today without an alarm to get started. I read some of “Out of the Shadows: Understanding Sexual Addiction” and have my AA meditation meeting in a few hours. Through the rest of today I am reviewing my past week’s trades, studying SMB’s video library, going over some historical charts, prepping names to watch during premarket tomorrow with some other people, and finishing up my errands so I will be able to focus throughout the week.
Life is good; I am in flow. Below is a note I wrote to myself yesterday as an internal check-in:
I had a thought. Recently I’ve been contemplating pushing my max position size. I opened it up to 50k and was daydreaming about having selective access to even larger size. The thing that bothers me is this tendency to want to keep pushing to higher and bigger and tougher games. On the one hand it makes me keep pushing forward, striving to be better and compete with better competition. It’s a force, movement in a continually self improving direction. On the other, that progress inevitably stalls out due to improper risk management. It is truly inevitable. It will happen every single time that eventually you find your ceiling a la Icarus. I used to look down on people in poker that would shot take games with 20%+ of their networth at one time. To me that was crazy! When I would play my core games online I actually would have several hundred buyins at my disposal (less than .3% in comparison). It wasn’t until later on when I played the biggest games that I started to mimic the people I used to look down upon. I never had 20% of my net at risk, don’t think even ever 10%. But I did loosen up my risk controls when the EV of the circumstances dictated.
With trading it’s a little different. Broadly speaking I am already playing the toughest game – outside of mental challenges that occur for larger size, managing fills and slippage, errors being punished harder and other difficulties that I am too inexperienced to anticipate. I guess I am playing the toughest game on easy mode. So while scaling my size won’t parallel poker’s massive skill discrepancy across small to large poker games, my risk controls will really determine my path and longevity.
If I keep striving to up my size and up my size and up my size, eventually I’ll suffer a rip that sabotages my whole endeavor.
I need to remember back to when I played midstakes online poker with a deep bankroll and executed with a strong mental game and high level of skill, dutifully showing up every day. That’s what I should be seeking to reproduce with my trading over the next few months. That is the type of trader I should be. Not someone who is looking for an excuse to get my broker to give me a larger max position size.
Give it time. The gains will come.
It’s not just ‘patience,’ it’s closer to chiding my inner child. The kid who wants it now! I have internalized a timeline target of netting a penny by my birthday in August. Whether it comes sooner or later doesn’t really matter, it’s just a target. But speeding it up by taking on additional risk has no purpose and sabotages the mission! Just as losing another $100k doesn’t change my quality of life, neither does winning $100k.
I’ve been daydreaming about when to open up my size enough that I think I ought to listen and then quell that desire by simply putting a line in the sand to aim towards so I can refocus on what’s in front of me today and tomorrow.
I’ll increase my max position size to $75k when I am up $30k from trough. So $20k from now. I’ll just say that and move on. I don’t expect it to be a straight line.
I am at peace with whatever path my p&l takes to get me there. If I dip down to -$180k first that’s ok. I am truly just locked in and fully committed to making this work and while I had a great week, it was only three days of trading size. Three days and I’m daydreaming about opening the size further. Something, something hubris.
That’s why I’m writing this! Putting it down into words allows it to be defined and restrainable. I won’t allow myself to commit any more novice errors than I need to. I’d rather read about them in a book.