Institutional Equivalent Education?

One thing I should make clear about 'Moonshots' is that they are available for all types of directional trader from Scalpers to Day traders, to Swing traders, to Long Term Trend Followers.

Recently Ray has shown the effect of 'moonshotting' a scalping technique on the ES. He showed making around 100% of account based on an intital max risk of 2% in just a small Market Maker Auction range within a period of a few minutes. And although not 'live' (because it would have been too fast for most of us to follow), neither was it a 'cherry picked' chart - it was just the initial RTH price action in the first hour for the day he was demonstrating the method.

I hope that Ray and Compass will forgive me for being a little bit more specific than usual about some of Ray's teachings. There is so much misleading information/opinion even from traders whom I generally respect.

Today I want to address misleading advice about two things: Firstly Risk:Reward and secondly about how many trades you should take i.e. taking all you see versus cutting down severely - even down to just to one per session.

Mindy and Evelyn ( 'The Pods' ) of ForexsmartTools put out an email about Risk:Reward and how despite many retail traders saying they only take trades with more than twice the potential Reward to the Risk taken, in actual practice they are unlikely to achieve much better than 1:1.
Whilst Ray advocates having at least a 1:1 to the first main target (i.e. his TP2, since he always has a set number of pips/ticks for a particular market at which he will put his trade into a profitable or no-lose position), he says that R:R is not the key measure. Expectancy is much more important than R:R, so for a trade with an 85% win rate, he will take it with a Potential Reward (TP2) to Risk (ISL) of 1:2. Thus risking twice the potential reward and he will happily take those trades all day long!
It is easy to see why when you calculate the net return over 100 such trades (ignoring trades where he achieves only TP1 + a scratch, or just merely a scratch, and ignoring trades which go beyond the TP2). If we assume a max risk of 1% per trade, then over 100 such trades, we can expect to win a total of 85% x 1/2 = 42.5 % of our account and to lose a total of 15%, for a net gain of 27.5% of our account. It is like being a casino, once you have an edge like that there is no reason to pass on such a trade, in fact you want to take as many of them as you can because over a small number of trades you might make a loss, but over a large number of trades the figures converge to the mean and you make a lot of money.

This brings me to the latest email from 'Crazy Boris', who suggesting that you improve your results by cutting down on the number of trades. Well the above example has shown this isn't always true, but lets look at what he means as opposed to what he is saying! The point Boris is trying to get across is that some trades are more successful than others (i.e. have a better expectancy). Thus it is better to take only the higher expectancy trades. Further he assumes that if you consciously cut down the number of trades you allow yourself to do, you will cut out more of the low expectancy trades. If we assume that you are able to distinguish between the expectancy of different trades, then this almost makes sense in a sort of half-assed way!

But the truth is that provided you are not overly fatigued, in order to maximise you profit you should continue to take all positive expectancy trades unless taking a lower expectancy trade is likely to prevent you taking one of higher expectancy. Naturally this is assuming that you do not get overconfident after some successes, or get overly cautious or overly desperate after some losses!

Ray teaches that we should score each potential trade out of 10. Adding to the total for each positive aspect and subtracting for each negative aspect. He suggests we then use this score to determine or level of risk we are prepared to assume on that trade for example 0 to 3 - no trade, 4 to six - take a 1% risk, 7 to 9 take a 2% risk, and for a 10 take an even higher %risk. In all these cases assuming a bigger risk does not affect the SL placement, it just means entering with a bigger sized position.

Now because no 2 trades are completely identical, this idea of going for a bigger reward on the most promising trades makes complete sense. If you have sufficient records you can have worked out a different expectancy for rough differences in a trade set-up. Alternatively you can just add up the positive and negative factors for such as: the COT bias, the Macro picture, Market Profile, Intrinsic Value higher or lower, current Sentiment, whether Market Makers or the Big Boys are in control of the market right now, being at Demand/Supply level, being at a Liquidity Level, Price Action, Volume, OrderFlow, likely 'real' and likely 'spoof' Limit Orders in the Book etc.

Here is some mathematical help for those who like the idea of taking a single trade in a period - a one and done approach.

If you have an idea as to how many trade setups you will get during your session, then there is a mathematical solution to finding the optimal trade to take when you will only take a single trade. The problem is known by various names including 'the secretary problem' and 'the fussy suitor problem'.

It gives you a 37% chance of choosing the best out of all your possible trade setups (provided you know how many there are to choose from). This is the maximum possible probability of choosing the best one
What you do is reject the first 37% of the setups and then pick the first one which is better than all of the ones previously rejected. So if trade number 38 is better than all of 1 to 37 you take it; if not you reject it and check if number 39 is better than all the previous 38 ; again if the 39th is not better than all 38 preceeding it, you reject it and check number 40 etc.

Personally I think it is very interesting, but hardly of practical use unless you are hiring a for a job or choosing a partner and are a rather unemotional person.

Hi Ian, how are u? I hope u are fine! Also how is Ray?...

I see there was a pause for a long time, so I assume u concentrate much on trading and leave the forum aside...
If u have time, if u already didn't know it already....can u take a look over the following video series... a lot of the things that Ray did present in his work I found also at this guy, which claim that he also came from 20 years of institution work. Personal opinion is that Ray on some aspects go a little deeper utilizing some "advanced" tools...

http://theinnercircletrader.com/Tutorials.htm

Thanks for sharing, pretty much the core of what Ray is teaching but all free and without all the craziness about indicators.

While there is quite a lot of advice about the psychological aspects of trading, I find that much of it isn't of real practical use.

This week's email from 'crazy' Boris covers real practical psychology in trading in a very practical way. Congratulations Boris - something I can totally agree with:

"
Your Most Precious Capital is Not Money

Trading by definition is uncomfortable. You are taking risk on an unknown outcome betting money each time. It doesn't matter how many times the setup worked in the past. The market has no memory and the future is never quite like the past. That's why every trade is tension. Every trade is pressure. Every trade is stress.

A lot of gurus will try to convince you that trading can be easy and relaxing. They'll claim that you can just get into "the flow" and succeed without worry. I've done more than 20,000 trades over the past decade and I don't think I've ever felt relaxed during any of them, unless I was dead asleep. (Even then I have an uncanny ability to wake up on demand when a trade triggers in Asia -- a trait that has saved my account unnecessary losses on more than a few occasions).

Trading may be exciting, it may be challenging, it may be intoxicating but it is never "fun" the way floating on the ocean in Miami Beach is fun or the way drinking an espresso at a sidewalk French cafe is fun. Trading always requires focus and effort. Which is why your most precious capital is not money.

The term "mental capital" is bandied about by traders all the time -- but what does it really mean? It simply means that you have only so much intellectual and emotional focus on any given day and if you spend all your time nursing a losing trade, you are not only wasting money but much more importantly depleting all your mental resources as you set yourself up for market slaughter.
For those of you who saw "The Big Short" -- Mike Burry, the Asperger challenged hedge fund protagonist of the movie is portrayed as the lone hero who stood up to Wall Street and made a killing shorting subprime debt.

In truth, he was a lucky idiot.

It didn't matter that Burry was ultimately right on the market . It didn't matter that Goldman and Morgan outright cheated him by keeping the marks against his positions artificially high. It didn't matter that he ultimately collected more than a billion dollars. Mike Burry would have been swept into the dustbin of history if he didn't have the quirk of fate to lock down his investors' funds and essentially keep them hostage, avoiding a capital outflow that would have liquidated all his positions before they paid out. The scene in the movie of Mr. Burry lying on his office floor staring at the ceiling in despair anguish as his Net Asset Value contracts by double digits is a classic example of "mental capital" being depleted.

Now I am really glad Mr. Burry got paid. He seems like a very smart, decent man and he certainly was correct in his analysis. But we as retail traders don't have a billion dollars of "waiting money" at our disposal. We don't have the legal right to lock down our brokers "redemptions" of our funds.

Our margin calls are final and generally terminal and the damage they do to our psyche is often far greater than the damage they do to our bank accounts. Which is why nursing a losing trade is NEVER WORTH IT. Even if you win. Because all that means is that you will lose it all and then some -- the next time.

There are only two ways I know of preserving your mental capital. Trade a 0.01 lot or trade with a stop. It doesn't matter how unfair it is. It doesn't matter how much capital it cost you. It doesn't matter if it will take you a month of trading to recover the stop loss. The moment you take a stop you free up not only your money but also your mind, and in the end that's priceless."

Hi Christy, I don't have time to go through all the modules that ICT have listed. Just looking at the descriptions they appear to include some worthwhile subjects, though it appears that the most important one (for me) is missing. That is the various components of what Ray calls 'Intrinsic Value', which includes how the Stat Arb prop desks trade the news events and how they take directional trades (or hedged spreads) at places where they know that the big institutional spread traders will find value.

Compass are letting ex-students back into Ray's live Omnovia room next week (not sure if it starts tomorrow (Sunday Eastern Time) or on Monday. So if any of you ex-students are interested in his more recent teachings, watch out for the email from Compass giving the login and password details which I have also posted in Skype for the Self Help Group members.

I know that I have covered this subject many times. But want to re-emphasize:

Not all institutional traders trade well. Many trade in ways which are not possible for a retail trader. Most only know of a few institutional techniques they were trained on.

Ray is probably unique in being available to teach Retail Traders while still being employed as a Quant, Trader and consultant to some of the biggest institutions after around 30 years in the business. He not only knows many ways of trading, but as a Quant he is continually comming up with new ones - or at least new twists or ways to apply known techniques to new markets. For example he has started to trade seasonals on the Ags (similar to Larry Williams and others)and several (non-calendar spreads) such as the 'Crack' and the 'Crush' as well as Financial Index spreads Dow-Dax etc.

The downside of learning from Ray is that it never stops - you are always learning something new. And since each person is different, what works well for one student will be different to that used by another student. I am probably the only student who predominantly trades the 09:30 (UK time) UK News events and the Crude Oil Inventories Release.

Ian,

Can you tell me when exactly did Ray start teaching at Compass? I think you may have said in the past that it was in 2014, but can you tell me specifically which month it was and if you were there for his very first classes? Thanks.

Thanks Ian,

I hope I'll get an email, I'm really eager... ;
Also seem interesting the comparison on the psycho stuff with "the big short" movie, actually I can tell that I might depleted my "mental capital" before the trading account...) right now at the beginning of June I mark a full year of staying aside, and just testing, looking here and there for ideas.... at least I have my day job.

Hi Ian K. ,
Ray started his online 'retail space' prop desk concept with Compass 2nd week of April 2014. He soon discovered that we retail traders hardly knew anything in the Institutionalk worls that he was used to and so had a huge educational deficit.
So he started teaching informally in late April and did his first set of Formal classes in early May 2014.

I set up the Self Help Group for his students in late May 2014, because I didn't know how long Compass would keep his teachings available and did not want to lose anything he had shown us. In fact Compass have kept pretty much every thing he has ever done - so 1000's of hours of recordings - though just in the order he did them, not in any organised or structured format. The Self Help Group have a group of Hipchat rooms in which we have stored information on Ray's style of trading , Charting Platforms, Psychology etc since June 2014.

Thank you for your reply, Ian.

Would you say for a potential new student that it would be best to start with what you have documented in your Hipchat rooms rather than trying to 'jump on the moving train' of what Ray is teaching now on a day to day basis? From what you've said, I gather there is no real class structure taking you from A to B, all the way to Z and is a real trial by fire. It really sounds like you've done a more comprehensive job than Compass in attempting to bring a logically progressive order to the concepts Ray teaches and the reason I asked about when he first started with the company is because I imagined he'd be forced into introducing everything slowly, whereas now he probably expects the bulk of the class members to know the stuff. If I'm right then this probably wouldn't be the best environment for newbies to try and catch on.

Hi Ian,
It very much depends upon what you mean by a newbie. Probably most would have had to have done the equivalent of the whole of the trading 'School' in www.Babypips.com
I attach a word document I have written for addressing the minimum that a newbie should have studied before they will gain much from Ray's specific teaching.

I have also been taking a look at the free videos - suggested by Cristy1980 in a post above which are on the following site:
http://theinnercircletrader.com/Tutorials.htm

I have only gone through WEN Part 1 to WEN Part 4 so far, but apart from technicals both Michael Huddlestone and Ray teach many of the same things. So perhaps a combination of BabyPips and the ICT free videos might get somebody off to a good start.



There is no real substitute for experiencing a full 2 'sets of formal class sessions' from Ray. He has taught 8 sets of Formal courses and although, they are all a little different both in content and in the way the content is presented even though much/most of the core content is the same each time. This is due both to his becoming more familiar with just how little us Retail Traders know, but also because he is foremost a Quant and so is always working on new ways of trading - for example new trading software, new markets and how to trade them.

Unfortunately the concepts and techniques he teaches are very co-dependent because he emphasizes CONTEXT above all with no reliance on traditional indicators. So unless you already have a profitable method to which a few new concepts can be added then you will need time and some repetition in order to understand how to choose 'your own set of' methods and concepts in a way which suits both your personality, account size, account type and your availablity for trading.

I don't know if things will change, but the course he did last December was scheduled to be his last one for a big intake of new students - he HATES the open Webinars and promotion required for such things. However I have noted 2 completely new students in his live Omnovia room last week, and he is part way through a free open week of revision for ex-students.

The things we have in Hipchat are only available to our members who must be signed-up students of Ray when they apply to join us. They are very much just tools and information to shorten and deepen the learning experience. That is why Eusebio Nanni is a member even though he is a Forex Instructor and a master retail trader (he has also taken 2 of Ray's formal courses and spent at least an additional 4 months in Ray's live Omnovia room).

We were given an example of true Institutional trading today. Ray wanted to go long at a bottom edge on the 30yr Treasuries, but was concerned that the CL (Oil) was declining down to near the 50.00 level - a strong possibility of a bounce. Plus the SPX (S&P500) was also declining down near to the 1290 level - likely for a bounce.
If these did bounce before he could take a profit on his bonds then the Bonds yields would be likely to rise, putting him underwater on his long bond trade.

Now the 30yr Treasuries are always a thick market, but CL outside of the US session is pretty thin - so more open to manipulation. So he made a few phone calls and sold CL trying to trip the stops below 50.00. This only partially succeeded, since the move found buyers below the 50.00. But he didn't care because he took 5 ticks profit on the CL and he got his long bonds out for a 3 tick profit - a quick 30,000.

This is how institutions trade correlations, it's another world from retail - isn't it !

Also of note, the 2 people (fairly experienced traders) who joined the Training room 3 weeks ago on the early-bird deal, are reporting vastly improved results. One of them joined our self help group and is already contributing.
There is still no date for a further full course from Ray, but he has been covering some really important subjects in his weekly 3hour ongoing training sessions. So if any experienced traders are interested in Ray's course, sign up now and make use of the extra weeks/months that the early-bird offers you.

Trading the EU Referendum last night, I got a good opportunity to compare the actual trading of different FX teachers. Kathy Lien and Boris Schlossberg had an open 'Trade the Brexit' webinar and Ray was also live in his CompassFX Omnovia room.

Despite Ray being the more cautious Trader (since he is trading large size for his Prop Firm) he had the experience to be able to handle trading the GBP/JPY , wheras Boris was avoiding GJ and GU - Kathy kept telling him to trade the AUS/USD and the EUR/USD because they were much less volatile.

I personally traded in my News trading style -based on what I have learned from Ray, despite the increased spreads and increased Margins, I still managed to make a net +63% on my (quite small) account for a net +3181 pips. But of course that was only a +63% gain on the account. In order to make that I traded for just over 5 1/2 hours.

Ray was told by his firm to leave his desk (early?) so as to come in for 07:00 (UK time) when he had only been trading for about 3 1/2 hrs. In that time he had made several thousand pips and reached his profit target for the whole year despite struggling to get the size on that he wanted , since liquidity was very thin.

I got a email from B&K saying that they made a whole 247 pips, but that some of their students had made 1,000 pips.

My conclusion: B&K do not know how to handle risk properly. When the market offer you giant sized returns from high volatility - sure trade very small size, but take the free pips you don't often get such good opportunities!

For complete transparency, I should say that my initial bias was for Bremain and so my first 2 trades were losers. Also I had a UK stock Bremain trade going on another smaller account which I was unable to close out until the UK Stockmarket open so I lost the equivalent of 8% of my larger account on that one. Overall across all accounts I made (only) +55% trading the Brexit and was feeling pretty dissatisfied until I got it up to over +25% because the trading was so easy.

I had a Skype from Eusebio Nanni, which shows what a master trader could achieve on a night like Brexit night. He broke his all time record but only took 3 separate trades each with his usual 0.5% maximum risk per trade. Since he was able to trade all night and use his scale-in and scale out methods (which are much more intensive than Ray's) he must have done even better than Ray did.

Here is his Skype message to me:
"Hi Ian. I just read your comments on Forex Factory. Congrats for your trades. I took myself 3 trades on GBPJPY (2 short and 1 long). 3 winning trades. I have also broken an old record, making 26831 pips for +168.6% profit (0.5% risk per trade). It was a great night (but exhausting)."

Personally, I think that is about the limit of what could be achieved by a human being, only an Algo would have a chance of doing much better than that.
But why people continue to sign up for garbage education, scams etc. is impossible to understand when there is such diverse quality available for either Indicator trading system fans (with the MAX) or for Statistical Arbitrage/Intrinsic trading fans (with Ray at CompassFX) - unless it is that the people who do are just too damned lazy to to the work required to learn real trading.

I have just read the self congratulatory email from Boris and Kathy.
They are so deluded that they actually think that there Brexit trading result was good - LOL!

The interesting thing is that much of what they say is very sensible, but they were so much in fear that they didn't maximise the opportunity. They say they used 0.5 leverage i.e trading a 1 lot on a $50,000 account. Apparently not even their most successful student did half as well as me on their favourite measure of pip count. I started risking 2% of my account per trade and then once in profit on subsequent trades I added one quarter my accumulated profit to the amount at risk on the next trade since in 'News trades' I find it hard to hold on for long and scale-in like Ray and Eusebio do.

Looking at their log, I'm a little surprised that Boris traded the G/U on half of the trades - obviously he like to ignore his strategist (Kathy) - LOL !
The other thing is the tiny (pathetic) pip count on each trade, though obviously they also have a much smaller max loss than I did. Their biggest win was only 43.7pips and their biggest loss was 9.2 pips. Still at least that is a good ratio, as is their win to loss ratio of 8:1

Here is the email:
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How To Trade All The Brexits of Your Life


First of all props to George Soros who at 80 plus still has more trading skill in his head then all the armies of quants and fraternity boys at every bank trading floor in the world. He saw the asymmetrical risk and he took it and I think I understand why. Like all East Europeans (yours truly included) he has a particularly dark view of human nature. He always bets on the unfortunate tendency of most human beings to make the absolute worst choice possible. Given the fact the many of the low information voters in UK are apparently only now starting to google the words "European Union" and only now starting to understand the full implications of the actions, Soros is once again proven right in his views.

But this is not a column about "have a hunch, bet a bunch". In fact quite the opposite. Last night K and I hosted a 4 hour live trading session that was undoubtedly the best of our lives. Not because we made a huge amount of pips. We did well (blotter below) -- but many of traders in the room made four, five even six times the amount of pips we banked.

http://files.ctctcdn.com/7bda0ef6001...96af1c8b50.png

The thing that made last night's session especially sweet was that we finally put all of our trading skills to work in what was surely the test of the century.

So allow me to deconstruct the key ideas that made trading Brexit such a success so that we may all make them our best practices for the future.

1. Trade small.
Yes, yes, yes I know that I drone on about this point to the level of ridiculousness but it cannot be overestimated. Brexit night was the single most volatile night in the history of the pound. If you traded with so little as 5X leverage you would have been margined out at least 10 times in a period of three hours. I traded at 0.5 lever all night long and never once felt any pressure in what was the most turbulent market in years. In fact the proudest moment of the night for me wasn't in hitting 10 trades in a row, but in blowing out of my position the moment I realized that was 4X too large by accident. You can hear me on the video saying, "I don't care if I am right or wrong I just want to be out." Which was probably the smartest thing I said in years and will forever now become my mantra when I trade these events. Making the wrong size trade and then stubbornly trying to trade your way out of it is precisely how all traders fail. Nick Leeson anyone?

2. Trade the facts not your opinions.
Like almost everyone in the financial markets K and I came into the event convinced that Remain would win. In mature democracies the status quo generally always has the upper hand as people are loathe to vote for the unknown. So we were fully with the bookies and even had the plan to buy the dips as the inevitable profit taking kicked in. But very soon into the results Leave started to edge ahead. Having followed many political campaigns in America, I instantly grew weary of my opinion. I knew from watching so many results trickle in over the years, once one side gets the lead -- especially one that is not supposed to be ahead -- the odds of the consensus win begin to dwindle radically. So you can hear K and I saying if London doesn't cut the lead by X, if Birmingham doesn't cut the lead by X -- odds are the Leave will win. We quickly changed our view as facts challenged our assumptions. When you trade event risk it's vital to have no ego.

3. Trade with Trend.
Once you have the right assessment it is vital to stay on the right side of the market. All of our trades were short risk and while some of the traders in the room tried to buy the turns we vehemently held them back because we knew that when it comes to event risk the trend is your friend and you fading it is a low probability choice.

4. Think fundamentally, trade technically
This perhaps was the key to our success. We had a fundamental view and traded in direction of the trend, but we almost never chased price. Instead we waited for inevitable short covering rallies and keyed off the near term resistance levels that were popping up on the charts. This was actually the best thing we did as our positions saw very little drawdown on a night when volatility was at a historic high.
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I have just been reading the garbage in the FF news threads. It is no wonder that so many retail traders lose money it the ones posting int the various 'Brexit News threads' are a fair representation.

There are those who think that the Bankers are conspiring against them, and those who distrust all experts. There is nothing wrong with being sceptical and doing your own research, but just taking the opposing view because they are experts - really?

Then there are those who don't understand what Market Makers actually do, and those who use Cumulative Delta but get the reading of it all wrong.


Thank goodness for Ray, who taught me right from wrong in the Markets !

I think I may have got into a muddle explaining Withdrawal Of Liquidity in on of the news threads.
So here is a more detailed explanation of how Market Makers work and why they do a WOL:

A Market Maker is contractually obliged to provide Liquidity. This is easiest to understand in the centralised markets such as the Index Futures.
A Market Maker will provide a quote both above and below the market. This enables a retail trader or a directional Institutional trader to buy or to sell at approximately the current price. This is known as a 2-way market.

So the Market Maker will Sell to a trader wishing to BUY at a price just above the current price or to Buy from a trader wishing to SELL at a price just below the current price. If nobody was prepared to quote to do this, then the market could never move because for every BUYER there must be a SELLER and vice versa.
Thus if price fluctuates between the prices at which the Market Maker is quoting, they make a bundle.
They sell to a retail buyer at 102 say and then the buy from a retail seller at 100 say - thus making 2 ticks/pips fro each round turn.

They NEVER take a directional trade, they are always bracketing the market. They are earning a spread on each circular price fluctuation from 100 to 102 back to 100 , back to 102 etc.


102 Inst buy 100 at Market = Market Maker short 100 at 102
101
100 100 x retail sell 1 each at Market = Market Maker long 100 @ 100

So if we think of the cycle of:
100x Retail sell 1 each using a Market Order, they sell into the Market Maker's Limit Orders making the Market Maker long 100
then an Institution buys 100 using a Market Order at 102, they buy fthe Market Maker's Limit orders making the Market Maker now net Flat for a profit of 200 ticks.


So any trend really hurts them because for example they will have Sold to an Institutional Buyer, who keeps buying enough to make price rise say 20 ticks. Once people see an institution driving price higher no other traders will want to go short, so the Market Maker will be the only mug selling to them in order for the Institution to continue Buying.
Well obviously this is bad business for the Market Maker, so instead of bracketing the market with say 100 lots available to buy 1 tick above the current price and 100 lots available to sell at 1 tick below the current price, they will offer only 20 lots above the market price (i.e potential MM Sells) and have perhaps 180 lots below the Market price (i.e potential MM Buys). And they will continue to do this all the way up to a point where they expect responsive Sellers will emerge (which would enable them offload all/most of their Shorts. Because remember that Sellers need Buyers in order to to sell to.