.ۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗ Trading is just a game, don't gamble with money you can't afford to lose.ۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗۗ .ۗۗۗۗۗۗۗۗۗۗۗۗۗ
Thread on: How SSR affects smallcap gappers
A common myth is that SSR = high chance of squeeze or short avoid.
The data from the past 12 years says otherwise. >=30% gappers faded more from open to close for all years except 3 (2010/13/18).
But the devil is in the details.
1/
LOVE all the debate this tweet created.
Original tweet had some gray areas due to brevity. Great! Leads to more convo!
My best anecdotal argument:
MANY successful traders w huge strategy edge, poor psych / RM.
Yet best psych / RM but no strat edge = 0% chance success.
Systematic vs Discretionary Trading 🧵
The main advantage of systematic trading is the ability to automate and execute across as many instruments/tickers as possible at the same time.
Even if manually executing, it is low cognitive load. Performance is not affected by form.
1/
On Pyramiding into a trade🧵
There are 2 things to consider/model in a trade with respect to pyramiding:
(1) The expected value of the ticker at the end of your timeframe
(2) The expected path it will take to get there
Most traders focus too much on (1) and neglect (2).
1/
3 main reasons Kelly Criterion is a bad method of position sizing for trading/investing 🧵
I've seen multiple posts on fintwit about using kelly criterion to optimize account growth.
But it is not mathematically sound to apply a perfect world gambling formula to trading.
1/
Thread on the smallcap market cycle shifts from 2019-20 and 2020-21.
The 2020 pandemic cycle brought in a new wave of dumb money (mostly long, WFH robhinhood gamblers), resulting in a hot market.
Fig 1: Chart of >30% smallcap gappers as well as dollar volume, by year.
1/
Thoughts on the Current Smallcap Market Cycle 🧵
Most traders in the space are aware of the difference in ticker behavior in 3 main periods: pre-2020, 2020- early 2021, and late 2021 onwards.
The 2020-2021 cycle being widely regarded as having offered the most opportunity.
1/9
Effect of locate prices on Smallcap Gapper Behavior 🧵
I parsed my tz cash journal (mostly 2021 data) and joined it with my smallcap gapper data.
Below is the open to close fraction change of >=30% smallcap gappers binned by locate prices (as fraction of ticker open price)
1/
A Common Issue: A trader has a setup that has been consistently profitable for a good period of time, then suddenly it starts doing poorly.
How does one tell if it's just bad luck or if the market has changed and the setup no longer works?
A statistical approach 👇🧵
1/
Story of a small edge that used to exist in HTB smallcaps but doesn't anymore.
There were only a few major retail brokers in the HTB smallcaps locates space. Now all major players have locates from 4am, but in the past one of them only released locates at 6am (actually 605).
1/
Thread on: Seasonality in Trading
In the pic is a simulation of a rare day 2 short strategy. ~50 trades a year (2020 anomaly had 3x), but the edge is very high.
The setup performs better when avoiding Monday, which loses after the modeled 2% ticker price as fees/slippage.
1/
Posting your trading edge on twitter for likes is the optimum strategy
Since the main reason people want to get rich is for social validation, it's far more efficient to just get the social validation directly 😇
@TheOneLanceB
If those index/largecap traders were really so good, they would take their record to a multistrat like millenium or point72 and get $100m to run a pod.
I believe very outsized returns are only possible for strategies with capacity limitations, where big players can't play.
Thread on: How raw price value affects small cap gapper behavior
Dataset: >=30% gappers from 2018-2021
If we split smallcap gappers into bins based on raw price and look at the average high % from open as well as fade % from open to close, 2 things stand out in particular.
1/6
How do smallcaps gappers behave on a Tuesday after a Monday Holiday where the market is closed? 🧵
Most smallcap traders know that tickers are a bit stronger on a Monday after a weekend, but is there the same effect on a Tuesday after a 3 day weekend?
1/3
Thread on: Market cycles and Degradation of Edge
Let's do a simplified simulation on a setup for shorting smallcaps on the opening print to closing print, with certain reasonable filters.
10% of account per trade with 100% stoploss and assuming 2% in locates/fees/slippage
1/
@daytradingzoo
Still many guys banking 7-8 figs a year, but off social media and in private groups.
The ones running their mouth and leaking edge online are mostly at low 6-figs a year and haven't reached the point where liquidity constraints matter.
Visualized: Smallcap >=30% gappers mean % change from open to close by month and year.
Overall column is weighted equally by year, not by individual gappers.
Earlier years have low gapper counts and outliers, so the overall column for the 2017-2021 version is more reliable.
1/
Give this guy a follow. I've read his whole blog, every single entry is a gem. Shares with us his experience of more than a decade of daytrading.
I recall his article on the CETC halt that got shorts stuck, which we now see repeated in MEOA/EDTX. Tons of knowledge to learn from.
Thoughts on short locate fees🧵
High short locate / borrow costs are one of the most underrated and underappreciated edges that good HTB shortsellers have.
For a trader to be profitable, the trading strategy needs to be significantly better than random guessing.
1/5
@TheOneLanceB
If your networth is high enough that 1m doesnt make a difference to your life, pick the green button (25m EV).
If your networth is low, sell the option to someone with a high networth for 10m and pick green for him.
Never pick red.
Personally I rarely pyramid into trades, but I will do it on the very best trades where I have high conviction. And those few trades will account for an outsized portion of my total gains.
6/
Food for thought: Can you try to purposely lose money trading? (outside of paying the spread and fees)
If you can purposely lose money then it should be easy to inverse it and make money.
There wasn't much capacity to the strategy due to limited liquidity in PM especially on a flatlining ticker. But it was good enough to make some decent bank on a smaller account.
If you look hard enough, there are interesting small edges that exist in a lot of places.
5/
Maximizing interest on intraday trading accounts🧵
$BOXX returned 5.2% last year and probably ~4.8% this year depending on JPow's cuts. It tracks the returns of US 1-3 month T-Bills.
Is your broker's interest rate on idle cash balances much lower? You can hold BOXX instead.
1/
Conclusion: People need a method to position size, but there really isnt any optimal mathematical formula for it. It's an art not an exact science.
Safer to err on the side of caution. Better to take a while longer to get rich than face risk of ruin / blowup.
11/
In recent times, short strategies have got more crowded (partly because most smallcap pros are more short-biased than long), resulting in:
- Slow multiday grind ups IMUX, PEGY, LASE etc
- More D1 gappers holding up
- Black swans HKD, ATXG
- More intraday squeezes like ILAG
6/9
@TradetheMatrix1
@JasonRutkowski3
No cycle will last forever though. When one side wins for too long they will get too aggressive and the other side will be cautious, resulting in crowding. Hence longs and shorts take turns winning.
It's beneficial to be able to play both sides, adjusting for the cycles.
8/9
In my opinion the edges will be transformed but won't disappear.
Naive statistical edges based on fixed numbers such as short opening print (D2 or other criteria), short parabolic, etc. will be the first edges to go.
More discretionary edges won't be eroded so easily.
1/
Directional edge can be validated by simple questions:
Momentum - Why is future order flow expected to come in? From what source will the order flow come?
Mean reversion - Why are participants forced or tricked to transact at "bad" prices? Who are the parties involved?
@TradetheMatrix1
@JasonRutkowski3
These type of cycles happen not only for smallcaps, but for every type of market e.g. SPY, Crypto
We have ~10 year market bull/bear cycles. At first stocks only go up and p/e values get overinflated, followed by a crash and several years where the market makes no returns.
9/9
A reasonable compromise would be to be a systematic-discretionary hybrid.
One starts off as fully systematic, and over time learns the nuances of the edge and the outlier cases where it doesnt work.
Then one makes the occasional intervention to avoid bad trades.
4/
However the real good stuff, I have never seen talked about openly online.
There are very big players in this space. They keep their lips tight, many never post on social media.
They care more about protecting edge and maximizing capacity than getting validation online.
4/
Besides the overall macro cycles, there are also mini cycles that last a few weeks to a month.
@TradetheMatrix1
@JasonRutkowski3
are accounts which regularly discuss the switch between strong/mixed/weak cycles and their effect on intraday moves and traps.
7/9
Beware if you are a trader who uses statistical parameters to target your entry and exits, because your data might be collected in a cycle where the strategy performed out of the norm.
It is important to develop a good pulse for weak/strong cycles and adjust accordingly.
5/
Traders should examine how seasonality affects their setups.
Time of day for scalps, Day of week for intraday holds, Month of year for swing setups.
This has huge potential to further optimize returns, or simply avoid headaches taking a setup in a time period without edge.
5/
Thread on: Adverse fill (for those who haven't heard of it)
If the trade goes your way, you may only be partially filled (or not at all). But if the trade goes against you, you always get filled completely.
It's a basic concept though a lot of retail haven't been taught it
1/5
Nonetheless there will always be a protected edge in shorting HTB smallcaps due to:
1) Expensive borrow fees
2) Lack of liquidity for bigger institutional players, resulting in more unsophisticated participants
6/
@AntonKreil
And Singapore has better government-subsidized housing, healthcare, education, infrastructure, etc. than the US.
The point is not to collect more taxes, but to be more competent and use it more efficiently.
Hence it is easier for a higher priced ticker to blow off and a low priced ticker to grind forever, resulting in a higher % high from open for the latter, and less fade for $1-2 tickers
Though there is still edge for both and a good trader knows how to approach differently.
6/6
@TradetheMatrix1
I only have data from 2008 for smallcap gappers (>=30%)
Seems that in the previous cycle there was a hot market in 08-09 during the GFC comeback, just like the recent Covid comeback.
But there was a steep dropoff after that, plays were cut in half and it took years to pick up.
One could track the results of manual interventions and compare them against the pure system to see if they are +EV or -EV.
It is edge/alpha dependent as well. Some edges such as event driven or special sits can be greatly improved by discretion, while others not so much.
5/
@KrisVerma88
@Kinfo
Because they don't want people scraping their trades for edge.
Kinfo changed it so that you can't hide trades from everyone, paying subs can see everyone's trades no matter what, which is a pretty scummy move.
Thus high costs make new players drop out at a higher rate, keeps the circle of profitable traders smaller, and the strategies less crowded.
For the profitable trader, there is probably some optimum between locates not being too expensive or too cheap.
5/5
The aftermath was not a reversion to the prior cycle, but rather a more difficult environment.
In addition to the old pros, there were now newly minted successful pros as well, and they began cannibalizing each other with less "dumb money" to go around.
4/9
@TheShortBear
It's just a skill issue. There are certain characteristics that separate real vs fake liquidations, and the top traders who know this setup will never blow up.
@Qullamaggie
In general,
Illiquid = higher edge and unsophisticated participants
Liquid = lower edge and more sophisticated players
Top funds have no choice but to trade liquid stuff.
@Jin67171
Beware of going public on kinfo, subscribers can see all your trades even if you hide them so people can scrape your trades and steal your edge
Pyramiding can be +EV on certain setups, applied at the right opportunities.
But blindly trying to pyramid into every trade because a great trader told you it was a good idea is -EV.
Each setup/edge needs to be looked at separately to see if pyramiding is +EV for it or not.
5/
If these can't be conceptually answered, there is likely no edge.
Unless one is skillful at pattern recognition without understanding the true reason behind them. (unlikely)
@maoxian
The best way to structure r/r depends on what edge you are trading.
Mean reversion on smallcaps - wide stops work (if the trade goes against you, it becomes an even better trade up to a certain point).
Trend trading - once trend is broken you cut, no point using a wide stop.
E.g. On rigged tickers, riggers purposely swipe areas to take out liquidity. In such cases pyramiding ruins your average and gets your stop hunted.
On the other hand in liquidations where someone is dumping paper and the ticker goes straight down, pyramiding is highly +EV.
4/
@greyboxtrades
@Dougielarge
Too many people running their mouths on fintwit about <$1 price improvement glitch -> MMs lose money -> glitch gets removed 🥲
But it's okay because validation from others online is more important than making $ 😊
A short explanation of how ETFs are priced and why the Russian ones (RSX, RUSL, etc) are currently volatile and mispriced 🧵
An ETF tracks an index. For an index of stocks, they are weighted in a certain ratio. Physical ETFs consists of the real underlying components.
1/
@KrisVerma88
The broker has to physically deliver each share to the clearing firm, have some pity for the poor guy who carries all the shares to their office (i usually tip them 15%)
The same story was repeated in the smallcap market where covid lockdowns + work-from-home arrangements + stimulus money got many newbies trying their hand at trading.
Subsequently many of them blew their accounts or returned to an ordinary job.
5/9
Kelly criterion is fatally flawed if it leads you to take multiple max losses on correlated stocks on the same day.
Besides correlation between stocks on the same day, there is also the effect of market cycles where strategies have winning/losing streaks.
8/
I couldn't frontrun it at 604am because I was only on that broker at that time, but I would be spamming the locates button to be the first one to get in ahead of other shorts.
I did mention it to some of my buddies who were on other brokers though.
Example of 605 wash:
3/
Discretionary trading has a much higher edge than systematic due to the ability to understand and capture nuances.
But it is high cognitive load, dependent on one's physical/mental condition. And higher attention required means one can only trade a limited number of tickers.
2/
The effect is even slightly stronger, perhaps a psychological holiday effect creating bullish sentiment.
Universe: >30% gappers (with appropriate filters) from 2018-2022
Sample size of Tuesdays after 3 day weekends: 31 days and 70 tickers. Maybe it's significant enough? 🤷♂️
2/3
This led to an inflow of "dumb money" into the poker scene where the edge from basic strategy was much higher.
Subsequently, states introduced more restrictive online gambling laws and many newbies blew their bankrolls as well. This led to "dumb money" leaving the scene.
3/9
1-x/100 is the equivalent of p-value, which will be related to the likelihood the bad streak happened due to chance.
IMO applied maths is both art and science. One can always get metrics from statistical methods but good judgement from trading experience is invaluable.
7/
Going forward, I think we will see the gradual attrition of intermediate shorts - the players who banked in the 2020 cycle, but struggled in the later part of 2021 when the dumb money dried up.
Shorting is still profitable, but one actually has to know how to trade now.
5/
In losing periods, one has to make a distinction between cases where
1) You are wrong
2) It's pure randomness; there's no pattern and you are bleeding from the spread/fees.
Only the former provides valuable information to learn from
@TradetheMatrix1
just filed a 400m shelf last week with effect in, likely similar to DAWN PLRX type of rig where the underwriter props it with traps the whole day and drops a pipe with strong pricing later in the week
3) Trading is fat tailed (prone to black swan events).
Kelly criterion is based on using data from past empirical distributions to size risk on future distributions, which is fundamentally flawed.
Taleb explains it well in this video.
10/
@TradetheMatrix1
I've gone in 30% or more on A++ setups, even once on leverage. Won ~5x and lost 1x.
Exciting to do when scaling a small account, but not worth the stress once you've built a decent account size.
Also difficult to exit large positions on limited liquidity (e.g. ILAG shorts).
@greyboxtrades
The main confusion comes from smallcap fintwit traders often referring to riggers as 'MMs'.
In reality MMs are just making the spread. It's someone else (underwriter,fund,insider,etc) doing the price manipulation, and there is huge alpha in knowing the exact agenda.
In summary, based on the data for average highs and fade, SSR on a ticker alone is not enough of a reason to avoid on the short side or to trade it long.
One has to look at other factors such as the news, the context, agenda, retail interest, volume profile, chart etc.
7/
If pyramiding, you should have a reasonably good idea of (2), and your expectation should be that the path is reasonably straight with weak wick backs in the opposite direction.
Some traders are big on encouraging pyramiding, but it is not necessarily +EV on every trade.
2/