Friday, 9 August 2013

An interesting short life-story from a stock trader I know.

This is from a very nice guy I know who made his money trading and such (not on the betting exchanges, but rather the stock market).  I asked him some time ago if he could give me a condensed version of how he got into trading, what happened, how he got on etc.

I think it's a good little story - He talks about out-growing the market, how he nearly lost a 6figure sum, the importance of money management and more interesting areas. You should be able to see a bit of relation to trading/betting on the sports markets.

I posted this back on one of my old blogs that I really didn't keep up to date or put effort into much before, so it was a bit wasted, but it's a really good read and show's the ups and downs before he 'made it' per-se, I have corrected any spelling mistakes, story begins from when he was 18. enjoy (:

"18: Started my own company. Fiddled around a lot with all kinds of idea's (trying to get rich easier than working hard :) ) before at age... 23 roughly, finally realizing I already had found the chicken which layed the golden eggs, I just had to work hard for it.

At that age somebody also introduced me into trading stocks. My girlfriend was still a student and she was offered an account with real time trading data. I opened up an account at a broker and that was when my day-trading started.... I guess I was 24 around that time.

Since I was lacking a lot of knowledge (I did an entrepreneur school but never finished it, I already started my own company before I finished it) in regards to stocks and stock trading, I read up on it.
I think I have around 200 books on stock trading from which I think I read more than half of them.
(I am also a book collector, I started that at early age with comic books :) )

It turned out my interest was in something called "technical analysis" which was my favorite subject. I would say that around age 30 I managed to be one of the best in that subject (lets say somewhere top 10)

Technical analysis is something that by that time was done with computers so I got into trading with computers. It was then that I found that trading based on computer models was something that was the best thing to do. (I found that if you do not use models you always deviate from your strategy... which is something you will also encounter a lot with trading on Betfair)

That you should not deviate from a model I already found out when I started. I had invested 150k in 1 single stock because I had a feeling IT MUST GO UP but... it did not...I think I was around 25 at that time... maybe a little older....

It almost had me going bankrupt but, after about 10 days where every day I got a phone-call from my bank asking me to deposit more money, it finally went up... and I made 100% profit in a few weeks time.

But with that experience, I learned that stop losses are very very very (* 100) important.
As was accepting that you are wrong.
And some other lessons that nobody learns the easy way.

After that I got into computer models. After all, if a computer says buy or sell, you can not (or at least should not) say that it is a wrong signal since you developed it yourself. It was around age 32 that I developed a computer model that would be my way to riches.

Around that time I had already made good profits with my company and I always invested those in the stock market. Since those were the good day's, (with an occasional human error along the way :) ) I had done very well already.

But that computer model, with rules that were "set in stone" was the one that finally bumped me to being a millionaire. It however also introduced a problem... I was trading futures and I was not only doing it for myself but also for some friend which I planned to make rich just as I was expecting to be.

By that time we were "throwing around" about 50 futures at a time.... each future represented about 200k so every time we were throwing 10M into the market. Unfortunately, just like many races on Betfair, the market could not handle those big amounts of money.

We, as a group, had become to big for the market. (see how trading stocks resembles trading Betfair ?
Lots if things should already sound familiar :) ). This is around age... 33 roughly....

We (as a group) decided to stop trading the dutch market and start trading the European market.
This is where luck came in for me... I never made anything with luck, but it saved me a lot of money that time.

I had to open up a new account with a broker that I did not know at that time because I could not trade the European markets from my dutch broker. So I opened it up but was careful enough not to deposit all my money there...

And then, I found out... that computer models... that made a lot of money in back testing, and even made me a lot of money in real trading, are far from a guarantee for the future.

It was 2001 and the markets had "changed". (I do not see it as changed now... the markets are just never the same, I just had some good flows to ride from 1998 to 2000 and the flow just changed or something....)

In hindsight, it is very easy to see the market had become in a downtrend and downtrends just move differently and with the market suddenly moving differently, my model stopped working. I lost most of the money I had deposited on my new account before I realized that something had changed. I was just fortunate that I only deposited 200k or something.

So that was the time I had to rethink my trading. I went back to developing computer models, but this time not a real time model (I sometimes trade 5 to 10 times a day which is not a lot for a day-trader but throwing 10M around it is a pretty interesting amount of money :) )

I put my aim at much slower models. I developed all that with the help of a friend... and, long story short... I found a few models which I still trade up till today. But now I do my trading once a week instead of every day several times.

I now have my computer run my models every Friday, I place the orders, and I wait for the next Friday :) They still are computer models, but where I used to look a lot at charts (it is called chart reading) I now look much more to the fundamentals as my first rule.

A company has to be fundamentally healthy (simply said, make a profit) before I even consider buying it. From there I look at how strong it is developing (chart based... read, are other investors interested in the stock... because I want to ride the trends)

And that is roughly my life story.

In between I got married, have 2 children, live a reasonable humble live (my money has to go a long way since I do not want to turn back to working hard again) and the girlfriend I talked about in the beginning is the one I am doing all that with :)

The end I think.... unless you have questions :)"

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