Trading Like Bob Ross – On Acid

Greetings denizens of Evil Speculator! As you may know, Mole is taking a well deserved vacation this week at his secret castle in the remote regions of France. Meanwhile, I’m here to fill the void for a few articles to inform, inspire and entertain you.

A little about me – I’m a professional proprietary trader, which means I have a Series 57 license and trade with a prop firm here in Chicago. If this is the first time you’ve been exposed to proprietary trading (i.e. prop trading), what that means is we are a firm of traders that trade our own proprietary strategies.

As prop traders, we trade both our own accounts and house accounts with a lot of leverage. How much? For day trading it’s typically 10x – 20x intraday versus 4x for a standard retail account. Options are 2x versus 1x for a retail account.

That probably sounds like a lot, but the risk controls are much greater than in the retail world to ensure I don’t blow up my account (or the firm’s account!). If you’re a day trading gangster and crushing it, prop trading will probably add A LOT of extra R to your trading account. I’ll touch more on this in my next post.

My trading consists of day trading stocks and primarily non-directional option trades. After many trials and tribulations, it’s my belief that a chart trader will never out gun a well designed suite of quantitative algos. Not shockingly, all of my day trading is automated in python and fairly complex. Sitting in front of the computer all day and staring at charts it not something I ever want to do.

I started on my trading journey about 5 years ago and went from knowing nothing to being one of the more sophisticated traders in a prop firm. When my interest in trading started to warm, I turned like any enthusiastic idiot to Google for answers on how to trade. In retrospect, this is the single biggest mistake any aspiring trader can make.

My first real trading course I took was a $3200 day trading course at Van Tharp, followed by two days of live trading for an additional $2500. Counting my airfare, car rental and deluxe Econolodge accommodations in Raleigh, NC let’s call it $7k all-in for 5 days of total day trading instruction.

You are correct in probably thinking that’s a lot. However, this is only the beginning…

Why did I choose Van Tharp? Well based on his book sales, I assumed he was very credible and knew what he was doing. I mean, he has a real printed book on Amazon (not an e-book) and a Super Trader program that costs $80k. So his courses MUST be legit?

Pay attention to the dynamic and you’ll see this magic trick used repeatedly in many disciplines: a guru publishes a real book on Amazon to establish credibility and then upsells people absolute shit from their website. This is heavily abused in the trading world. Not by everybody, but by most.

I arrived late on the first day of the and missed the first 15 minutes of the class. Over lunch, a couple of others filled me on what I missed: the instructor introduced himself and stated his average monthly trading profit was 80R. That’s eighty. 80. Not a typo. 80R PER MONTH.

Immediately my bull shit detector was pegged and on the offensive. For real yo? 80R per month?

All of us were now suspect. In the two days of “live” trading that followed, there was a white board in the front of the room where the guru posted the P&L for his trades. The result of two days of trading? 23R.

All of us took turns watching him trade and noticed he didn’t even have any brokerage account open on his computer.. these weren’t even paper account trades. They were all theoretical trades done on StockCharts.com. Smoke and mirrors.

In summary, the guru makes 80R per month on average and just made 23R in two days of trading. The dude must be tripping..

Apparently, he was tripping, because this is one of the charts used to demonstrate his techniques:

My first thought: this looks like PBS favorite Bob Ross is trading while on acid. WTF is this?

On the level of sophistication of traders, I’d put myself in the top 1% of traders… I went to engineering school on a math scholarship. Linear algebra, support vector machines, Kalman filters –  bring it. I’m comfortable wrapping my head around complex subjects. But this?

A group of us from the class banded together and decided to test all the techniques taught in the class. We traded them both manually, as taught in the class, and automated using TradeStation and MultiCharts.

Most of the techniques were straight forward to test and to avoid any programming bias, we put together a document detailing the specifications of the trading techniques. We then turned this over to TradeStation programming guru Bill Brower to properly code the strategies (despite our suspicion, we really wanted them to work).

After months of working on these strategies with this group of traders, 2 years on my own, 1100+ of my own real money live trades of straddling break even, we all came to the same conclusion: this was total horses shit bamboozlement. I was out $7k, a few YEARS of chasing the dream and 1000s of hours essentially torched.

Why did it take me so long to throw in the towel when there was overwhelming proof that 95% of the course was total shit? I couldn’t believe someone offering an $80k trading program would offer this as part of their cirriculum. I couldn’t grasp how much harm is being done to people’s lives with this bull shit.

Of the 4 of us who worked on these strategies, 2 of them were in the Super Trader program. I can’t imagine the disappointment after putting $80k into a trading education program and untold hours, flights, hotel rooms and car rentals. And this is the horse shit they send them off to trade with? My heart goes out to them.

In a different circle of traders, someone mentioned to me that Van Tharp doesn’t believe in back testing. I wonder why!?!?!?

And this is magic trick number 2 used by supposed gurus: you just haven’t spent enough time practicing using these techniques. You need some more classes and coaching. You just haven’t struggled enough, you just haven’t put enough time in, you just don’t get it. Spoiler alert: YOU WILL NEVER GET IT.

Finally I made a decision: it was time to bite the bullet, stop fighting the sunk cost bias and start living in reality again: I had wasted $7k and 1000s of hours of my life chasing something that would never work. It’s over, time to move on.

And that’s where I’ll leave things for today. In the next blog post, I’ll share phase 2 of my trading journey on the path to redemption from retail trading idiot to professional.