Thursday, February 4, 2010

Special Post - Facing the Giants

To my blog friends - I'm going to take a short break from the blog to continue to increase the focus and commitment on my current trading phase, as well as make sure I have life's priorities in order.

To my beloved wife Debra - A very happy birthday to the love of my life.

To my Jellie students/teammates and onlookers - I hope the attached video clip from "Facing the Giants" (Thanks Charles) gives you a tiny glimpse as to why I've been so very tough on you at times, as well as provide you motivation to help stir the inner depths of your souls.  Please bookmark this post and view the video every day for the next week -- as I've already begun doing personally as a part of my trying to continue to move forward -- and then weekly thereafter. 

It's the most motivational clip I've ever witnessed and best illustrates my current frame of mind -- as both educator and continuing student of trading & life.

May you all find the strength from above to reach places and heights which you can't yet see ... never mind imagine.  And yes, Bamboos indeed exist in this world.

I'll leave the comments on to continue the discussion while I take time to reflect and rededicate.


Mircea said...

great one!
u can do this!!!
thanks Don,

AgeKay said...

Wow, awesome video!

Btw, I wanted to comment on your last post with regards to the CME lease but comments were disabled. Are you trading as an individual or company (to limit personal liability)?

Barefoot Trader said...

This is timely and fascinating. Have a great day.

Don Miller said...

I trade my own accounts as an individual ... and not through a prop firm (for those interested in ECM structures).

AgeKay said...

Don, are you not worried about "shit happening" where you loose more than you have in a "black swan" (e.g. another 9/11) event? I don't trade the ES, but I've seen the FGBL drop 200 ticks in a second on a mistrade (someone accidentally shorted 20,000 contracts at the market).

Unknown said...

Facing the Giants, great movie. One of my favorite clip, if you like that one, you might like this one too. Helps me stay motivated:

thanks for all your work, it helps


Ziad said...


Regarding your question, first off, the ES is so thick (i.e. so liquid), that a 20,000 contract mistake would probably not make it move more than 10 ticks. Second, even if a bigger mistake were to occur and make it drop more, such an event is not a true "black swan", as the market would likely correct with lightning speed like a vacuum once it became apparent it wasn't real selling but an error. By the time the trader processed what was happening it would probably have already corrected. And even if it didn't correct, because maybe stops were hit and it caused an avalanche of new sell orders, again with the ES so thick, even a huge mistake would likely be very contained. It might cause a big hit, but not a total wipeout of a multi-million dollar account trading "only" 500 contracts.

As for something like September 11th, those are quite manageable events for a day trader because while the market may collapse quickly, you can hit the bid very quickly as a focused and experienced day trader, and even if you take a big hit it won't be account threatening. Even Black Monday wouldn't have hurt a good day trader, as even though it looks like one huge down bar on a daily chart, intraday there was still some sort of rhythm to the price action. It's not just straight down for 6 hours straight. And in fact, any good day trader would make up an initial loss very quickly by flipping and staying short.

So in terms of day trading, as long as you are trading a contract that is very thick, and your risk is still a relatively small % of your account (even if it's a large absolute number like in Don's case), plus you are experienced enough not to do anything stupid should a surprise hit, the concept of the black swan is not the same as it is for other types of trading.

The real danger isn't so much surprise events like 9/11, but rather how you approach risk. If you believe in the standard bell curve like LTCM did, then you will size up huge looking for very high odds small rewards with very low seeming risk (but the risk will be bigger due to the existence of fat tails). You will make money very consistently then one day go bust. But if you understand the true nature of markets you can survive indefinitely despite black swan events, because your risk in relative terms will be small enough, and because you'll usually be looking to take ADVANTAGE of the fat tails instead of not realizing they're there and getting hurt by them. Instead of looking for tiny high odds winners and leaving yourself subjected to huge risk (which you think is an impossibility to occur), you always mind the risk first in money management and exits, and look to capture the bigger sweet moves. Thinking like this, black swans are a source of opportunity, not threat. I know they are for me, and I'm constantly on alert for them to happen so I can take advantage with low risk.

So don't live in fear of black swans. Educate yourself on how to survive and even prosper from them and turn threat into opportunity like all the great traders have.

Hope that helps.

AgeKay said...


ES is not always liquid enough to withstand a 20k contract market order (e.g. Globex session). Problem is that past the first 10 bids there aren't a whole lot of bids and that 20k contract triggered another 20k sell orders. "By the time the trader processed what was happening" the exchange already closed down to check what had happened (you had about 2 seconds to realize what had happened before it closed). Luckily, it reopened 3 minutes later around the same price before the drop, but those guys with stop loss orders surely got screwed.

Also with regards to 9/11, if I remember correctly, they closed down the exchange also, so you can't just exit your position.

Of course, it all comes to to how much you risk per trade and ensure that your account can withstand these events, and not be afraid of them.

Ziad said...

Good points, but they all basically reinforce what I was saying.

First point, exactly.... don't trade globex. I don't. That's part of the risk decision you make and control.

Second point, it wasn't a lucky thing that the exchange re-opened at the same level it was at prior to the mistake. That illustrates the idea of the vacuum. Also, the guys with stop losses may have gotten screwed, but it wouldn't have been no where near catastrophic if they were using proper position sizing relative to their account size.

Final point, yes they closed the exchange on 9/11, but that was a DECISION, and decisions take time to be made and implemented, even if only a couple minutes. If you were an active day trader trading at that time with a stop in the market like most should have, you would have had a minimal loss before the exchange closed. If you manage risk in a more discretionary manner you should have noticed heavy selling and gotten out in a matter of seconds. Either way, no real black swan if you're an active day trader and on your game.

Anyhow, this isn't mean as an argument. I think it's a good issue you brought up and the newer traders can get a better understanding from the dialogue.

All the best,


AgeKay said...


I agree. Good discussion. Thanks!

Ken said...

I've been a bit confused as to why you would take on other projects while increasing your size so radically. At some point, you might look for contentment. It's a wonderful gift.

Ken said...

I've been a bit confused as to why you would take on other projects while increasing your size so radically. At some point, you might look for contentment. It's a wonderful gift.

Ken said...

Bible definition of contentment:

a state of mind in which one's desires are confined to his lot whatever it may be (1 Tim. 6:6; 2 Cor. 9:8). It is opposed to envy (James 3:16), avarice (Heb. 13:5), ambition (Prov. 13:10), anxiety (Matt. 6:25, 34), and repining (1 Cor. 10:10). It arises from the inward disposition, and is the offspring of humility, and of an intelligent consideration of the rectitude and benignity of divine providence (Ps. 96:1, 2; 145), the greatness of the divine promises (2 Pet. 1:4), and our own unworthiness (Gen. 32:10); as well as from the view the gospel opens up to us of rest and peace hereafter (Rom. 5:2).
Easton's 1897 Bible Dictionary
Cite This Source

Ken said...

If you call me "bra" again coach,I'm going to get UP off this field and whip your butt.

Don Miller said...

Some responses after tonight's massage & poker game (the one night when I do something for "me").

First, in terms of the Black Swan discussion, there's certainly always some risk of a 0.001% catastrophic event ... just as I could literally get hit by a drunk driver tomorrow.

My risk is further minimized in that I'm perhaps one of the tighest traders on the planet and in cash 99% of the time with respect to scratches and re-entries.

Having said that, there will certainly be times when I'm heavy and subject to such risk, and expect as I mentioned the other day to have 2-3 "hits" per year, which is simply built into the financial plan. Trading at a very high probability clip allows for it.

With respect to too many irons in the fire, I don't disagree and am working on managing my energy better. Yet I've been a Type A for 49 years, and while I have great contentment in my life, I still feel there's room for further growth as a trader (and anyone who thinks they've "made it" will lose the edge forever), as well as further growth for the industry in terms of innovation and transparency.

Contentment in life is fine. yet contentment in trading is the beginning of the end, and I'm not ready to end that particular journey yet.

Great discussion all.

E said...

One of my non -trading mentors taught me "if you want something done give it to a busy person."

He was type A, and I think a type A is unhappy being in 1st gear.

Type B's have the same problem in reverse.

As I have gotten older, I find I have as much energy and drive as when I was half this age.

That's good news for those who think retirement is about going out to pasture :)

Thanks Don, great video, and nice comments from your readers.

ps Black swans: they don't come around often enough to count them as a regular strategy but fighting them will certainly undermine our confidence and account.