Honest interview with trader

Why you can’t trust trading robots and play the stock exchange for money

During the pandemic, many people showed interest in trading on the exchange. Housewives, students, and even businessmen flooded the stock market. Why has this game in the stock market become attractive to the masses again, and why this way of making money is not suitable for everyone, answers the Australian trader with twenty years of experience Rodney Morris.

What, in your opinion, caused such a stir?

Yes, it can be seen in the way the market behaves. I believe that the pilgrimage is associated with the degeneration of ways of earning money. During a pandemic, people lose their jobs, businesses, and in many, there are bans on the eviction of tenants who do not pay for months. At the same time, deposit rates are minimal. People simply do not see any other way of earning money other than the “ever-growing” market.

What would you recommend to those who have not yet decided whether to open a brokerage account or not?

I would not undertake to give such recommendations without knowing the person. Exchange trading is not for everyone. The vast majority of market participants lose money in favor of a very narrow minority. The instrument markets of this minority are exclusively in their favor. To know the weaknesses, limits of possibilities, and objective laws. You will not read about this in any book on trading, you will not learn from any webinar. Those who can successfully play against the big guys are in no hurry to share their secrets. This knowledge is acquired only in the process of trading, it is in the process of money. Someone loses this money irretrievably, and someone goes through a survival school and learns to earn. The peculiarity of exchange trading is such that it is necessary to enter it, on the one hand, with a lot of money, on the other hand, not with the last money. If you enter with a million, you should have ten more. If you are bargaining with your property in order to quickly wrap up money, you are guaranteed to lose, because you already have the wrong attitude to the market. You are afraid of him. He is your god, on whom it depends whether you are rich or homeless. In the relationship between God and the servant of God, it is desirable to enter as the first.

What qualities and skills should a trader have to be successful in the game?

I would say that such a person should have a sufficient source of the neural substrate in associative areas in order to be able to mentally transform multidimensional structures in multidimensional spaces. In particular, such a person needs to keep in mind the charts of various instruments and mentally compare them with fundamental events.

What points would you like to draw the attention of those who are taking their first steps in trading?

Again, I will not undertake to do this without knowing the person. Everything is very individual. Of the common things — you cannot enter the market with real money if you have not traded on a demo account for five years, two of them without losses. This will not insure you against losses, but it will allow you to draw more or less correct conclusions from losses. The market is very tricky. It can go one way. I know stories when a person started trading on a demo account, doubled his deposit in a couple of months, grabbed his head, and shouted: “It could be real money!” The error here is very simple. A person makes a conclusion about the whole market on the basis of two months of trading. This conclusion cannot be drawn even after fifty years of trading, since the market is a constantly changing structure. Yes, he has some inertia, which sometimes allows him to make correct predictions. The laws of this inertia are constantly changing. It is necessary to make a forecast not only on the change in the law of market inertia, but also on the change in the law of this law, and so on ad infinitum.

Could you tell us more about risk mitigation strategies?

These are not many strategies, it is one, but quite complex and multicomponent. The best way to minimize your risk is to have a deposit of hundreds of millions of dollars and trade no more than ten percent. If you trade in a thousand, you are almost guaranteed to lose it, because even opening very small positions, you will not be able to sit out large movements. By the way, every time the regulator doubles the monetary base, it is necessary to double the deposit, since all market movements become twice as long. Many traders do not understand this, they expect the market to rebound in the same size, and the market flies much higher or lower and nullifies deposits. In this sense, losing a hundred thousand today is almost as easy as losing a thousand. I would not go into the market with amounts of less than a million dollars.

What place does technical analysis take in stock trading and is it worth trusting a trading strategy to robots?

Each trader trades in his own way. For some, technical analysis is important, others trade on the news. Someone wants to have as much information as possible, while someone uses one indicator and they have enough. It is a matter of finding your own individual strategy. A successful trading robot is like a perpetual motion machine. It sounds tempting, but it doesn’t exist. The emergence of the first robot that consistently makes a profit would mean the end of the market, since everyone else loses any motivation to participate. A successful trading robot is a guarantee that all other participants will lose. The most successful trading robot is the Fed’s printing press. He never really loses and always only makes money. You won’t be allowed to have one.

The stock exchange game is fanned with a halo of romance, and the Internet is full of cliches about the game. Could you reveal to the reader the main theses of the philosophy of a game without stereotypes?

If for you, the stock exchange game is steeped in romance, you cannot do it. Trading on the stock exchange should be boring and uninteresting. Only then does she bring money. The philosophy is simple. You can’t play for money. You have to play for the sake of mastery. In any successful business, money plays a secondary role. As soon as money becomes the main thing, the business is doomed. The same goes for the game. If you have an open position that has sagged by 200 thousand dollars in the red, the market goes against you, and you cannot close it without emotion, you are doomed. In a month, this position will gobble up your deposit. It’s not romantic at all. This is, at best, nothing. You simply close the position and play it back in the other direction, according to the market. Another element of the philosophy is that markets don’t go anywhere in infinity. They oscillate around the same values, adjusted for the growth of the money supply. By the way, if you build the index of the same S&P 500, normalized to the growth of money supply, you will see a fall, not an increase. Extreme market deviations from the average are always a reason to open a position against the movement. You just need to consider two things: the increase in the money supply and the possible excess deviation. Both are adjusted by the ratio of the position size to the amount of your deposit. If the amount is large and the positions are within 10% of the amount, you are fine.

What is the impact of the exchange on the global economy?

It depends on what you call the economy. Earlier, production was called economics. Then sales were added to production, then real services, such as restaurants, hairdressing salons, then what I call “services to myself”, when a person seems to be providing a service, but only he is really interested in it. This includes the services of various brokers, agents, lawyers, accountants. It is an industry of creating problems and solving them at the same time. Part of GDPR is the granting of rights. This includes intellectual property rights, rentals, franchises, leasing.

There is a rule: the highest derivatives pull all profitability into themselves. Trading is a derivative of production. If there is no production, there is nothing to trade. Services are a derivative to work. Instead of engaging in the real sector, the person occupies himself in the “unreal” sector. The granting industry is a property derivative. The property itself is also nothing more than a right. Both that, and another, and the third today have become quite low derivatives. There is very little profit left in them. It is often negative. They are regulated, imposed with all kinds of taxes, licenses, expenses, they have wild competition, and capital does not go to them. Owning real estate was once incredibly cool. It was owned by kings and high nobility. Now everyone owns real estate, and making money on it is extremely difficult. Then it became cool to own the means of production. Industrialists became cool. These times are also in the past. The production is now running on very thin margins. In the US, only 4% of the GDP comes from manufacturing and 3% from agriculture. The main money is made in higher derivatives, that is, not even in stocks, but in derivatives on them: in indices, in options, in futures, in currency swaps. New derivatives appear all the time.

Does it make sense to talk about the economy of higher derivatives?

In my opinion, no. The economy is, as before, production. I would not even attribute the sale to it. In the USSR, before the Kosygin reforms, GDP was measured in natural units: tonnes of grain, meat, milk, pieces of machines, cars, ships. If you count the GDP this way, it will not include shopping centers, rentals, or services. These are all derivatives for the real sector. Higher derivatives markets are killing such an economy. They pump all the capital out of it. There is no point in investing in technology that will be profitable in 15 years if you can double your capital every year through speculative transactions. The famous formula of Marx “commodity — money — commodity” at first smoothly turned into money — commodity — money “, then the commodity disappeared from it, then money, only a stroke remained. Today everyone is interested in it — a fat gain in monetary terms. Our economy makes money. I do not presume to judge whether this is good or bad, but such an economy has a limiting state. It looks like this — everyone has a lot of money, but they can’t buy anything with it, since no one produces anything except money. If such an economy drags on for a hundred years, we will simply irrevocably lose today’s technology and find ourselves in the Middle Ages.

What’s in store for stock trading in 10 years?

At best, it will not exist and we will return to the production economy. In the worst case, it will become the only source of money for the majority of the world’s population. In general, now it is difficult to forecast something for a month, let alone for 10 years. The real economy is described by statistical methods since it is the result of millions of single decisions. Today’s economy is completely dependent on emissions, that is, on political decisions. It cannot be predicted by economic methods, but only by political science. We will print money, there will be an economy, there will be income, there will be a market. We will not print money, there will be deflation, falling living standards, and poverty. It should be understood that any inflation always ends in deflation, and any deflation always ends in inflation. We have just had a change of elites. I have a feeling that they want real power, not financial. Trump’s mistake was that he believed that money was everything. This is not true. People with absolute power have never really needed money. If the new elite wants financial power, they will print and distribute money. People love when they are given money, especially if money is given just like that, but for that kind of money, people are not ready either to die or even change their lifestyle. If the new elites want real power, they will soon stop issuing, raise the rate, and distribute money only to those who fully fall under them. This is a very tough scenario that will lead to severe impoverishment. The opposite option is to overclock the printing press. This allows deflation to be delayed. If typed correctly, it can be delayed for a hundred years. If the elites do this, we will find ourselves in a hundred-year period of prosperity, when everything will only grow. This, however, will not allow the new elites to seize real power and in the next election, they will again breathe in the back of the head of the Republicans. In reality, I think there will be something in between. Elites need as many people as possible to depend on them. To do this, you need to deprive them of any income other than benefits. Small businesses have already been killed. Its owners are ready to sit on benefits. Now they will take on those who have 50–500 million. How exactly they will be dispossessed is difficult to say, but I think they will take over the markets. Those who play in the market have made a good deal in 2020, that is, they have increased their degree of freedom. From the point of view of the elites, this is not good. I am ready to assume that they may introduce a tax on exchange transactions. However, this is also a blow to small investors. Large ones evade taxes through various trusts and foundations.

How do players of your level play on the exchange? What makes a beginner’s versus a professional’s game different?

The answer to the first part of the question will be very time consuming and expensive. The answer to the second part of the question is — I don’t know. I play alone and do not know how beginners trade today. When I started, I could stay awake at night, climb to check the account, get upset that the market was not going in my direction. Now there is none of this. There is simply an understanding that this instrument is coming here. Yes, fluctuations are possible, it can come here in a winding path, but in general, these fluctuations do not play a role.

If a person has a decent capital that he wants to increase in the market but does not want to play on his own, how can he choose the right trader?

This is also a very difficult question. Best of all, as always, by acquaintance. If you know that a person has been successfully trading for a long time, you can try with him. Neither an expensive car, nor a yacht, nor a rich house says anything today. A person with twenty thousand can withdraw and deposit them for a year, and then come, claim that this is his monthly (or weekly) income and get a loan for a car, house and yacht. Then you can lie to everyone around that all this is earned in the market. Those who can really do something do not need constant proof of their capabilities. I knew traders who rented not even an apartment, but a room curtained windows, set up monitors, and turned over hundreds of millions of dollars. I do not want to say that everyone is like that, but the outer gloss is not an indicator. From a conversation with a professional trader, a beginner will also understand little. I can ask a trader why he opened this or that position and understand its level. If a person tells me that there was a pattern on the chart, that the market has completed wave C, or that the chart has drawn a candlestick in the shape of a cross, they have most likely read books. In reality, numerous methods of technical analysis have probabilistic significance. Large traders also see patterns but understand that small traders will trade in accordance with these patterns and enter the market with big money against them. You need to look at related instruments, you need to understand in what situation large traders are forced to trade in a certain direction. Professional traders are those who have stayed in the market for many years. They tend to speak slowly and confusedly as they spend their days in silence. Trading is not their area of ​​interest, since, for a professional, it is quite a stupid activity. A professional trader can be an avid butterfly collector, a lover of speleology, or the history of the ancient Sumerians. If a professional trader has no third-party hobbies, I would not trust such a trader either. This means that his entire neural substrate is occupied by one topic and there are no resources for learning. A professional trader tends to think of trading in images rather than words. Most likely, such a trader will not be able to explain how he makes decisions, since he does not make them verbally. Decisions are made figuratively, and since these images are multilevel and multidimensional, it is extremely difficult to describe them. Ask the trader what their goals are for this year. If he has any goals, he is not a trader. The trader follows the market. The market doesn’t care about your goals. The goal is to take what the market will give. Well, it will be extremely difficult to motivate a trader to play with your money. When a person makes money for a long time without communicating with people, he needs to be offered a lot of money for management, so that he would agree to deal with a living person about money. Ask him what account he is trading. If, after twenty years of trading, he trades a thousand dollars, he has failed as a trader. If a million, you can already talk to him, but then he needs to be given ten to manage so that he becomes interested. In general, a good trader usually does not need money. If a person makes a million a year and spends one hundred thousand, you can try to interest him with ten million a year, but he will still spend one hundred thousand. Yes, he will make unnecessary money, but he will have to deal with you. You, of course, will call him every other day with questions: “Well, how is my money? Have you already earned me 100%? “ As a result, the trader gets absolutely unnecessary smut for relatively unnecessary money. If you want him to make money for you, give him access to the terminal and never ask about trading, unless he himself talks about it.

Denis Bulavin