8 Things To Learn From Japan’s Biggest Day Trader
- Posted by Frank Zorrilla
- on September 27th, 2014
Bloomberg did a small profile on a Japanese day trader who made 6 billion yen last year and pretty much started from scratch to build a small fortune, it sounds a lot like the Dan Zanger story. While many on the social media front were making fun of the article and down playing it they’re a few things worth noting.
- “Self-control is so important. You have to conserve your assets. That’s what insulates you from the downturns and gives you the ammunition to make money.” This is a classic rule for traders, you need to be able to survive the learning years in order to stay in this game for the long haul, you do that by taking small losses so you can live to fight another day. You need to protect your capital and emotional capital in choppy downtrending markets in order to take advantage of the healthy markets.
- “CIS discovered he had a talent for winning games. At 15, he says, he could earn 400,000 yen a month gambling. One secret was identifying the machines most likely to give bigger payouts. Another was being able to endure 13 hours at a time in smoke-filled and deafeningly loud pachinko parlors; he had to play thousands of consecutive games to take advantage of the odds”. You need to find an edge and exploit that edge and do it over and over again. If you are day trader or a swing trader then you know that you have to do a lot of trades to make a difference in your account for the year.
- “That’s how he now plays the stock market. CIS says he bets wrong four out of 10 times. The trick is to sell the losers fast while letting the winners ride. For him, a well-played stop-loss is just about the most beautiful trade there is.” It doesn’t matter how much research you do, how much time you spend in front of your computer, how much you scrutinize your entries, etc…you are going to be wrong half the times, one of the biggest hurdles for beginning traders is accepting that fact and that’s when they get in trouble. Risk management is everything.
- “Some people can do it, some can’t,” he says with a shrug. But the game taught a bigger lesson: when to cut and run. “I was a pretty confident player, but just like in the real world, the more opponents you have, the worse your chances are,” he says. “You lose nothing by running.” You don’t have to be in the game all the time, the market might be open 5 days a week but that does not mean it is open for you to extract money from it 5 days a week, many times sitting on sidelines is the best thing you can do as a trader.
- “He found success after a friend gave him a piece of advice: Forget the fundamentals. CIS doesn’t subscribe to the Nikkei or any other newspaper. Nor does he scrutinize earnings reports or parse central bank statements or spend much time looking at moving averages or other price chart patterns normally associated with technical trading.” TUNE OUT THE NOISE and figure out what works and what is important within your time frame, you figure out what is important within your time frame not by reading books from the 40’s,50’s 60’s etc..but by studying what is working now based on your own work.
- If there’s one basic principle, he says—repeatedly and slowly, as if instructing a child—it is this: “Buy stocks that are being bought, and sell stocks that are being sold.” Many made fun of this quote by CIS but this is not his quote, this was one of the famous quotes of one of the most successful hedge fund managers-Paul Tudor Jones, not so funny now. They are different ways to make money in the market and this is one of them, and yes it can be that simple, trust me. However many people want to believe that it has to be complex and proprietary for something to be valid or work, but it is all a gimmick, making your strategy complex and calling it proprietary is a marketing scheme, makes it more sellable.
- That’s more profound than it sounds, according to Hersh Shefrin, professor of behavioral finance at Santa Clara University in California and author of Beyond Greed and Fear, a 2007 book about the role of psychology in investing. The human mind is hard-wired to bet on reversals, Shefrin says. “If you can get yourself out of that mindset and bet against the crowd, who act instinctively, then you have an opportunity to make money,” Shefrin says. Again this is pretty much what Paul Tudor Jones said in his Market Wizards Book, if you think about it for a while you will get it and even build a scan out of it, here is what he said; “We have tested every system under the sun and, amazingly, we have found one that actually works well. It is a very good system, but for obvious reasons, I can’t tell you much more about it. What type of realm does it fall into: contrarian? trend following? Trend following. The basic premise of the system is that markets move sharply when they move. If there is a sudden range expansion in a market that has been trading narrowly, human nature is to try to fade that price move. When you get a range expansion, the market is sending you a very loud, clear signal that the market is getting ready to move in the direction of that expansion.”
- “Now that he has more money, there’s no choice but to hold positions longer, because shifting such large sums in and out of the market influences prices.” For all you aspiring money managers who’s interest is not just gathering assets but to outperform the market then realize that the more money you trade the hardest it will be. Having too much money to trade is one of the biggest hindrance to a money managers performance.
This is a great inspiring story, it really is, especially when all you hear nowadays is all the reasons why it can’t be done. It can be done, but not by 99% of the people out there, your biggest obstacle in trading is you and many can’t get over that hump.
Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm. Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts. Managed Assets
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
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Frank Zorrilla is the founder and chief investment officer of Zor Capital LLC.He began his Wall Street career 10 days after his 20th birthday when he became a Series 7 licensed stock broker. More »
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