About professional traders
Hello! I work as a courier. Because at the moment, I am going through the stage of bankruptcy and as a “successful” representative of the poor, I decided to translate and study courses from Anton Kreil “Professional Trading Master Class 2.0” (TPM 2.0) and “Introduction to Professional Trading” (ITPM). Therefore, I decided to share my conclusions during the translation and mastering of the material. I was shopping at the free store (µ) and that’s why I mentioned bankruptcy because it will start…
Let’s start with the definition of a professional trader.
Professional trader adjustable trader, working/working in investment bank or hedge fund by salary.
A regulated therefore has studied and passed qualification exams with the regulator and is authorized to trade with investors/clients’ money.
As an example, here is information from the regulator about Anton Kreil:
Payroll Because professional traders trade with the money of investors/clients, so they must have an infrastructure that allows them to stay afloat throughout the year. Because the companies where they work have agreements with clients/investors that, conditionally, they will take 20% of the total profit at the end of the year. And here is the bonus paid at the end of the year from this 20% based on the trader’s results.
Hierarchy of competence
Private traders are at the bottom of the “unconscious incompetence” hierarchy, because is always in the information noise, perceive the inversion narrative from different teachers as the truth, as well as notice the conflict of interests. In principle, each stage is described in the picture.
Generation of trading ideas
The process of generating trading ideas
It consists of 3 parts:
Bottom-up approach (Macroanalysis)
Bottom-up approach (Microanalysis)
Technical analysis and price action.
Generating trading ideas consists of 80% fundamental analysis and 20% technical analysis.
Fundamental analysis consists of – quantitative and qualitative process. The quantitative process is mechanical, involves a lot of spreadsheets and data, and is only the first step in generating a trade idea and finding a “lead”. A qualitative process is an assessment of time, consideration of the optimal structuring of the agreement, assessment of the quality of the enterprise by its numbers. In addition, it is necessary to understand how to manage the risks associated with this agreement. This is a whole process and a whole plan.
And when each position is taken, it should also provide additional opportunities, that is, potential volatility that exceeds that already embedded in the market price. And for this, catalysts are absolutely necessary, which will help for one to three months, as long as the position is active.
When the trading idea is formed, shares and their direction are fundamentally determined, then it is necessary to determine the time for their purchase/sale, then technical analysis and price actions are used for this.
Anton Kreil constantly emphasizes volatility, says that professional traders are slaves to volatility, because it is she who determines the opportunity and risk, as well as the temporal horizon.
A professional trader is in the range from 20 to 60 trading days, because this is the middle ground of volatility.
As an indication, if we take and compare the correlation between the S&P500 and US GDP with time lags of 3-6 months:
The same with Europe:
And it is the opposite with China, because there, they mainly chase indicators, so the index is very “twisted”:
As for Russia, the situation is very interesting, I have 3 indexes: RTS, MICEX, MICEX blue chips. And as you can see, the Russian market is more short-term, unlike the Western ones, accordingly, a different approach is needed, but this is in the process of translation and training. For RTS, I decided to review the correlation up to one and a half years.
Next, if we take the Index and GDP, and when it is higher than the previous quarter, we assign it 1, and when it is lower, then 0. And if we put everything in a table, we can quantitatively compare the number of quarters where the index and GDP grew and fell There is also block C, which suggests that the stock markets are likely to be overstretched if you look at their history. There may be quarters where earnings shrink or market prices adjust, while GDP growth remains strong or continues to grow positively. So we have 3 blocks, which together give us about an 85% chance of predicting the movement of the index if we can predict GDP. For example, I took the Russian Federation, because USA and Europe are about the same, but for 6 months, not 3 as here, and in China as usual, everything is the opposite.
ATR (Average True Range) is also a visual definition of volatility. As an example, I took the American “Gastritis and Point” for 60 days, where the graph is smoothed by 5 days, to exclude outliers, and on the right there is a table showing which months have the highest ATR.
Professional traders are in the trading range from 20 to 60 days (already for the Russian Federation). The approach of professional traders has never really changed. This is the perfect place for volatility in the market. They move in an area where there is the most opportunity and sufficient level of constant volatility that allows for consistent wholesale opportunities to generate trading ideas, and for consistent or potentially consistent returns over a long period of time through multiple trades because they manage portfolios.
The variations for them won’t be much different and they will go from start to finish from fundamental analysis through quantitative and qualitative process, timing, deal structuring, various deal structures for ideas that are backed by fundamental analysis and well timed.
If volatility increases, of course, they may switch to shorter-term strategies in order to profit, but most of the time they will be in the 20 to 60 day range. And they will do it again and again because it is the same point in the market, in the 20- to 60-day timeframe, where they get the most opportunities on a regular basis and the volatility they need to achieve the expected returns.
Technical analysis and price action take a small part and use only the timing of trades, which is already a fundamental bias.
Then, because they need volatility for one to three months, they’re in the areas of the market where they can get it, where there are wholesale opportunities, and he’s looking for catalysts that will move the stock for one to three months.
When they have identified the catalysts and are ready to take a position, then they go and check all the pricing in the market for different trading structures and try to structure the trade as efficiently as possible and get return on investment, ROI.
Seek to understand the parameters of the industry in which they operate, and then develop a strategy for optimal interaction with the market within these parameters.
Now that they understand the infrastructure of the industry, they know that the only way to become consistently profitable is first to understand volatility, then to choose a targeted risk-reward ratio to identify the opportunities the market offers within those parameters.
Thus, while targeting risk/return ratios, they need to have a robust and repeatable systematic process to ensure consistent risk-adjusted return on investment.
As for the Russian Federation
Regarding the above examples, the Russian market is more short-term, unlike the USA and Europe. The same with professional traders, we can include only “Institutionally qualified market participants” among them, and even then we do not check them, especially work experience. From the industry, there are only PIFs, but there, as I understood, only long positions, and not a portfolio with long and short positions. I have not heard of bank prop-trading, there are prop-trading companies, but it is mostly A-lab and their daughters, but inside there is day trading, or rather scalping. I also found information about United traders, about prop-trading, but they are something murky, without any licenses.
I’ve actually been passionate about investments for a long time and no, I’m not bankrupt because of them. I studied both technical analysis and fundamental, as a result I was still at a loss. And in 2019, I decided to delve deeper into professional trading and slowly began to learn everything. Then I got acquainted with Anton’s courses and also translated the training material for the FCA certification. But the isolation itself spoiled everything and, in fact, is one of the reasons for bankruptcy.
The total duration of 2 courses is 82 hours. There is also a course by Grégoire Dupont “Process 4×4”, lasting 18 hours, which I used to teach together with Anton, but for some reason they broke up. The bankruptcy will be completed at the end of May, in the summer and autumn it will be necessary to earn extra money to form a portfolio. Therefore, somewhere in a year, perhaps I will already start practicing, but for now, as I progress in translation and the learning curve and hierarchy of competence, I will slowly write posts with conclusions, especially for the market of the Russian Federation, because it is more short-term, there may be other leading indicators and catalysts.