Monday, April 02, 2007

Marc Greenspoon: A Visit With A World-Class Trader

In past posts, I have tried to describe the qualities that I have observed among very successful traders. I've also attempted to outline specific steps that traders can take to make themselves more successful. In this post, let's make the discussion more concrete by taking you inside one of my visits with a trader I consider to be among the best in the world.

The name Marc Greenspoon won't be familiar to you unless you've read my book Enhancing Trader Performance. He doesn't speak at conference events or advertise himself as a guru. What he does do is trade every day of the week, average between 50 and 100 trades per day in the equity indexes, and make millions of dollars a year. Not just one year or two years, but year after year. He doesn't trade with a mechanical system, and he doesn't trade with quantitative research. Nor does he manage a portfolio. He trades with his mouse and his computer, accounting for several percent of the day's total volume all by himself.

I'm grateful to Marc for giving me permission to write this about him, because it illustrates the sheer level of skill needed to be a great trader. Imagine the commissions of trading so frequently, even given the lower commissions available to a trader at a firm that is an exchange member. Imagine how the slippage adds up over the course of, say, 80 trades in a day. Now realize that Marc's profits are after the costs of paying for his overhead at Kingstree Trading, his trading firm, after all the slippage, and after all the commissions. He would be a fine trader simply by trading that often and breaking even at the end of a year! To make millions of dollars a year, year after year, trading that frequently makes it transparently clear that markets are not random.

Marc called me on Friday and asked, "What are you doing today?" He wanted to set up a meeting. Friday didn't work, but Margie and I had plans to be in Chicago on Saturday, I told him; we could meet then while markets were closed. Sure enough, Marc was up early Saturday morning to greet us.

What did he want to meet about? He wanted to review his first quarter performance and set goals and take specific steps to improve during the second quarter. Not that his first quarter was bad. He made a significant amount of money, certainly in keeping with his past earnings.

But he knows he can do better.

That's one of Marc's defining features. He's not just an expert trader; he's a continually improving trader.

Marc studies himself as diligently as he studies markets. His daily journals, religiously kept, go back years in notebooks that are always at his side. Sometimes he illustrates a point for me by going back to an entry in last year's notebook. He knows the entries--and the markets--that well that he can jump back months and find exactly what he's looking for.

Similarly, Marc keeps a large TV monitor and recording device in his office. He records his trading day by capturing everything on his trading screen, and then he archives each day for reference. The screen shows how the market was trading at the time, where he placed his orders, and where he entered and exited trades. At times Marc will get excited and go back to one of the recordings to show me a specific moment in a specific day's trading. He knows the market so well--and his own trading--that he selects the right day and fast forwards to the right spot in the tape.

Quite simply, he's reviewed so many more of his performances than other traders that he's learned more than others. He is a one-man study in implicit learning. And it's all driven by his desire to improve.

Also by his side are small dictation devices. Marc records his thoughts about his trading and then plays the tapes for review. Many of the tapes focus on what he needs to do to make himself better. He never trades better than when he is thoroughly disgusted with his own performance. Listening to his first tape, my first thought goes to Coach Bob Knight--another professional who hates losing and is driven to win.

Indeed, there is similarity between Marc and Coach Knight. Both are aggressive competitors who wear their emotions on their sleeves. Both are generous to a fault and inspire both admiration and loyalty. And, yes, both can push the envelope too far in frustration and sheer determination. If non-emotionality were a necessary ingredient of trading success, Marc would have gone belly up long ago.

But Marc succeeds for two other reasons:

1) He knows that winning is guaranteed to no one. Look at it this way: let's conservatively say Marc trades 60 times per day with an average of 400 contracts per trade. That's 24,000 contracts per day. It's also about 6,000,000 contracts per year. Do the math: if he makes several million dollars in a year, his edge is far less than a single tick of profit per contract per trade. That razor thin edge, replicated many times, is what makes him a success. It is like the razor thin edge of a NASCAR champion, battling with his pit crew for every fraction of a second. All it takes is a small flip to turn that small positive expectancy into a small negative one and put a trader like Marc into severe drawdown. Marc knows that. That's why he calls me. That's why he keeps recordings and journals. He works as hard on himself as on his trading. Indeed, for Marc, those are one and the same.

2) He has the support of a superior organization. To use one of Marc's phrases, he has "balls" when he trades. But that is, in part, because he has a boss who has the brass ones. Chuck McElveen, also featured in my book, makes it a point to develop large, successful traders. If you don't have a goal of making a very solid six or seven figures a year, Kingstree isn't interested in you. (Of course, if you don't have a track record of success with smaller size, Kingstree isn't going to enable you to trade thousand lots in the ES contract. Indeed, you wouldn't even get hired.) But once a trader is successful at one level, Chuck encourages a raising of size. A trader like Marc can take risks because Chuck can take risks. As a firm owner, he understands that you only learn to take risks by taking risks. You only learn to trade large by growing your size.

Marc is living proof that you don't need a huge edge to be successful, but certain factors are necessary for success. You do need to have an edge; you need the consistency to replicate that edge; you need the drive to continually adapt to changing market conditions; and you need enough capital. I have never met a successful trader who makes money by doubling his or her money every year. The successful traders start with meaningful capital and earn a respectable, but reasonable return upon it. Their success is measured in their consistency, not in their ability to make occasional big scores. The small trader who tries to make millions is forced to take undue risk by trading imprudent size. When the inevitable strings of losing trades occur--as they do for the greats--the account cannot weather such drawdowns.

If you have the drive of a Marc Greenspoon to trade tick by tick every day, review markets in video, keep journals and audio recordings, and sustain a learning curve, just focus on sustaining profitability. Don't try to develop a mad edge. Instead, sustain the edge you have and then seek out those organizations that will bankroll your success. Marc is a constant reminder for me of what can be accomplished with determination and skill. For that I am both grateful and proud.

24 comments:

Jeff said...

Thank you Dr. Brett! This is a fascinating post! (But then again, most of your posts are fascinating …)
I'd like to ask you, out of curiosity, a little technical question: could you give us an idea how much time approximately Marc Greenspoon spends daily (or weekly) on his trading-related activities? I mean including everything: trading, studying, reviewing, planning. Thanks again.

Mike said...

I read the blog daily and have taken many good things from my readings but this was one of the more fascinating stories I've read.

Thanks

Brett Steenbarger, Ph.D. said...

Great question, Jeff. I know he spends time daily before and after the trading session reviewing his performance, and I know he usually takes a break midday. My sense is that the time before and after the trade, spent productively and with focus, add up over time into good learning. But Marc definitely has a life. He's not spending every nite pouring over charts, doing research, etc.

Brett

Brett Steenbarger, Ph.D. said...

Thanks, Mike. It's a little bit like Market Wizards. Seeing a successful trader first hand makes a greater impression than listening to theories of trading from educators who may be far from the action--

Brett

Caravaggio said...

Thanks for sharing Brett. It shows that living off the finest of edges is possible if you have the right qualities.

I'm really impressed with his relentless analysis of the self in the context of trading the markets.

Brett Steenbarger, Ph.D. said...

Hi Caravaggio,

You put it beautifully; thanks for the note. He does indeed engage in relentless analysis. A lot of people talk about "passion" for the markets, but few display such passion in their actions.

Brett

AnaTrader said...

Brett, I have read about Marc in your latest book and I admire such traders for their relentless pursuit of excellence through sheer hard work and not forgetting relaxation to recharge as trading can be draining ..........

Nothing great is achieved without perspiration.

Brett Steenbarger, Ph.D. said...

Hi AnaTrader,

Much, much, much of success is due to persistence; you're absolutely right. Thanks for the comment--

Brett

MIsstrade said...

Grind and Grind and Grind and Grow. I think that is a lesson I see repeated by the successful gals/guys all the time. Nothing sexy, no homeruns. Just grind and grow.

Brett Steenbarger, Ph.D. said...

Hi Misstrade,

I think Marc would agree with you. He often describes himself as a "build your P/L" type of trader.

Brett

jim said...

Dr. Brett,


What futures contracts Mark trades and what is his typical size ?



Regards,
Jim.

Brett Steenbarger, Ph.D. said...

Hi Jim,

He trades equity index futures; mostly of the U.S. markets. His position size varies considerably, but averages in the hundreds of contracts. One advantage of being at a proprietary trading firm is that you can trade size. It's difficult to imagine someone making the kind of money Marc makes trading a handful of contracts at a time.

Brett

jim said...

Dr. Brett,



I trade myself typical 10 contracts in the E-mini's.
I called to the CME exchange to ask if the speed of execution is dependent from the size traded but they couldn't answer.
Could you ask Marc if on average a 800 contracts trade takes more time to get filled than a 100 contract trade ?



Thank you,
Jim.

John Friedrich said...

Brett,

What kind of video recording device does Marc use to capture his trades? Also, does he manually write in his journal or does he use a computer journaling device?

Thanks,

John

Brett Steenbarger, Ph.D. said...

Hi Jim,

If you're going at the market, size of order won't affect the time it takes to get filled. It could, of course, affect the price you get, depending on the depth of market.

If you're working an order, then, yes, you may not get filled all at once depending on where you're at in the queue. That, in part, will depend upon your pipes to the exchange and how the market trades.

Brett

Brett Steenbarger, Ph.D. said...

Hi John,

Marc manually writes in his journal. I don't know the brand of videorecorder, but I can tell you it's expensive, with a very large hard drive. That enables him to archive many days' worth of data.

Brett

Yi said...

The edge (0.004) is far less than the bid/ask spread (0.25 for es).

May I ask which order type has Mr. Greenspoon used, Market or Limit?

Thanks!

Carlos said...

Dr. Brett,
I used to make markets for NASDAQ stocks in the go-go 90's and my fellow traders and I did exactlly what Greenspoon does. We traded hundreds of thousands of shares each day in the hopes of making a little bit on each share. The guy that sat next to me likened it to "picking up nickels in front of the bulldozer". The reason we were so successful was we had essentially unlimited capital and we were flat at the end of the day. The average trader in our room was making $500,000 per year and some were making 7 figures. We didn't need to spend a great deal of time analyzing the markets; we just had to see what was going on right now and buy or short. If we were right, we'd get out in seconds or minutes. If we were wrong, we'd get out in seconds or minutes. Most of us were right about 80% of the time on where the stock was going in the next minute or two. We were pathetic on forecasting any time frame longer than that. This method will always work but you need to be fearless and not worry about the money. The money always comes.

dgoverde said...

Brett,

This is another one of your truly inspiring posts. Thanks again.

dgov

Max Ghello said...

Hi Brett,

I read your notes every day. They are very useful for me.

Mark writes a daily blog or website?

What is the url?

thanks for everything!

greetings from Buenos Aires!

Max

Brett Steenbarger, Ph.D. said...

Hi Max,

Sorry, he does not write a blog or website--

Brett

GIEDRIUS said...

To setup the recording, you need Intensity Pro Card, one more PC, extra 2 hard drives. The total cost is between 1,500 to 2,000. I haven't figured yet only how to save it yet, because 1 hour takes 50 GB. Dr.Brett, if you get a chance could you ask him more specific detail about recording ? Maybe some of us would like to do it.
Thank you,
G

Brett Steenbarger, Ph.D. said...

Hi Giedrius,

It's a special setup, but doesn't require what you're outlining. You'll need to consult an IT specialist re: very high capacity external hard drives.

Brett

GIEDRIUS said...

If you could get the details that would be greatly apreciated, I'm working on this already for 4 weeks, to the extend of hiring video post production professional. And he said this is my only option, because I don't want to have any lag on my trading. So I'm going the same way as the gamers who try to record game play.
Thank you,
G