Tom Dante

Tom Dante



Fading for a living A Thread

In last night's webinar, I retold the story of a trader I knew that made his fortune fading everyone. I want to retell it because it's not only fascinating but a fantastic lesson in executing an edge and not second guessing yourself.

Back in the day, I used to run all day webinars where people could watch everything I did. I'd call my trades and chat with the people in there about anything and everything.

It was a motley crue. One of the guys was an air traffic controller trading whilst working (I've not flown since) Another was in the Gaza strip and would say: "brb. Missile." I digress.

One day, I asked everyone how their day had been, and this lad replied his was excellent. He said he'd had the same order in as me but when I cancelled mine, he'd doubled his size and the trade had worked perfectly. I thought he was just trolling me. Turns out he wasn’t.

It transpired he'd noticed this pattern in my trading that whenever I pulled an order, the trade would, more often than not, end up working. In fact, it was so prolific that he was using me as an indicator to double his size.

He then proceeded to tell me exactly how many orders I'd cancelled since he’d been watching and the number that went onto become winner's vs losers. The worrying thing was I hadn’t noticed this. I never recorded missed trades and so was always at the mercy of recency bias.

Presented with this hypothesis, I observed it, found it to be true, adapted my strategy and my edge evolved.

I appreciated his candid insight. Time went by. We became friends. One evening we were out in a bar and he told me he wanted to show me something. I stood there, waiting.

He then proceeded to pull out this notebook absolutely packed with observations on traders who called their trades. Traders from paid groups were in there. Traders from forums were in there. Traders from Twitter were in there.

He knew things about these traders, I am positive they wouldn’t have known about themselves. He knew the way they traded. The times they were active. Their hit rate. Their average size winner vs loser. He knew when they were on tilt and how far they'd go.

As he thumbed through the book, a name caught my eye. He said (and I paraphrase): “----- calls a trade every day. He either takes a full loss or grabs a tiny profit when it stalls. He hasn't realised that he'd have an edge if he stopped managing the trade."

"So, I follow his trades but when he starts moving stops or taking profits, I just keep to the original stop or target." He turned a few pages. "What about ----"? I asked. "Consistently loses. I fade everything he does," was his response.

And he went on like this. "I'm impressed," I said. "That’s really thinking outside the box. "Isn’t it obvious?" he retorted. "Everyone is looking to find a profitable trader to learn from. But if 90% lose, isn’t it easier to just find a loser and fade them?"

But as ground-breaking as that seemed to over a decade ago, what truly resonated with me was his execution.

One evening we were out in another bar, and he was placing a trade on his phone. "What do you see?”, I asked. "Oh, ----'s just gone short Crude Oil, so I'm going long. I'm just putting the orders in. My target is his stop. My stop is his target."

I pulled up a chart to see what poor ---- was seeing to go short. I actually thought the Oil looked rather bearish. So, I said to my friend: "What do you think of the chart?"

He replied: "I think it looks bearish. I actually think he may get a winner on this trade." So, I asked him the Million Dollar question: "If you think he may get a winner on this trade, why are you fading him? And his answer?

"I trade people not charts. This guy is consistently wrong over time. If I start cherry picking which trades I think he's going to be right on, then I’m bringing in my own read. And if I was that good at reading the market I wouldn’t be fading this cunt for a living, would I?

He knew where he had edge, and he knew where he didn't. As soon as he saw what he wanted, he made the decision what to do and he did it. No hesitation. No second guessing. Just ruthless execution.

Several years ago, he retired a multi-millionaire. As time went by, we slowly drifted apart. A few texts each day turned into a text every few months. But once in a blue moon, I see him on Twitter. And I always wonder who he's watching.

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