Elite Trader Insights: Will Gogolak
Episode 9: Contextualization within a Framework of Conditional Probabilities
Each week we try to unlock the collective wisdom of the Trading Elite. Strategies and unique insights from hours of interviews with top traders, sliced into bite-sized pieces and delivered to your inbox for your pleasure.
William Gogolak, a former risk officer with the Chicago Mercantile Exchange (CME), has seen the inner workings of trader accounts, differentiating winning traders from losing ones. His transition from setting margin requirements at CME to pursuing his own trading strategies, alongside obtaining a PhD in finance, has equipped him with a unique blend of market experience and quantitative analysis skills. At Carnegie Mellon University, he shares his knowledge, focusing on a custom "buy the dip" strategy with Futures and leveraged ETFs.
Key Learnings and Takeaways from the Interview
1. Importance of Solid Research and Process:
"Successful trading outcomes are not magic; they're the result of solid research and a solid process." - William emphasises the foundation of successful trading is not based on lofty principles but on grounded research and process implementation. While he doesn’t believe a PhD in finance is a pre-requisite to becoming a profitable trader, this is where he sees massive benefit from the degree.
2. Comprehensive Risk Management:
"Good traders are really just good risk managers." - The differentiation between successful and unsuccessful traders is often their approach to managing risk, considering the entirety of their portfolio and market conditions.
3. Quantitative Analysis for Decision Making:
"Adding a basic touch of Quant analysis can really give you a potential edge." - William suggests incorporating quantitative analysis to understand trade probabilities and market behaviour better, no matter whether you are a Fundamental, or Technical Trader.
4. Understanding Market Probabilities:
"Know your probability of success at every moment." - Like poker, Will believes trading is about dynamically understanding your odds as the market moves and making decisions based on calculated probabilities (‘every tick changes your probability of success’). For example, if a trade moves favorably and it is in the top 5% of past outcomes, this is a good place to take profit!
5. Contextualizing Trades:
"Contextualizing your position within your framework of analysis is of utmost importance." - The approach to a trade, whether exiting or entering, depends significantly on the contextual framework, such as fundamental analysis or quantitative strategies. He splits trader strategies into Fundamental, Technical, and Quantitative. Not many people can do all 3, and picking one of these as a primary focus is the trickiest part.
6. The 'Buy the Dip' Strategy:
"Define a dip as when the current price moves X below an average price." - William explains his approach to identifying buying opportunities by measuring the current price's deviation from a long-term average (Moving Average).
7. Utilizing Futures for Leverage:
"Futures are a really good way because it keeps your margin requirement low." - For those interested in applying the "buy the dip" strategy, William recommends using Futures due to their lower margin requirements compared to leveraged ETFs.
8. The Role of the VIX in Trading Decisions:
"There's a lot of information in the VIX." - The Volatility Index (VIX) is highlighted as a crucial tool for inferring market conditions and potential trading opportunities. He considers most TA indicators such as RSI to be flawed.
9. Continuous Learning and Research:
"Start with a research frame of mind." - William advises new traders to cultivate a habit of continuous learning and research to understand market dynamics better.
10. Real Market Testing:
"There's no better way to test a system than in the real market." - He encourages traders to start small but to actively test their strategies in the live market to gain practical insights and experience. I completely agree with this.
Unique Perspective:
This is a guy after my own heart. He uses Quant / Probability Analysis dynamically, and believes that Risk Management > where you enter or exit your positions. William Gogolak's unique perspective combines rigorous academic research with practical trading experience, focusing on the importance of risk management, quantitative analysis, and a disciplined approach to strategy execution. His journey from a regulatory role to academia and active trading showcases the diverse paths to trading success and the value of lifelong learning in the financial markets.
Cheers
Marto
Good one mate