A path towards profitability

[Blotto]

Quote from garachen:
What I was referring to is that when mean reversion breaks down it can be pretty spectacular. There are certain times where watching the market you can tell that mean reversion is as about to break and you will get an out of control panic on a contract. If you can detect this moment early enough you can generally do quite well by going with the panic and exiting as soon as it is out. It's a very specific, somewhat rare event.

Good description.

Looking like it is about to happen on Euro currency futures...a sharp move higher in the manner you describe.

 

[Blotto]

Quote from Blotto:

Good description.

Looking like it is about to happen on Euro currency futures...a sharp move higher in the manner you describe.

Was postponed a day, but right location for it...here we go.

 

[Blotto]

Quote from Blotto:

Was postponed a day, but right location for it...here we go.

Well it certainly took its time to do it, but I'd class the first few seconds of the 18.14 minute today in Euro currency futures as being the type of condition garachen was referring to.

I'd be particularly interested in the microstructure for the trades enclosed by the yellow box. Would be interesting to review depth of market information during this period, perhaps at 100ms intervals. Not entirely sure who is participating in that area and why, but have some theories. I'm just a manual trader who doesn't have access to anything high end or fancy beyond the basic time and sales record, so this graphical representation is the total of what I can see.

Perhaps garachen might comment if he still reads ET?

I know where in the market these types of moves are likely to occur, but I'm not typically involved in the ones which happen out of hours. Perhaps something which one could code an algo for in TT ADL or similar...I'd do 95% of the work in deciding when to switch the algo on, what instruments its to monitor, and on what side it is looking to trade, if it could handle establishing the position just ahead of the move (or the initial sweep to start the move) and, crucially, liquidating it at better prices where manual trading would be slower than optimum.

 

[murray t turtle]

Quote from garachen:

Trading is a negative sum game. Poker is a negative some game. Starcraft 2 is a zero sum game.

It is interesting that people will use the 'zero sum' argument in order to show that traders can't be consistently profitable. But I can prove that any South Korean over the age of 5 can beat me at Starcraft (even though it's a zero sum game).

So, while there are lots of opinions and conjecture out there I would like to offer mine and tell a little bit of my story.

Background
I did a BS in Mathematics and a Masters in Mathematical Finance.

I worked for a bank, hedge fund, mutual fund and trading company before going out on my own.

I have once lost my entire life savings - not due to trading but due to broker fraud.

I have taught several people to trade. They all work for me. They still work for me. Nobody has ever quit or stolen from me.

Now, I'm not certain that everyone can be taught to trade. Neither do I buy in too much to the overly hyped theme of hard work, persistence, grind it to death attitude that seems so espoused. I've seen many of those fail. Nor do I agree with the 'you need to have what it takes' attitude either. Somehow suggesting that one can be consistently profitable by pure force of will. Neither can you be a dilettante.

The key things I look for when hiring a new trader are these:
(roughly in order of importance)

1) Ability to take risk: avoid people with excessive debt or obligations who are desperate

2) Obedience: they have to be humble enough to obey without question. I rarely (1-2 times a year) have an opinion about anyone's position but when I do I want them out. Immediately.

3) Intuition. I measure this by playing certain board games that require intuition. I watch if they can internalize a long list of rules and play rationally.

4) Calmness: You swear. You're gone. You scream yell and hit things. Gone. You need to be calm to do the right thing. When you are upset you can no longer accurately assess probabilities which is the heart of trading.

In my early years I had a pretty bad day loosing 100K+ of my own money. I was in a room with other traders and the guy next to me was throwing a tantrum about his $300 loss while I sat calmly eating my yogurt. I don't need to be around people who don't have self control.

If you have those abilities, I believe you can learn to trade - at least the way I trade. Note what is missing. Math. Education. Persistence. Experience. Yes, I have these, but they are not essential - or even important.

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I'm completely aware that this is my own opinion for my own path and that others have achieved success in other ways.
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The first thing to do is watch a contract. Focused. Every day or night for the same hours every time. Two different contracts is probably too much unless the second provides additional information to your main contract of study. Watch the market depth. How it moves. When/why it moves. Try to gain intuition to determine if there is selling pressure or buying pressure. Charts can distract you. Don't use them at this time (or maybe ever). My most consistent trader never looks at a chart.

This is all best done with a contract that is not super news sensitive and where there are a good proportion of manual traders vs algo traders.

After 2 weeks of just watching for several hours a day start trading with a 1 lot. Then we do some training on following intuition (what you *know* is going to happen) and not dreams (what you *want* to happen) while the trade is going bad. This is what differentiates a mediocre trader from an amazing trader who can consistently make several million a year. How fast I can let go of my 'dream', control my ego and follow my intuition is the single area of constant focus throughout my career as a manual trader. It will have the single largest impact on profitability.

After 1 month a trader will be profitable. Consistently. Maybe not every day but certainly every week. Growing that profit from an initial $500 - $1000 a day to $5000-$10,000/day takes about a year and is a very incremental building process. They need to fear losses. And losses need to be commensurate with your goal. If your goal is 10K/day a loss of 10-12K is acceptable. If your goal is 1K/day that loss is not acceptable. So, a gradual increase in dollar value loss tolerance MUST be accompanied by a strong fear of disproportionate losses. If it is not. You will blow up - badly. Maybe you can recover. Maybe not.

I was going to write more, but I can't remember what...

No doubt I'm going to take some grief/hate from the community here. I don't much care. But I would be curious if anyone were to follow my method to fruition.

============
Great points,Trader Ga;
Even.....'' watch a contract''=;;if its your [capital]money.

I see your points ; about the only thing i would add , even Rich Dennis who [proved] he taught traders like turtles admitted it was not easy, at all.Actualy it was so hard his partner Mr Eckhardt said trading could not be taught,;;almost right but not quite right,LOL

But if its [average traders] money, why leverage ignorance, which is the starting place for everybody.???????????????????????????Most would be better off with 100 shares or 1 share of stock until profitable.

Sure elite trader is full of millionaires[sarcasm] You could say ,,well rich dennis started them with contract;; NOT really, Rich [according to Jack Schwager,+ Mr Eckhardt] started them with proven[turtle] training and a HUGE pool of applicants,, most of whom,never got any training. or capital.

Thanks. Good points + wisdom is profitable to direct.

You also seem to be an ususual trader/investor ; i discern truth in your post,LOL

 

[garachen]

Quote from Blotto:



Perhaps garachen might comment if he still reads ET

Hi Blotto

Not really tempted to post on ET anymore.
Can't tell fr

 

[Ghost_of_Blotto]

Manual traders for the most part at extremes expect mean reversion and are surprised when it doesn't happen. At extreme moves you can sometimes tell roughly what the sense of panic is - how many people are just looking for that small pullback to get out. When that pullback doesn't happen things get interesting.

People tend to underestimate extremes. Going in 100% when the move is only 50% done.

That and you can tell the level of market maker exhaustion.
Flash crash was a dramatic example of market maker exhaustion and toxic order flow.

What I was referring to is that when mean reversion breaks down it can be pretty spectacular. There are certain times where watching the market you can tell that mean reversion is as about to break and you will get an out of control panic on a contract. If you can detect this moment early enough you can generally do quite well by going with the panic and exiting as soon as it is out. It's a very specific, somewhat rare event.

Great thread by someone who clearly knows his onions.
The gold futures contract today was a very good example.
Curious if anyone followed the suggestion to trade just using the depth of market, no charts, focusing on learning to intuit when there is buying / selling pressure?

 

[bone]

But I would be curious if anyone were to follow my method to fruition.

Trading is unique in that there is no one set way to consistently make money trading markets in terms of style and technique. I know a PhD who kills it and I know a guy who dropped out of high school who kills it.

I agree 150% with your sizing and risk approach. Personally, I keep a trading journal, and I reward a series of profitable trades with a modest bump in size. Conversely, two losing trades in a row takes me back to my previous ( pre-bump ) position sizing. These are very small bumps fractionally in relation to my typical position sizing. I do this in order to encourage consistency and "grinding out" income in my own trading. But I don't want my bumps to generate anxiety or create hesitancy in terms of pulling the trigger. And with leverage being what it is in futures, as you so smartly mentioned you can quite easily go from making $100 per day to making $10,000 per day quicker than most may think.

From what I have seen over the years, traders get into trouble when they self-sabotage perfectly good trading systems or market trading styles. They take quick profits but are scared of losses so they hang on to shitty positions hoping they come around. They get conditioned to adding to losers because it might work several times. And then one time it does not and you get taken out by management or your clearing firm. Traders also get bored and make impulsive, stupid positions. Traders think too much. Traders think they are smarter than the market. Traders refuse to believe that the last price print is the collective knowledge of the entire marketplace in terms of what that product is worth. The market is what the market is.

Another bad habit I have seen over the years would be traders forcing trades in order to make money. Nothing good ever happens when you force a trade.

 

[TraDaToR]

Training takes about 6 weeks. They are profitable after that. At around a year they should be doing $5k per day. To get to that is pretty mechanical. To go much beyond requires certain personality traits.

Garachen is probably my favorite poster of the last few years, but seriously who believes this? Put me in front of whatever contract for one year and
I guarantee i won't make 5k$ per day. DOM traders specialized in one contract exist but it takes much more than one year to get there IMO.

 

[garachen]

Even in these markets I beg to differ. One year is more than sufficient. You just have to make sure you are looking at something where you have a reasonable chance of success.

1) primary contract
2) mix of manual and automated
3) you can get close to the lowest fees

There are plenty of mid-frequency trading strategies that have not been picked over yet.

 

[Ghost_of_Blotto]

Garachen is probably my favorite poster of the last few years, but seriously who believes this? Put me in front of whatever contract for one year and
I guarantee i won't make 5k$ per day. DOM traders specialized in one contract exist but it takes much more than one year to get there IMO.

Do you know the story of Squeaky, the Chicago mouse?

Squeaky was floating on his back along the Chicago river one day. Approaching the Michigan Avenue lift bridge, he called out "raise the bridge, I have an erection!"