Are trader's skills really important?
- Thread starter DT-waw
- Start date
Well,
When I started trading 4 years ago, I always thought I needed to learn as much as I can to get to the "next" level. All the professional traders I know who made big $$$$ during the bull run, they were either very lucky, aggressive, or maybe they just knew more than I did. After learning to trade technically for the last 2 years and was lucky enough to be sharing an office with a hedge fund group, I realize that all the skills and dicipline you aquire is only 25% of the biz. Watching how these guys make millions of dollars in front of my eyes really disappointed me because they made it with a way where it was TOTALLY unexpected to me. All trades were based on order flow and broker info. Some of these guys don't even have charts up. Now, you can say, hey, they're just gambling, there's no skill involved.... well, tell that to a trader who works his butt off for 500-2k a day while these other folks sit around and make 200k on an ENE short call... and believe me, there's a lot of trading groups like this out there.
Just my two cents,
When I started trading 4 years ago, I always thought I needed to learn as much as I can to get to the "next" level. All the professional traders I know who made big $$$$ during the bull run, they were either very lucky, aggressive, or maybe they just knew more than I did. After learning to trade technically for the last 2 years and was lucky enough to be sharing an office with a hedge fund group, I realize that all the skills and dicipline you aquire is only 25% of the biz. Watching how these guys make millions of dollars in front of my eyes really disappointed me because they made it with a way where it was TOTALLY unexpected to me. All trades were based on order flow and broker info. Some of these guys don't even have charts up. Now, you can say, hey, they're just gambling, there's no skill involved.... well, tell that to a trader who works his butt off for 500-2k a day while these other folks sit around and make 200k on an ENE short call... and believe me, there's a lot of trading groups like this out there.
Just my two cents,
Dottom:
"For every trade that they make you take the opposite trade, so if they do worse than 50/50 and lose more than they win, you win by doing the exact opposite. "
Believe it or not both sides of the same trade can be profitable over the long run! Excluding (probably) situation where one side is extremely good comparing to the other side.
"For every trade that they make you take the opposite trade, so if they do worse than 50/50 and lose more than they win, you win by doing the exact opposite. "
Believe it or not both sides of the same trade can be profitable over the long run! Excluding (probably) situation where one side is extremely good comparing to the other side.
monee:
Of course we can observe market environment, behavior of stocks, etc. but is it slate odds in our favor? That's the question. Look, many many traders are doing the same thing! Many people use the same TA, MM, they cut losses and let winners run... I'm afraid it's not so easy. Just keep tight stops and let profits run! Yes, it works when stocks are really moving, trends are strong. But it happens only part of the time, after strong trends there's a choppy, chaotic market, when you have to cut your losses many times. Moves are equal to your stop. Prices bounce in a range equal or a little bit higher to your stop. You'll make ten small losses, and you're very frustrated...
I'm not saying that trading has the same odds as a slot machine. At this point - I don't know. Yes, many traders are successful. I would have to say that trading is not a slot machine, only when I see a proof, that somebody make a big profit, on a big number of trades ( 500 or more ). I've described earlier in this thread how to check that the result is not affected by luck.
Privateer:
I don't agree with you, when you saying that "trading has nothing to do with luck at all". Make 200 random-entry trades. Close all positions after the same period of time. You'll agree that chances of a single profit is 50%. Probability that you'll have 110 winning trades ( or more ) and 90 unprofitable trades is almost 7%. So, you can be a successful trader just because you have luck. That's why I want to know are there any traders who have great results over the long term, after they make 500, 1000, 5000 trades. Vishnu: chess is completely different game. In chess all depends on players skills there's no luck because that's the nature of this game.
qwiktrade:
Thanks for a very interesting story. My comparison to life was more about things like living standards, personal income not individual happiness. The word "success" in this comparison means only financial success. Poor people can be happy, can have fascinating life. I think we all agree that money can't buy happiness, but they can help you in life, make your life easier, give an opportunity to help others and to create new things.
Seems like nobody yet can verify the Random-Walk Theory. Even if financial markets are moving in non-random way, you have to beat commissions and other costs.
One thing is still confusing me: my result in paper-trading ( almost 600 trades, I've add commissions costs ) was very good. That's the only thing that gives me hope that it's possible to make money in trading.
I've not started trading on the real market yet, simply because i don't have enough funds. ( even 2,900 euro for eurostoxx50 futures ). I've traded Nasdaq stocks for two weeks in the choppy summer months, and I lost 72 bucks, which was equal to commissions i've payed. I think it's good to know everything about the market, trading, odds, probability before you start trading real money. That's why I'm posting here and reading all your insightful comments on this board, trying to discover the nature of the financial markets.
DT-waw
Of course we can observe market environment, behavior of stocks, etc. but is it slate odds in our favor? That's the question. Look, many many traders are doing the same thing! Many people use the same TA, MM, they cut losses and let winners run... I'm afraid it's not so easy. Just keep tight stops and let profits run! Yes, it works when stocks are really moving, trends are strong. But it happens only part of the time, after strong trends there's a choppy, chaotic market, when you have to cut your losses many times. Moves are equal to your stop. Prices bounce in a range equal or a little bit higher to your stop. You'll make ten small losses, and you're very frustrated...
I'm not saying that trading has the same odds as a slot machine. At this point - I don't know. Yes, many traders are successful. I would have to say that trading is not a slot machine, only when I see a proof, that somebody make a big profit, on a big number of trades ( 500 or more ). I've described earlier in this thread how to check that the result is not affected by luck.
Privateer:
I don't agree with you, when you saying that "trading has nothing to do with luck at all". Make 200 random-entry trades. Close all positions after the same period of time. You'll agree that chances of a single profit is 50%. Probability that you'll have 110 winning trades ( or more ) and 90 unprofitable trades is almost 7%. So, you can be a successful trader just because you have luck. That's why I want to know are there any traders who have great results over the long term, after they make 500, 1000, 5000 trades. Vishnu: chess is completely different game. In chess all depends on players skills there's no luck because that's the nature of this game.
qwiktrade:
Thanks for a very interesting story. My comparison to life was more about things like living standards, personal income not individual happiness. The word "success" in this comparison means only financial success. Poor people can be happy, can have fascinating life. I think we all agree that money can't buy happiness, but they can help you in life, make your life easier, give an opportunity to help others and to create new things.
Seems like nobody yet can verify the Random-Walk Theory. Even if financial markets are moving in non-random way, you have to beat commissions and other costs.
One thing is still confusing me: my result in paper-trading ( almost 600 trades, I've add commissions costs ) was very good. That's the only thing that gives me hope that it's possible to make money in trading.
I've not started trading on the real market yet, simply because i don't have enough funds. ( even 2,900 euro for eurostoxx50 futures ). I've traded Nasdaq stocks for two weeks in the choppy summer months, and I lost 72 bucks, which was equal to commissions i've payed. I think it's good to know everything about the market, trading, odds, probability before you start trading real money. That's why I'm posting here and reading all your insightful comments on this board, trying to discover the nature of the financial markets.
DT-waw
Hi Dottom,
just a few thoughts on your reply:
I agree when you say, producers have huge advantages in commodities markets. But these advantages are of a different nature than just "fixed" costs or deep pockets.
In commodities markets, one has to distinguish between various levels of production ( and related "fixed" costs ).
I'm not at all familiar with the coffee business, other than I need a lot of it ( coffee ) every day.
But i.e. producers in the metals business can be pure mining companies who just produce the metal itself, or better, a concentrate which has to be refined further.
Say, if a gold mining company has a mine where the production cost is below 200$ troz, than they obviously make money on every $ of Au price above 200$/troz. But the same company may operate several mines. Some produce for less than 200 bucks/troz others for more.
Furthermore, all production costs ( in every business ) have at least 2 components : fixed cost ( depreciation etc. ) and variable costs ( wages, energy, maintenance, interest on debt etc. )
Therefore, the term "fixed costs" is always relative and subject to major changes within a business year.
The 2nd. level producers are the refiners and smelters, who produce marketable products from raw-materials ( i.e. Gold bars, granules, Pd-sponge or ingots, cathodes and so on. )
3rd. level producers are those who produce semi or finished products, like tubes, wires, solders, brazing alloys etc. .
Some companies in the metal business are "integrated" producers, meaning the mine the ores, refine them and produce even semi-finished products. Only a few are present along the the whole value-chain, including production of end-products.
The "end-users" for those semi-products are completely different industries. Like jewelry manufacturers, electronics manufacturers, car-component manufacturers , chemical industry and alike.
They all need noble metals in various forms ( solutions, granules, ingots, sponge ). Most of these companies are market-participants in the metals futures markets in order to hedge parts of their raw-materials supply and to take advantage of future price developments.
But all have different backgrounds and therefore different reasons and goals for their participation in the commodities markets.
The huge advantage of 1st. and 2nd. level producers is not really that they know their costs, but what is going on in the business of their customers ( 3rd. level producers and end users ).
They communicate with their clients on a daily basis and are aware of any upcoming changes in supply and demand well ahead of the crowd. That is the single biggest advantage over the small speculator who tries to make a living from trading commodities and might base some of his decisions on "breaking news".
In the stockmarket, you have some similarities, i.e. the relationships between banks, analysts and the their clients, the industry. However, the stockmarkets and stockindex futures markets have much more participants than the commodities markets, including millions of retail investors worldwide and indipendend mutual funds with trillions of USD to invest ( in Germany, there are about 6000 mutual funds registered, US 10.000, UK some 7000 and so on ). In addition, some 60.000 or more companies are registered on international exchanges and could be used as trading / investing vehicles. Not to mention bond and currency markets.
In comparison to the stock markets, the (metals) commodities markets could be considered as a kind of "small closed shop".
Especially, when you know, how pricing mechanisms are working on LME ( handful of ringdealers per traded base-metal ) or the p.m. bullion markets ( 2 meetings a day of a few large participants, comparing their orderbooks ). At times, you don't even have any kind of "official" price for some metals because there are huge gaps between supply and demand.
Having the knowledge about the (inter)marketmechanisms, and the skills to execute your strategies accordingly gives the pro's a superior edge, which has nothing to do with luck at all. Sometimes, it's enough to know how the headtrader or CEO of a certain large mining, refining or trading company sees the market in a particular metal and you can position yourself accordingly.
This level of "inside" knowledge is very hard to achieve in the stockmarkets. And even if one would have it, there are so many other important participants in the market with contrary opinions, that this knowledge would probably have only a minor impact on ones trading results.
The stockmarkettrader, unless trading illiquid issues, is better of when he tries to measure crowd opinion, or call it market sentiment, by applying certain indicators ( not purely TA though ) and acts accordingly. Again something which has not too much to do with relying purely on luck.
Best regards
just a few thoughts on your reply:
I agree when you say, producers have huge advantages in commodities markets. But these advantages are of a different nature than just "fixed" costs or deep pockets.
In commodities markets, one has to distinguish between various levels of production ( and related "fixed" costs ).
I'm not at all familiar with the coffee business, other than I need a lot of it ( coffee ) every day.
But i.e. producers in the metals business can be pure mining companies who just produce the metal itself, or better, a concentrate which has to be refined further.
Say, if a gold mining company has a mine where the production cost is below 200$ troz, than they obviously make money on every $ of Au price above 200$/troz. But the same company may operate several mines. Some produce for less than 200 bucks/troz others for more.
Furthermore, all production costs ( in every business ) have at least 2 components : fixed cost ( depreciation etc. ) and variable costs ( wages, energy, maintenance, interest on debt etc. )
Therefore, the term "fixed costs" is always relative and subject to major changes within a business year.
The 2nd. level producers are the refiners and smelters, who produce marketable products from raw-materials ( i.e. Gold bars, granules, Pd-sponge or ingots, cathodes and so on. )
3rd. level producers are those who produce semi or finished products, like tubes, wires, solders, brazing alloys etc. .
Some companies in the metal business are "integrated" producers, meaning the mine the ores, refine them and produce even semi-finished products. Only a few are present along the the whole value-chain, including production of end-products.
The "end-users" for those semi-products are completely different industries. Like jewelry manufacturers, electronics manufacturers, car-component manufacturers , chemical industry and alike.
They all need noble metals in various forms ( solutions, granules, ingots, sponge ). Most of these companies are market-participants in the metals futures markets in order to hedge parts of their raw-materials supply and to take advantage of future price developments.
But all have different backgrounds and therefore different reasons and goals for their participation in the commodities markets.
The huge advantage of 1st. and 2nd. level producers is not really that they know their costs, but what is going on in the business of their customers ( 3rd. level producers and end users ).
They communicate with their clients on a daily basis and are aware of any upcoming changes in supply and demand well ahead of the crowd. That is the single biggest advantage over the small speculator who tries to make a living from trading commodities and might base some of his decisions on "breaking news".
In the stockmarket, you have some similarities, i.e. the relationships between banks, analysts and the their clients, the industry. However, the stockmarkets and stockindex futures markets have much more participants than the commodities markets, including millions of retail investors worldwide and indipendend mutual funds with trillions of USD to invest ( in Germany, there are about 6000 mutual funds registered, US 10.000, UK some 7000 and so on ). In addition, some 60.000 or more companies are registered on international exchanges and could be used as trading / investing vehicles. Not to mention bond and currency markets.
In comparison to the stock markets, the (metals) commodities markets could be considered as a kind of "small closed shop".
Especially, when you know, how pricing mechanisms are working on LME ( handful of ringdealers per traded base-metal ) or the p.m. bullion markets ( 2 meetings a day of a few large participants, comparing their orderbooks ). At times, you don't even have any kind of "official" price for some metals because there are huge gaps between supply and demand.
Having the knowledge about the (inter)marketmechanisms, and the skills to execute your strategies accordingly gives the pro's a superior edge, which has nothing to do with luck at all. Sometimes, it's enough to know how the headtrader or CEO of a certain large mining, refining or trading company sees the market in a particular metal and you can position yourself accordingly.
This level of "inside" knowledge is very hard to achieve in the stockmarkets. And even if one would have it, there are so many other important participants in the market with contrary opinions, that this knowledge would probably have only a minor impact on ones trading results.
The stockmarkettrader, unless trading illiquid issues, is better of when he tries to measure crowd opinion, or call it market sentiment, by applying certain indicators ( not purely TA though ) and acts accordingly. Again something which has not too much to do with relying purely on luck.
Best regards
Trading skills are only part of the bigger equation. I'll take a guy who is not afraid to pull the trigger anyday over a guy who has a perfection of entries, exits, and money management.
Teaching a skillset is 100x easier than overcoming the wrong mindset.
The point being: You can teach a guy with the correct mentality the mechanics of successful trading. But give the mechanics to a trigger-shy wannabee and nothing will happen; you may as well place the money in a bank account, cos he won't "execute" the plan.
That's why people who come from the field of "execution" have a better chance at trading e.g. Sportsmen, Taliban (the latter is literal execution!)
Teaching a skillset is 100x easier than overcoming the wrong mindset.
The point being: You can teach a guy with the correct mentality the mechanics of successful trading. But give the mechanics to a trigger-shy wannabee and nothing will happen; you may as well place the money in a bank account, cos he won't "execute" the plan.
That's why people who come from the field of "execution" have a better chance at trading e.g. Sportsmen, Taliban (the latter is literal execution!)
DTWAW :
I think, you mix up 2 things here :
Luck and probability.
If you take 200 even positions in stocks and hold them for say 30 days, it can easily be, that the gains of 50% winners are not sufficient to cover the losses made on the 50% loosers ( high probability, but still bad luck I'd say ! ).
If you change the holding period, some loosers may turn in to winners and vice-versa, but there's still no assurance, that you'll make money, although the statistical odds call for an even rate of winners vs. loosers.
Luck with an random entry system is, when your 50% winners provide enough gains, to pay for the loosers + commsision and slippage.
In order to avoid relying purely on luck, even a trader who uses a random entry system, would probably try to cut the loosers and let the winners run in order to make sure he'll come out ahead by the end of the 30 days. This means, he will apply planning, risk and money-management.
From this moment on, it's up to his skills and knowledge to apply the right strategy, because what seems to be a looser in the first place, could turn out as winner by the end of the 30 day period.
Which means finally, that whatever entry system you use, random, setup, rumour, gut feelings, you name them, a trader always have to apply planning, risk and money-management in order to make sure he'll win in the end.
This has nothing to do with luck anymore.
In general, I have my personal opinion about this whole "random entry" argument. This is a statistical measurement which might be true or not, depending on too many variables in real live to have any meaningful significance.
It may work in theory when flipping a coin or rolling a dice. There are only so many outcomes possible with each flip or roll.
Trading involves many more variables. Among others commissions and slippage. No matter what position you take and in which market, you pay upfront and loose money at the moment you take the position.
Therefore, you might find trading-systems with a higher hitrate than random entry, but you still loose money because the gains are not enough to cover costs of losses + commissions and slippage.
I.e. in MetaStock or Omnitrader, you can backtest hundreds of systems on any single stock and you'll find out, that only a few are able to make any significant profit ( after comm. and slippage )
A few well selected and carefully planned and managed trades however, based on whatever entry you choose, can make you more money than any high hitrate system.
Therefore I stand with my point :
Managing your risk and your trade has nothing to do with luck at all. It's a matter of skills and knowledge.
Best regards
I think, you mix up 2 things here :
Luck and probability.
If you take 200 even positions in stocks and hold them for say 30 days, it can easily be, that the gains of 50% winners are not sufficient to cover the losses made on the 50% loosers ( high probability, but still bad luck I'd say ! ).
If you change the holding period, some loosers may turn in to winners and vice-versa, but there's still no assurance, that you'll make money, although the statistical odds call for an even rate of winners vs. loosers.
Luck with an random entry system is, when your 50% winners provide enough gains, to pay for the loosers + commsision and slippage.
In order to avoid relying purely on luck, even a trader who uses a random entry system, would probably try to cut the loosers and let the winners run in order to make sure he'll come out ahead by the end of the 30 days. This means, he will apply planning, risk and money-management.
From this moment on, it's up to his skills and knowledge to apply the right strategy, because what seems to be a looser in the first place, could turn out as winner by the end of the 30 day period.
Which means finally, that whatever entry system you use, random, setup, rumour, gut feelings, you name them, a trader always have to apply planning, risk and money-management in order to make sure he'll win in the end.
This has nothing to do with luck anymore.
In general, I have my personal opinion about this whole "random entry" argument. This is a statistical measurement which might be true or not, depending on too many variables in real live to have any meaningful significance.
It may work in theory when flipping a coin or rolling a dice. There are only so many outcomes possible with each flip or roll.
Trading involves many more variables. Among others commissions and slippage. No matter what position you take and in which market, you pay upfront and loose money at the moment you take the position.
Therefore, you might find trading-systems with a higher hitrate than random entry, but you still loose money because the gains are not enough to cover costs of losses + commissions and slippage.
I.e. in MetaStock or Omnitrader, you can backtest hundreds of systems on any single stock and you'll find out, that only a few are able to make any significant profit ( after comm. and slippage )
A few well selected and carefully planned and managed trades however, based on whatever entry you choose, can make you more money than any high hitrate system.
Therefore I stand with my point :
Managing your risk and your trade has nothing to do with luck at all. It's a matter of skills and knowledge.
Best regards