Can completely discretionary traders every succeed?

[Boy Plunger]

Quote from murray t turtle:

=================
Cluseau;
Interesting post;
you have planned not to make any ,apparently written plans.

Dont want to offend but weakest written plans are better than ;
strongest memory. Clear point, just dont agree.

Its not just things written down like different plans between uptrends & downtrends, but lots of important things like that.

And sure trends change, but if you are observant at all;
uptrends almost always usually DO NOT have similiar patterns equal to downtrends.

And since many of the best traders have ''senior moment memories'';
plans become more important as time marches on.


Wisdom is the principal thing.

I do not know what a plan means to you.

I just don't call my trading operations a plan. Also, my written material is just that--written material. I do not see my writings as a plan. Perhaps i am too much of an outcast or perhaps i don't allow myself to believe in buzz words or media centric ideas. I will put my brain to work everyday to work out possible scenarios that i know will make me money and, if no profit, so what, onward and upward. If some guy wants to watch a piss ant like me trade for three months he can call whatever i do whatever he wants to call it. And, whatever he calls my trading it will not be accurate enough unless described by me. The fact is, i can't even tell you what i do anymore so someone that has to say something about anything to get paid will call it a plan. Who gives a rats ass.

Trends, Patterns, gibberish is all irrelevant to me. These are just words for a simple person trying to relate to a reality they do not belong to.

Smoke and mirrors. I don't buy into the bullshit of this business. And it is a business of total bullshit. Trading is a business of probing for discovery then elimination of target. Some go nuts trying to build illusions others work and others live off that hard work.

There are companies set up that will sell you a trading plan or examine your plan and back test it. Total bullshit. Hide and run. This is how you survive in trading; do something that cannot be replicated and that is unequivocal. If you want to write it on a napkin or ten binders and call it whatever that's your business.

Hope this clears up my posts. I am learning a great deal about people here. Priceless.

Good trading to all...

 

[horribilicus]

Can completely discretionary traders ever succeed? Yes. Here is a successful purely discretionary trader:

http://traderclub.com/discus/messages/107/944.html?MondayOctober3020000924pm

 

[steenbab]

Quote from Maverick1:

Market microstructure is understood by only an extreme minority, who are able to exploit it to 'perpetuity', and this regardless of which cycle we are in, and assuming a threshold of 'tradable volatility', with decent range enough to make the efforts worthwhile. I believe your work on tick, volume, breadth etc is a good step in the exploration of microstructure, necessary but insufficient...

Regards
Maverick

Very interesting post, Maverick. I agree that microstructure is only understood by a few, but I'm curious about your assertion that microstructure is unchanging and can be traded in perpetuity. That is not at all my experience. Those market makers trading microstructure (the market's basic order flow) report great changes in their trading (and their P/L) as a function of the much larger size in the ES book, decimalization of the equities, etc. Are we once again at a semantic loggerjam?

 

[steenbab]

Quote from iceman1:

no... only system traders can succeed!!

:eek: :eek:



Ice

I'm afraid those changing market cycles affect systems as well as discretionary traders, so successful system traders end up remodeling the markets just as successful discretionary traders end up changing their game. I have to say that I've only worked with two traders (out of perhaps 200; both completely discretionary) who I'm confident could adapt to just about any changing market conditions. And even they have experienced meaningful drawdowns during the market's shifts. They have very different personalities, skill sets, and trading styles: one is a passionate market junkie and has a magnificent feel for momentum shifts; the other is cold as ice and reads patterns in the market that leave your jaw hanging. The two have taught me that a single formula for success is not to be found. The common denominator, if there is one, is a complete absorption in the market that allows them to internalize patterns that are not apparent to others. Interestingly, and apropos of the couple of the recent posts, both traders are probably more structured in their entries than exits--though in different ways.

 

[sublime-scalper]

Quote from steenbab:

I'm afraid those changing market cycles affect systems as well as discretionary traders, so successful system traders end up remodeling the markets just as successful discretionary traders end up changing their game. I have to say that I've only worked with two traders (out of perhaps 200; both completely discretionary) who I'm confident could adapt to just about any changing market conditions. And even they have experienced meaningful drawdowns during the market's shifts. They have very different personalities, skill sets, and trading styles: one is a passionate market junkie and has a magnificent feel for momentum shifts; the other is cold as ice and reads patterns in the market that leave your jaw hanging. The two have taught me that a single formula for success is not to be found. The common denominator, if there is one, is a complete absorption in the market that allows them to internalize patterns that are not apparent to others. Interestingly, and apropos of the couple of the recent posts, both traders are probably more structured in their entries than exits--though in different ways.

Steen,

I'm quite certain that I am not the only one here who would like to hear you elaborate more on these two traders, and their respective qualities. I think that anyone who understands the theoretical foundation of financial markets ( or any social science for that matter) will know that there is no single formula for success. However, your statements, coming from someone as studied as you on this subject, are quite intruiging. What is it about them that makes you think that THEY could adapt to most any market condition? What seperates them from the fly-by -night succeses?

 

[CPTrader]

Quote from sublime-scalper:

Steen,

I'm quite certain that I am not the only one here who would like to hear you elaborate more on these two traders, and their respective qualities. I think that anyone who understands the theoretical foundation of financial markets ( or any social science for that matter) will know that there is no single formula for success. However, your statements, coming from someone as studied as you on this subject, are quite intruiging. What is it about them that makes you think that THEY could adapt to most any market condition? What seperates them from the fly-by -night succeses?

VERY good question. Sir Steen, please oblige us...

 

[aPismoClam]

Can completely discretionary traders every succeed?

sure, if they cut their losses.

 

[nitro]

I nominate your work as presented in those two articles as in the top ten things I have ever read on ET because I know from first hand experience that everything you have described is 100% true (although the Ayn Rand stuff is crap, but we can't all be perfect )

I am a purely discretionary intraday trader that does not ever look at a chart to put on my trades - I just look at numbers (the "tape") and have a feel for what to do. I am also an ex-programmer and have developed what I consider to be one of the most sophisticated automated trading systems that I have ever seen, and I have been privy to many.

Being fortunate to be able to experience both sides of the discretionary and automated trading experience, what I find almost trivial to do by instinct, I find nearly impossible to cross that gap to teach the automated system, although I am getting better at it. I know that there are many systems traders on ET, and almost without exception the ones that work in my experience are simple arb type systems. The system I am developing/trading is a system that actuallly trades, and not just takes advantage of mis-pricings. It exhibits a very basic intelligence...

FWIW, I disagree with "...my significant doubts about the odds of achieving long-term success as an intuitive, discretionary trader", because I think it takes a "special" kind of person to be able to overcome what you give as the reasons in your paper. I think I have that "tool/perspective."

I appreciate the good work you have done and I hope you continue to publish your findings because I find them fascinating, both from a traders point of view and from my amateurish purely intellectual "neuro-psychology-theories-of-mind" point of view.

nitro

Quote from steenbab:

I appreciate this thread regarding my articles and hope to make a few clarifications. As the quote from the initial posting indicated, I am not questioning that traders can trade successfully in a discretionary manner. In my work as a director of trading at a large Chicago proprietary firm I have directly observed quite a few multimillion dollar earning traders. None of them traded with technical analysis strategies, and none of them relied on research or mechanical systems. They truly were and are discretionary traders.

The problem, rather, is that such traders do not, as a rule, *maintain* their success. When market trends change, when patterns of volatility shift, their sensitive reading of the market no longer serves them well. I cannot tell you how many active traders I've observed who were successful during the momentum days of the late 90s and early 2000s, only to come to ruin in the past two years. My observation, as one who has directly observed them and worked with them, is that their problems are not primarily psychological. Instead, I believe it to be a problem of learning: patterns that were learned and internalized over many, many hours of market experience no longer show up in the market. By the time they have an opportunity to learn and internalize new patterns, they have experienced much loss and frustration.

Note that I am *not* advocating trading by mechanical systems. Those are based upon exploiting patterns that also will change with shifting market regimes. My experience tells me that discretionary trading can succeed when aided by research that allows a trader to know when market cycles are changing and when they can be counted upon for continuation. An analogy would be that of the fighter pilot, who relies on reflexes and the implicit learning that comes from long hours in simulations and real-time exercises, but who also must be guided by satellite intellligence, radar findings, instrument readings, and other "research".

The goal is not just to be successful, but to sustain success. I believe that can be most easily accomplished if hard, objective findings can tell the trader when recent market conditions can be counted upon and when they are changing. Such trading is neither wholly discretionary, nor mechanical. It is informed.

Thanks for the opportunity on the soapbox!

 

[steenbab]

Quote from nitro:

[I am a purely discretionary intraday trader that does not ever look at a chart to put on my trades - I just look at numbers and have a feel for what to do. I am also an ex-programmer and have developed what I consider to be one of the most sophisticated automated trading systems that I have ever seen, and I have been privy to many. I am fortunate to be able to experience both sides of the discretionary and automated trading experience.

nitro [/B]

Thanks; you're one step ahead of me. My topic for this weekend's article is precisely what you're writing about: how researching the market is not only a way for gaining an intuitive feel for trading patterns, but is also a way of adapting that feel to changing market conditions. Discretionary and automated trading are generally presented as opposite ends of a trading style continuum, but I suspect it's valuable to think outside that box. By reviewing past markets that are statistically similar to the present market, we can continuously update our market feel and make the implicit learning ongoing.

As to qualities shared by the successful traders I've worked with, I'd say that their cognitive strengths are more apparent than any personality similarities. Speed of mental processing and a capacity for prolonged, intense concentration stand out in my direct observation of their trading. Rookie traders and less talented ones do a lot of conscious reflecting on the market: what it's doing now, what it might do, etc. I don't find that kind of inner dialogue with these successful traders, and if does manifest itself, it's almost surely a sign that they're not trading well. This may sound strange, but they seem to experience the market viscerally, almost the way a great dancer would experience music on a dance floor: very sensitive to shifts in rhythm and tone.

Another common feature is that they look at unusual data in making trading decisions (although they look at different data). They do not make extensive use of charts at all, and they do not follow common oscillators, indicators, etc. I'd say they're looking more at volume and how it's flowing in and out of the market; where it slows down; what the market does when it picks up; etc. My sense is that they spend so much intense time concentrating on every market transaction that they have developed an acute feel for when volume flows normally and abnormally and can adjust their trading rapidly in response.

That is not to say that there aren't other ways of trading that might be successful. The traders I'm mentioning have extremely different trading styles: different time frames, sizes, and ways of entering and exiting positions. Others may have yet different market approaches. My hunch, however, is that some of these cognitive skills may be common to many successful intuitive traders.

 

[nitro]

Everything you say is true!!!!!! I would say that the single most important part of a good discretionay trader by a wide margin is prolonged intense concentration (assuming you have acquired the mechanical techniques) and the storing of important "lessons" (taught to you by the market of course) into long term memory. Mental calculation is probably worthless, at least in the way I understand the term.

There is a simple proof that the mind does not compute but recalls. I will find it and post it later. That is why traders start to lose when the markets shift. Think about it - if the shifts were computable (in the mental sense,) there would be no error!

nitro

Quote from steenbab:

Thanks; you're one step ahead of me. My topic for this weekend's article is precisely what you're writing about: how researching the market is not only a way for gaining an intuitive feel for trading patterns, but is also a way of adapting that feel to changing market conditions. Discretionary and automated trading are generally presented as opposite ends of a trading style continuum, but I suspect it's valuable to think outside that box. By reviewing past markets that are statistically similar to the present market, we can continuously update our market feel and make the implicit learning ongoing.

As to qualities shared by the successful traders I've worked with, I'd say that their cognitive strengths are more apparent than any personality similarities. Speed of mental processing and a capacity for prolonged, intense concentration stand out in my direct observation of their trading. Rookie traders and less talented ones do a lot of conscious reflecting on the market: what it's doing now, what it might do, etc. I don't find that kind of inner dialogue with these successful traders, and if does manifest itself, it's almost surely a sign that they're not trading well. This may sound strange, but they seem to experience the market viscerally, almost the way a great dancer would experience music on a dance floor: very sensitive to shifts in rhythm and tone.

Another common feature is that they look at unusual data in making trading decisions (although they look at different data). They do not make extensive use of charts at all, and they do not follow common oscillators, indicators, etc. I'd say they're looking more at volume and how it's flowing in and out of the market; where it slows down; what the market does when it picks up; etc. My sense is that they spend so much intense time concentrating on every market transaction that they have developed an acute feel for when volume flows normally and abnormally and can adjust their trading rapidly in response.

That is not to say that there aren't other ways of trading that might be successful. The traders I'm mentioning have extremely different trading styles: different time frames, sizes, and ways of entering and exiting positions. Others may have yet different market approaches. My hunch, however, is that some of these cognitive skills may be common to many successful intuitive traders.