Competing Objectives...Who Wins?

[bent_prop]

Quote from nitro:


There is too much theorizing...The answer has been told here many times.

It is not clear to me if traders gravitate to firms that promote active trading styles [self selection,] or whether traders are turned into active traders by firms who do well by traders that generate lots of comissions. The truth probably lies somewhere in between.

While I do not doubt for a micro-second that a firm would rather have a scalper than a "swing trader," I honestly believe that unless you have access to TONS of buying power, the less active style of trading simply does not bode well UNLESS THE MARKET CONDITIONS WARRANT IT, which in my experience is about 10 - 15 percent of the time the markets are open.

I can tell you one thing though and this has been discussed before at ET ad-naseum : From principals at firms that I have talked to that have access to MOUNDS of data of hundreds of traders over many years, the statistic is that the decent traders make about .013 to .017 cents per share per. 01 penny spent (assuming .01 per share pricing - those that get their comissions down make that much more.) The really terrific traders make .02 per share + and are talking advantage of the commission charge limit at these firms that cap the comission at $20 - $25 (about 2K shares at .01 per share) In other workds, they are doing SIZE and not "paying" for it. Granted, this is not a scientific and statistically valid statement (I am getting the numbers from the very people that promote active trading styles,) but the only traders that I have seen that do well with a slower style are the ones that have access to their OWN bying power and can afford to put on size IN THE RIGHT WAY (in every single case, they were pit traders that spread front month contracts against back month contracts with HUGE size and then waited and occasssionally managed the position)

While generating tons of commissions is not necessarily the _only_ way to make money, 99.999% of the _EQUITY_ traders making 200K+ year are doing _AT_LEAST_ 75K shares a day, or approximately 1.5M+ shares a month. This has been my experience.

nitro

Could you help me understand what you meant by the statistical earnings reference you made? I belive you said traders are earning .013 - .017 cents per .01 spent. So if you had a commission of $20 bucks they are averaging $6 - $14 profit per trade. And the guys who do size and have commision caps can do in the .02 or in my analogy $20+ profit / trade? Please pardon me if I'm a little thick between the ears here, but I'm not familiar with the statistical representation and am probably missing something in the interpretation.

 

[nitro]

Quote from bent_prop:




Could you help me understand what you meant by the statistical earnings reference you made? I belive you said traders are earning .013 - .017 cents per .01 spent. So if you had a commission of $20 bucks they are averaging $6 - $14 profit per trade. And the guys who do size and have commision caps can do in the .02 or in my analogy $20+ profit / trade? Please pardon me if I'm a little thick between the ears here, but I'm not familiar with the statistical representation and am probably missing something in the interpretation.

At the end of the month, if a trader's total shares traded came to 1.5M, multiply 1.5M x .013 to get the average profit per share traded per month = $19,500. Subtract the cost of doing business, that is, 1.5M shares a month times, say, .007 cents per share for commissions = $10500 for a total profit of $9,000/Month. Multiply this by 10 months worked on average per trader (holidays, vacations, etc) = $90k/Year in profits for the average active professional equity trader.

nitro

 

[nitro]

Quote from candletrader:

Brother nitro... I gotta agree with ya about doin' large size... but although I do large size I don't trade frequently... most days I trade fewer than 5 round trips (which is precisely why a prop shop would tell me to fuck off if I went to one sayin' that I wanted 90% payout and told 'em they were welcome to the 10% residual plus my monthly commissions)... for me, the selective use of large size is the best way to go... kinda like a handful of cruise missiles compared to many cluster bombs...

Brother nitro... congrats on the 3000... I made you a present to commemorate it on the Chit Chat thread...

Brother Candle,

Do you trade at a firm or do you trade retail? When you say you do size, what is a typical trade size that you do? Do you trade NAZ, NYSE, Futs, etc? What time horizon are you holding your trades for? Finally, how much buying power do you have access to?

nitro

PS I saw the present! Thanks!!!!

 

[candletrader]

Quote from nitro:


Brother Candle,

Do you trade at a firm or do you trade retail? When you say you do size, what is a typical trade size that you do? Do you trade NAZ, NYSE, Futs, etc? What time horizon are you holding your trades for? Finally, how much buying power do you have access to?

nitro

PS I saw the present! Thanks!!!!

Retail

Size:
- depends on price of stock
- 10+ for ES, but rarely > 20 (i dont do NQ)

Naz, NYSE, Futs: do em all

Time horizon: depends on specific trade... from seconds to hours

Buying power: more than I need!

Bottom line: if a prop shop wants me its gotta give me more BP than "more than I need" i.e. its gotta give me an obscene amount of BP... and any payout less than 80% aint good enuf, in my view... and it very probably still wouldnt be good enuf, cos the main reason I trade is freedom from being answerable to anyone except for myself.... the last thing I need is to be shackled down by a firm...

 

[limitdown]

Quote from Discipline:

Every business goes through cycles.

It is a cold business fact that many of the posters here on Elite will have to go get a real job and give up trading because the margins are too thin, their skills not superior and/or their ability to take risk or to ride out a downturn in the cycle is too limited.

agreed.....

what might be better is that these traders realize that the only chair left for them to sit in, has such an incredibly impossible odd of success that a little realistic projection would save them

..both their grub stake,,,
..both their nerves,,,
..both their families of this stress,,,
..both their respect for the markets and investing,,,
..both their ability to spend their own monies in whatevr endeavour they choose

hey, this matter of being down 70% of your contribution capital is vastly more common and based on current data from traders themselves than any statistic or amalgamation of trading data skewed to present favorable conclusions....

 

[limitdown]

Quote from nitro:


At the end of the month, if a trader's total shares traded came to 1.5M, multiply 1.5M x .013 to get the average profit per share traded per month = $19,500. Subtract the cost of doing business, that is, 1.5M shares a month times, say, .007 cents per share for commissions = $10500 for a total profit of $9,000/Month. Multiply this by 10 months worked on average per trader (holidays, vacations, etc) = $90k/Year in profits for the average active professional equity trader.

nitro

Nitro,

excellent comments and well defended example...

those who have succeeded to attain size in their accounts can command the respect that is necessary to continue to achieve success.

they also can take on risks that most beginning traders in their first 18 months are not allowed to take. Many of these traders will see a DJI go up +200 or more points and not allowed to even use their buying power to simple swing trade IBM for 2+ points, say but in morning, notice that its at a gain above their breakeven comm costs, and hold until at/near close of trading.

something as simple as that would turn most traders into taxpayers instead of just so many other refund candidtates.

I've heard far too many stories from traders who have more than enough skills to succeed, not being able to take advantage of the favorable winds and being forced to trade during all conditions even during thin volume days where chopping destroys their capital contributions

simply read, there's just no way to succeed given those artificial restrictions, difficult market conditions and narrow windows of opportunities

 

[esc_trader]

People look at the fact that more daytraders are failing and take that as an indication that daytrading will be harder for them, but I don't think that is necessarily true, in fact more opportunity is created by the "dumb money" in the market.

I see this everyday, in many Nasdaq stocks, you know there are some MMs you don't go up against, yet leave it to an ECN to put some size up against them. You take them out immediately. Of course I cannot prove those are daytraders on the other side of those trades, but whoever it is they putting on that trade at a price they could do better in a few minutes. Their loss is someone else's (hopefully my) gain.

Another thing to consider I think is there are a number of traders doing the buying at bid selling at ask aka providing liquidity to try to pocket the spread and also can take advantage of the ECN rebates available to them. This slows down the moves and makes things more choppy. Alot of you guys I'm sure are the opposite, "MOMO" type traders and things have been tough doing that for the past few years.

I wouldn't consider the current situation a "down cycle" in the daytrading business. Don't expect things to get better, or easier to make money anytime soon. Trading has and always been challenging and you have to always adapt and work hard and smart.

 

[limitdown]

Quote from nitro:


There is too much theorizing...The answer has been told here many times.

The really terrific traders make .02 per share + and are talking advantage of the commission charge limit at these firms that cap the comission at $20 - $25 (about 2K shares at .01 per share). In other workds, they are doing SIZE and not "paying" for it.

nitro

this is very true, however, without framing the situation, which happens to be so realistic, that most people that have contacted me, have identified with it, yeah, too much theorizing, but highly accurate.....

yes, in one formum or another these matters have been discussed, however, putting them together in this thread seeks to bring singular attention to this in a manner that addresses the frustration that so many traders who can't seem to get through these abusive contractual situations share...

I knew some traders who basically got their software platform and chair/desk free because one benefit to bringing in huge share volume was the free desk charges, as an incentive. those same traders came into our offices one day and realized that they weren't making any money for the last 4 months consecutive to keep their wives mouths shut. That's when we started taking notes for a thread like this...

Those that are succeeding dont care about threads like these, but then, there are all those who aren't, nor will that this continues to apply to....

to them, perhaps they're paying attention...

 

[limitdown]

Quote from esc_trader:

People look at the fact that more daytraders are failing and take that as an indication that daytrading will be harder for them, but I don't think that is necessarily true, in fact more opportunity is created by the "dumb money" in the market.

I see this everyday, in many Nasdaq stocks, you know there are some MMs you don't go up against, yet leave it to an ECN to put some size up against them. You take them out immediately. Of course I cannot prove those are daytraders on the other side of those trades, but whoever it is they putting on that trade at a price they could do better in a few minutes. Their loss is someone else's (hopefully my) gain.

Another thing to consider I think is there are a number of traders doing the buying at bid selling at ask aka providing liquidity to try to pocket the spread and also can take advantage of the ECN rebates available to them. This slows down the moves and makes things more choppy. Alot of you guys I'm sure are the opposite, "MOMO" type traders and things have been tough doing that for the past few years.

I wouldn't consider the current situation a "down cycle" in the daytrading business. Don't expect things to get better, or easier to make money anytime soon. Trading has and always been challenging and you have to always adapt and work hard and smart.

excellent review....excellent...

however, the only way to benefit against those who put on size, and could have gotten filled, later at less money, would be to endure that insult and wait until the desired conditions proved them right, namely take a position or swing trade....

often times, when a retail, foreign or fund (mutual, hedge, etc.) order comes over the line, they're not interested in scaling, size adjusting or otherwise, other than just getting confirmation that they've executed the trade. This provides those opportunities.

whether or not that stock is represented by some heavy handed ECN's, MarketMakers or slick daytraders is not material to the decision to put on/take off that trade. The ability/opportunity to take advantage of that temporary price disparity is what day traders look for, and benefit from... (well said example).

Prop trading / leveraged trading / Daytrading (w/ license) as it represents itself today, and especially in these markets usually does not allow the trader to position / swing trade. As we have agreed in this example, the only way to benefit from those trades would be to hold the position past your expenses (comm, desk fees, etc.) sometimes hold the position overnight into the next trading day.

At that point, you're no longer trading, you're investing. These trading desk/prop shop opportunities are not presented as investing opportunities but as trading jobs/opportunities....

Obviously there are contridictions between these scenarios that are best resolved / answered personally, once one really understands what game is really being played here / against them...

 

[limitdown]

the PDT rule has clipped at the heels of the Leveraged Trading business for some time now.

consider:

accounts over $25,000 get a sliding scale of buy power (based on time of day during trading hours and by broker to broker) of $100,000 or 4:1

accounts where you contribute capital to these leveraged shops require from $10,000 all the way up to $25,000 and might provide 4:1 or 10:1 depending upon experience. Normally they avoid committing what your leverage will be in conversation until you've demonstrated a trading pattern that they can project profitibility upon.

Given both scenarios here's how the recent +165 DJI day would go:

Example A (retail basis) -- you'd be able to enter into any trade that your market hours margin would allow, and maintain that trade during after hours based on prevailing margin requirements. So that if a stock rallies or crashes, you'd be able to maintain that position until breakeven or profitable.

Example B (leveraged basis) -- you'd be able to enter into a trade during market hours. You would have to close that trade at close or just after in afterhours but not hold over night under pains of explaining and begging permission from at least 4 or more people.

Those two examples apply to all starters, intermediate and most traders in both examples. The difference is that in today's example, the markets took off in the first 20 mins. and remained high throughout the day, with no trading opportunities. In other words there weren't rallies during the day except for some lagging stocks that might have been caught.

Conclusion: in this real world example, the ability to catch movers and hold them all day into a profit instead of being concerned with maintaining a 100,000 share per day trading average highlights the essence of this thread, namely that these goals of profiting from the market vs. trading these markets (as taught by these firms) are the competing objectives that pretty much leave most traders losing their $10,000 - $25,000 initial investments.