Competing Objectives...Who Wins?

Quote from spreadem:


The P/L model has its bad points (from the point of view of the prop firm). The more exposure to the market, the higher the risk for the prop firm.

With the commission model, the company was never exposed to market risk. The trader would methodically grind his/her account into commission revenue. There would be a transfer from trading capital to commission revenue. No real risk for the prop firm!

With the P/L model the prop company is exposed to market risk and commission revenue risk. If the trader holds a position for hours, days or even weeks ... the firm looses out on all of that commission revenue that could have been collected in the same time frame as well as risking capital.
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OK. True. But long term horizon might not necessarily mean that much more risk. Let's just keep it to PURE INTRADAY trades.

If a trader loses $X amount, then stop for the day. Or a position loses $Y amount then automatically get stop out. BUT, here lies the SECRET TO ALL GREAT TRADERS, IF there's profit let it RUN! By letting it run, the trader might end up HOLDING it more than 30sec-1min(haha. ROFL). A really good trade could last all day!

How many time have we heard cut your losses short, and let your profit run over and over as a trading maxim from a bazillion sources?!

So, why would that be any more risk to the prop owners? The answer is: IT WOULDN'T! What they are afraid is the loss on commission revenues! So, in fact, the traders are the ones taking ALL THE RISK, for very very little gain. No wonder people are struggling. They can't trade the way that all good traders trade: cutting losers fast and holding onto winners. Read Market Wizards!

Sure, there are days when you have to scalp. Who doesn't scalp?! But there are a few really good trendy days that one should hold. But holding a winner is risky biz for prop owners...

good luck to all
 
Quote from ChaosNSX:



Or perhaps they are bored trustfund kids, but most likely they are all looking to share thoughts and ideas in hopes of developing a true "edge"
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funny little dancing man on fire...wonder what she/he had for lunch?
 
Quote from trader99:



Hey ETers,

I don't understand why prop trading firms don't allow longer horizon time of trading rather pure scalping. I think it has to do with just wanting to generate commissions. So, each trader generating 1M+ shares/month at half a penny to 7/10th penny and it adds up to a steady stream of income.

But suppose, they just stepped back and not push the high volume model so hard. And actually try to get big chunks out of a move. 30-75 cents. To multiple dolllars , overnite, a few days swing. Wouldn't that add up to MORE profit for the prop owners? So, they reduce the payout to 50/50 or 60/40 or whatever the traders would still be happy because they ended up with a few grand per trade rather than a few hundred dollars per trade. And over a month, a good technique can yield 20-40K easily NET. Not gross up, but net down or flat.

oh well..

just wondering out loud..
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its all about risk. imagine if you have a room full of guys that only have 10-25k of their own money in the firm and they all carry over a bunch of stocks long and you have a big down open. you could wipe out the whole equity position the traders have in one day. if you want to carry overnight im sure they would let you if you put up enough of your own money to cover the risk. you are looking at the good that might happen and they have to prepare for a worst case senario.
 
Quote from trader99:

So, why would that be any more risk to the prop owners? The answer is: IT WOULDN'T! What they are afraid is the loss on commission revenues! So, in fact, the traders are the ones taking ALL THE RISK, for very very little gain. No wonder people are struggling.

They can't trade the way that all good traders trade: cutting losers fast and holding onto winners. Read Market Wizards!

Sure, there are days when you have to scalp. Who doesn't scalp?! But there are a few really good trendy days that one should hold. But holding a winner is risky biz for prop owners...

good luck to all
More...


AMR went from being and under $1 stock just a few weeks ago to being well over 7.42. Imagine holding 10,000; 20,000 shares; 40,000 shares in a leveraged account as your base holding over time. Say that you got in under $2, 'round $1.23 - $1.52. you would have a tremendous profit sufficient to take a 3 month vacation on, let alone rebuild your account balances for all the slow months this year.

that scenario would not be allowed for well over 85% of the traders licensed with the Series 7 & 55. They could have more than sufficient balances in their accounts, even then, they'd be frowned upon keeping any positions. based on these trading models.

instead they'd hear endless barrages of disparaging remarks from everyone including the secretaries, janitors and doormen on why holding overnight has risks.

now try scalping daily by reestablishing your position when you come in and holding all day, and selling at market close, which if a more preferable model, and recommended by a number of shops...

fat chance you'll even remember your own name after a few weeks of that nonsense....

I think the competing objectives thread has become as obvious to as many as it is to those who know this for what it really is...
 
Quote from vhehn:



its all about risk. imagine if you have a room full of guys that only have 10-25k of their own money in the firm and they all carry over a bunch of stocks long and you have a big down open. you could wipe out the whole equity position the traders have in one day. if you want to carry overnight im sure they would let you if you put up enough of your own money to cover the risk. you are looking at the good that might happen and they have to prepare for a worst case senario.
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in practice

gap downs are usually followed with some form of high of the day recovery, even with those gaps that continue. for the rare cases when there's no retracement, then what usually happens (in most cases)

1) the Risk Mgmt parameters would signal that more than, say 25% of one's capital is in one position, and provide sufficient red flags during trading hours of the trade day to correct that position

2) the traders' capital would be exhausted, if all else failed and protect the company before there were/was severe damage done

3) the much touted experience of the senior traders in a managerial capacity, who made their money using the firms' trading style would have been all over those trades that same day, if not the next in the after market.

in other words, these situations would have been noticed, prevented, not allowed, which might or might not be beneficial to the actual trader
 
Quote from limitdown:




AMR went from being and under $1 stock just a few weeks ago to being well over 7.42. Imagine holding 10,000; 20,000 shares; 40,000 shares in a leveraged account as your base holding over time. Say that you got in under $2, 'round $1.23 - $1.52. you would have a tremendous profit sufficient to take a 3 month vacation on, let alone rebuild your account balances for all the slow months this year.

that scenario would not be allowed for well over 85% of the traders licensed with the Series 7 & 55. They could have more than sufficient balances in their accounts, even then, they'd be frowned upon keeping any positions. based on these trading models.

instead they'd hear endless barrages of disparaging remarks from everyone including the secretaries, janitors and doormen on why holding overnight has risks.

now try scalping daily by reestablishing your position when you come in and holding all day, and selling at market close, which if a more preferable model, and recommended by a number of shops...

fat chance you'll even remember your own name after a few weeks of that nonsense....

I think the competing objectives thread has become as obvious to as many as it is to those who know this for what it really is...
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Actually I went long 2000 shares of AMR around 1.95 or something. Too bad I got out too soon. I'm still bummed about it!! And it's because of this ultra-short term mentality that makes it hard to hold longer term positions. It ruined me. Luckily, I'm getting back and holding onto winners as long as it's still winning!
 
Quote from vhehn:



its all about risk. imagine if you have a room full of guys that only have 10-25k of their own money in the firm and they all carry over a bunch of stocks long and you have a big down open. you could wipe out the whole equity position the traders have in one day. if you want to carry overnight im sure they would let you if you put up enough of your own money to cover the risk. you are looking at the good that might happen and they have to prepare for a worst case senario.
More...

vhehn,

In another post, I gave the example of PURE INTRADAY trades. So, I'm NOT even talking about OVERNITE position risks. It's about cutting losers and riding winners!

And even in a pure intraday basis, I've seen repeatedly that many traders just get out too soon. So, their winners aren't large enough to pay for their small losers and the occasional LARGE LOSERS. If you don't have the occassional large wiiners, you ain't going to make it BIG in this business.

Steve Cohen, famed hedge fund manager, noted that sometimes as little as 20% of his trades make the vast majority of his profits. It's the 80/20 or 20/80(depending how you look at it. hehe) rule at work. 20% of the trades make up 80% of the profits. Because a lot of time the market is going nowhere. So you minimize losses and have the frequent small winners. But when it does go somewhere you have to HOLD for the MONSTER profit. Else you'll NEVER make any real money in this business. And just churn for 'em. keke If you are happy making minimum wages churning and churning pennies all day long and make your broker/prop shop rich then go ahead. No one ain't going to stop you.

But experience tells us, repeatedly over and over, that OVER THE LONG RUN, in order to really ring in some serious cash you gotta hold your winners and the winners better be LARGE MULTIPLES of your losers! It's all about expectancy baby! If you don't have that then you don't really have an edge or the edge is too small.

good luck trading!
 
"But experience tells us, repeatedly over and over, that OVER THE LONG RUN, in order to really ring in some serious cash you gotta hold your winners and the winners better be LARGE MULTIPLES of your losers! It's all about expectancy baby! If you don't have that then you don't really have an edge or the edge is too small."

i agree with that. the bear market has conditioned many traders to be scalpers. once you are a scalper its hard to go back to holding for longer runs.
 
Quote from trader99:



Actually I went long 2000 shares of AMR around 1.95 or something. Too bad I got out too soon. I'm still bummed about it!! And it's because of this ultra-short term mentality that makes it hard to hold longer term positions. It ruined me. Luckily, I'm getting back and holding onto winners as long as it's still winning!
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I couldn't have paid for a comment like this....

you would have thought that the increased buy power, say 10:1, 15:1, 25:1 or whatever, would have allowed you to buy/hold 40,000 shares, and watch it skyrocket through +3.00 (i.e. +$120,000), and then to see it go past that, and up over +$5.85 or more from where it was baselining (i.e. +$234,000).

missing boats like that are enough to drive ya ta drinkkk.....
 
Quote from limitdown:




I couldn't have paid for a comment like this....

you would have thought that the increased buy power, say 10:1, 15:1, 25:1 or whatever, would have allowed you to buy/hold 40,000 shares, and watch it skyrocket through +3.00 (i.e. +$120,000), and then to see it go past that, and up over +$5.85 or more from where it was baselining (i.e. +$234,000).

missing boats like that are enough to drive ya ta drinkkk.....
More...

man everything is so clear in hindsight.
 
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