Whenever someone asks me what I do for a living, and I say I daytrade stock index futures, their first response is always, "My God, isn't that incredibly dangerous?" And then they go on to tell me about how a friend of theirs lost a ton of money daytrading (I've heard amounts up to a million). But something puzzles me about all this. Various surveys show that between 80-95% of daytraders lose money ----- one study involving 68 traders found that every one of them lost, and 70% lost their entire trading capital. And these facts have been used to bolster the dubious rationale behind the new 25K rules on trading accounts. Yet assuming random long and short entries and random long and short exits, over time a trader's expectancy should approach 50-50, minus commissions and the spread (both pretty small these days). Given those odds, how can so many people lose so much money? The answer has to lie in money management ----- they cannot cut their losses properly and let their winners run sufficiently, and/or they trade far too big size for their account and skill level, so a bad run blows them out, and/or they make the terrible (nearly always) mistake of adding to losing positions. But are virtually everyone's money management skills really *that* wretched? Are most traders so overcome with hope and fear that they almost invariably make hideous mistakes handling their account? I have my own psychological trading issues to work through, but they certainly don't include any kamikaze-style actions. I find it a strange and amusing experience that most people look at me as if I'm crazy and then go on to smugly imply that total disaster is just about to strike, and it's a nothing short of a miracle that my head hasn't alreadsy been handed to me! Any thoughts on the subject?
Day Trading Losers
- Thread starter armaniman
- Start date
armaniman,
i totally agree with you - i started day-trading in may this year (nasdaq stocks with IB) - i'm not yet profitable - but i learn a lot - and i cutted all my losses right from the start. it's a hard BUSINESS (and it IS nothing else than a business) - but those guys who just blow their whole account in the first few weeks or months i just can't understand. either they can afford to lose, or they consider it as a game - vegas would be better.
i'm engaged in trading stocks for more than 3 years now - tried many different styles and time frames. i realized for myself, that "classic" day-trading (exit flat every day) is just the best way for me to do this. i mean - everybody (of the so called "experts") keeps on talking about buy and hold and stuff like that. "stocks are best" - just have to hold them long enough. maybe that's true, if you hold 'em for 50 years or so. the dow jones for example made a zero performance from '68 to '82. pretty long time, hu?
but i'm a little off topic. what i wanted to say, is: i think, strictly cutting every loss is maybe the only "holy grail" - this alone won't make you rich - but it surely can protect you from getting blown, before you can really think about making money. the reason, why people talk that way you described about trading are: 1. they got no clue about all that and just adopted someone elses opinion. 2. they tried it - and lost. 3. thei're just envious. 4. ...??
so let's just ignore them - and do our business. i also plan to start trading the nq-mini - maybe it's dangerous - but discipline and cutting the losses will bring success to me.
by the way - please be generous with my "austrian" english ...
i totally agree with you - i started day-trading in may this year (nasdaq stocks with IB) - i'm not yet profitable - but i learn a lot - and i cutted all my losses right from the start. it's a hard BUSINESS (and it IS nothing else than a business) - but those guys who just blow their whole account in the first few weeks or months i just can't understand. either they can afford to lose, or they consider it as a game - vegas would be better.
i'm engaged in trading stocks for more than 3 years now - tried many different styles and time frames. i realized for myself, that "classic" day-trading (exit flat every day) is just the best way for me to do this. i mean - everybody (of the so called "experts") keeps on talking about buy and hold and stuff like that. "stocks are best" - just have to hold them long enough. maybe that's true, if you hold 'em for 50 years or so. the dow jones for example made a zero performance from '68 to '82. pretty long time, hu?
but i'm a little off topic. what i wanted to say, is: i think, strictly cutting every loss is maybe the only "holy grail" - this alone won't make you rich - but it surely can protect you from getting blown, before you can really think about making money. the reason, why people talk that way you described about trading are: 1. they got no clue about all that and just adopted someone elses opinion. 2. they tried it - and lost. 3. thei're just envious. 4. ...??
so let's just ignore them - and do our business. i also plan to start trading the nq-mini - maybe it's dangerous - but discipline and cutting the losses will bring success to me.
by the way - please be generous with my "austrian" english ...
Interesting thread. Basically about the psychology of trading, which could probably fill a whole website.
Anyway, I do NOT believe that cutting losses is the major key to success. The problem with me is - I think - that I cut my losses too soon. A stop loss of $0.20 under my entry with QQQ (not the wildest animal out there) has stopped me out too often. And once you're losing, you (at least I) tend to get out the next time even sooner, and also take profits too early.
I read a book that stressed these two over and over: "cut your losses, cash your profits" Maybe I've taken that too litterally. Some stocpicking sites recommend a 5% stop loss, which I would feel extremely uncomfortable with, as long as a 5% gain is a pretty rare thing.
So:
What would you consider a reasonable stop loss for a $10, $25, $50, $100 stock? A percentage? a fixed amount?
And do you close your trailing stop slowly in, or do you keep it at roughly the same distance all the time?
Anyway, I do NOT believe that cutting losses is the major key to success. The problem with me is - I think - that I cut my losses too soon. A stop loss of $0.20 under my entry with QQQ (not the wildest animal out there) has stopped me out too often. And once you're losing, you (at least I) tend to get out the next time even sooner, and also take profits too early.
I read a book that stressed these two over and over: "cut your losses, cash your profits" Maybe I've taken that too litterally. Some stocpicking sites recommend a 5% stop loss, which I would feel extremely uncomfortable with, as long as a 5% gain is a pretty rare thing.
So:
What would you consider a reasonable stop loss for a $10, $25, $50, $100 stock? A percentage? a fixed amount?
And do you close your trailing stop slowly in, or do you keep it at roughly the same distance all the time?
With QQQ, a 10 to 20 cent stop loss seems about right.
What indicators do you use?
MACD is unreliable. I'm trying to concentrate a bit on Bollinger Bands, they sometimes work, but many false signals too, bouncing several times on the lower band happens quite often.
Any other suggestions for indicators and how to use them?
(It's getting off topic, but the topic more or less asks for it)
MACD is unreliable. I'm trying to concentrate a bit on Bollinger Bands, they sometimes work, but many false signals too, bouncing several times on the lower band happens quite often.
Any other suggestions for indicators and how to use them?
(It's getting off topic, but the topic more or less asks for it)
Intresting theme armaniman.
Well I think stops are an art.
I personaly use the Bollinger Bands for my stoploss. My Stop loss always depends on the market and how nervous my stock or future is. Standarddeviation or volatility indicators helps me with them.
Why so many trader loos money? I think there are many things out there. Transaction cost, money management, risk management, entry- and the more important exitstrategy, the discepline, your state of mind, how you handle your ego and they all have to act together good, near perfectly.
I think if you miss out one part of this things you fail, maybe not right now but over the time.
But let's think about a fact. If the future markets are a minus null sum game and 90% are loosing, how much money earn the guys how win?
I'am from Austria as well so be generous with me too ;-)
"EDUCATION IS OUR PASSPORT TO THE FUTURE.
THE FUTURE BELONGS TO THOSE WHO PREPARE
FOR IT TODAY." - Malcom X
Well I think stops are an art.
I personaly use the Bollinger Bands for my stoploss. My Stop loss always depends on the market and how nervous my stock or future is. Standarddeviation or volatility indicators helps me with them.
Why so many trader loos money? I think there are many things out there. Transaction cost, money management, risk management, entry- and the more important exitstrategy, the discepline, your state of mind, how you handle your ego and they all have to act together good, near perfectly.
I think if you miss out one part of this things you fail, maybe not right now but over the time.
But let's think about a fact. If the future markets are a minus null sum game and 90% are loosing, how much money earn the guys how win?
I'am from Austria as well so be generous with me too ;-)
"EDUCATION IS OUR PASSPORT TO THE FUTURE.
THE FUTURE BELONGS TO THOSE WHO PREPARE
FOR IT TODAY." - Malcom X
Your psychological makeup and your trading style are closely related. I have no problem taking small losses, but I often struggle to let my winners run. So if I were to try and trade like this, I would slowly bleed to death.
Because I am much better at picking entries than exits, I take profits as quickly as losses and make money by being right more than wrong. Like Marty Schwartz said in Pit Bull - "I need to hear the cash register ring". I feel more comfortable with an equity curve of slow consistent gains rather than choppy periods followed by home runs.
Because I am much better at picking entries than exits, I take profits as quickly as losses and make money by being right more than wrong. Like Marty Schwartz said in Pit Bull - "I need to hear the cash register ring". I feel more comfortable with an equity curve of slow consistent gains rather than choppy periods followed by home runs.
I don't have a set figure for a percentage or amount for a stop loss, but it needs to be tight at first, while giving the stock room once it goes your way. I would suggest looking at the chart and finding a good risk:reward scenario. I'll use an example. I can't post the chart here because I don't know how...maybe someone else can.
With CLRS, the yearly chart from late January til late July forms a nice fishbowl. Since June thru July looks to be clearly upward trending, I look to get long. Using the 60 min chart, on Jul 10 the stock gaps up on good volume with news of a deal with Microsoft. I know this is supposed to be technical trading but the legitimate news gives me reinforcement that the gap should hold so I get in at 6.73 and set a stop at 6.49. The reason for this is that it gives me a 1:4 risk/reward. With .24 to the downside, I don't think the stock would have a hard time ascending another $1. I also favor stops just below major buy/sell points, even dollars, halves etc...
The stock tested and held 6.50 twice later that day. As the stock bases above 7.60 on the 17th and 18th, I move the stop to 7.24. After holding the low 8's and appearing to move upward again on the 23rd and 24th, I move the stop up to 7.99. I get stopped out the next day. The net was 1.26 or about 1:5 in this case.
Looking to get long again since the daily was still uptrending...on 8-2, I notice 6.50 gets tested twice successfully again over the prior few days. Since there's low volume, not many traders are selling here and the support looks good. I get in at 6.62, again with a stop at 6.48 this time...since it has traded at 6.49 a few days before, I like to be 1 cent below that. .14 is a very tight stop but if it doesn't hold and move up, I don't want the stock. My point is that this situation on the 60 min chart (and given the past few weeks of trading and techinical indicators) is the kind of setup I specifically look for. Very low risk downside, at least 4:1 or 5:1 and trail the stops sensibly. Today I move the stop to 6.74 since it has based over 7 for the past few days. Hope this helps.
Good Luck!
With CLRS, the yearly chart from late January til late July forms a nice fishbowl. Since June thru July looks to be clearly upward trending, I look to get long. Using the 60 min chart, on Jul 10 the stock gaps up on good volume with news of a deal with Microsoft. I know this is supposed to be technical trading but the legitimate news gives me reinforcement that the gap should hold so I get in at 6.73 and set a stop at 6.49. The reason for this is that it gives me a 1:4 risk/reward. With .24 to the downside, I don't think the stock would have a hard time ascending another $1. I also favor stops just below major buy/sell points, even dollars, halves etc...
The stock tested and held 6.50 twice later that day. As the stock bases above 7.60 on the 17th and 18th, I move the stop to 7.24. After holding the low 8's and appearing to move upward again on the 23rd and 24th, I move the stop up to 7.99. I get stopped out the next day. The net was 1.26 or about 1:5 in this case.
Looking to get long again since the daily was still uptrending...on 8-2, I notice 6.50 gets tested twice successfully again over the prior few days. Since there's low volume, not many traders are selling here and the support looks good. I get in at 6.62, again with a stop at 6.48 this time...since it has traded at 6.49 a few days before, I like to be 1 cent below that. .14 is a very tight stop but if it doesn't hold and move up, I don't want the stock. My point is that this situation on the 60 min chart (and given the past few weeks of trading and techinical indicators) is the kind of setup I specifically look for. Very low risk downside, at least 4:1 or 5:1 and trail the stops sensibly. Today I move the stop to 6.74 since it has based over 7 for the past few days. Hope this helps.
Good Luck!
Capitalisation (or lack thereof) is a major cause of failure.
Assume two equally successful traders, Trader A with $10k and Trader B with $50k.
Each risks 1% of their account per trade and employ the same strategy with the same results (hypothetically).
So Trader A risks $100 per trade and Trader B risks $500 per trade.
Assume each hits a multiple of 2 times their 1% risk, 60% of the time.
So Trader A can expect to make: 0.6(200) - 0.4(100) = $80 per trade on average
Trader B can expect to make: 0.6(1000) - 0.4(500) = $400 per trade
So far, so good... BUT now look what happens with commissions... (which is an argument for undercapitalised traders to ONLY use IB):
Trader A nets $80 - $30 = $50 per trade, assuming 'standard' direct access commissions
Trader B nets $400 - $30 = $370 per trade
Trader A's commissions are 38% of gross profitability
Trader B's commissions are 8% of gross profitability
Conclusion: The larger the account size the less is the proportionate impact of commissions and slippage on profitability. Small accounts (say accounts less than $20k) are at a BIG disadvantage because of this fact.
Assume two equally successful traders, Trader A with $10k and Trader B with $50k.
Each risks 1% of their account per trade and employ the same strategy with the same results (hypothetically).
So Trader A risks $100 per trade and Trader B risks $500 per trade.
Assume each hits a multiple of 2 times their 1% risk, 60% of the time.
So Trader A can expect to make: 0.6(200) - 0.4(100) = $80 per trade on average
Trader B can expect to make: 0.6(1000) - 0.4(500) = $400 per trade
So far, so good... BUT now look what happens with commissions... (which is an argument for undercapitalised traders to ONLY use IB):
Trader A nets $80 - $30 = $50 per trade, assuming 'standard' direct access commissions
Trader B nets $400 - $30 = $370 per trade
Trader A's commissions are 38% of gross profitability
Trader B's commissions are 8% of gross profitability
Conclusion: The larger the account size the less is the proportionate impact of commissions and slippage on profitability. Small accounts (say accounts less than $20k) are at a BIG disadvantage because of this fact.
candletrader is right, capitalization is the number one cause of failure. Most of trading is just common sense. You need the ability to loose a large chunck of your portfolio while still staying in the game.