Daytrading leads to Inevitable Failure? Is Swing Trading the only Viable Path?
- Thread starter heynow
- Start date
Whatever works for you is the way to go... I know good day traders and bad ones and I know good swing traders and bad ones.. FInd what works for YOU
OP is correct. And the reason why is that not a single retail trader has a risk management plan. But that doesn't stop retail traders from fooling themselves into thinking that they have a legit risk management plan because they limit position size, and they use stops, etc.
But this "plan" often fails at the worst time: when emotions are most volatile and losses are the largest. And it is not a real "physical" risk management plan that is built right into his trading platform. It is mental plan and thus prone to repeated failure.
Only institutional traders have real risk management that is built right into the trading platform, so it can never fail. No GS prop trader can put on a 10k contract position in natural gas before an inventory report - his trading platform simply won't allow it. The same goes for most traders at the biggest hedge funds - their system automatically limits position size, sets stop losses, and never allows one trader or one position to endanger the entire institution.
And the institutional traders that don't have this type of physical risk limits built into the trading platform are the ones that you hear about in the news after they blow up: Barings Bank, Society General, MF Global, Amaranth, etc.
In this industry with so many vendors, to this day I am still surprised why no broker or vendor offers a trading platform with the ability to limit risk built right into it. Some platforms like Anvil and Lightspeed platform do offer risk limiting tools but the trader can override and change these whenever he feels like it which defeats the purpose because he will increase the risk at the worse time (when emotions are most volatile and losses are the largest).
So for a retail trader the only way to survive in the long run is to create a "physical" risk limit by only trading 20% of his net worth (at max leverage). The other 80%, give it to mom or wife to put into CDs - that way he can't touch it when he feels tempted to in a big drawdown. Or invest the other 80% not so liquid assets like real estate.
But this "plan" often fails at the worst time: when emotions are most volatile and losses are the largest. And it is not a real "physical" risk management plan that is built right into his trading platform. It is mental plan and thus prone to repeated failure.
Only institutional traders have real risk management that is built right into the trading platform, so it can never fail. No GS prop trader can put on a 10k contract position in natural gas before an inventory report - his trading platform simply won't allow it. The same goes for most traders at the biggest hedge funds - their system automatically limits position size, sets stop losses, and never allows one trader or one position to endanger the entire institution.
And the institutional traders that don't have this type of physical risk limits built into the trading platform are the ones that you hear about in the news after they blow up: Barings Bank, Society General, MF Global, Amaranth, etc.
In this industry with so many vendors, to this day I am still surprised why no broker or vendor offers a trading platform with the ability to limit risk built right into it. Some platforms like Anvil and Lightspeed platform do offer risk limiting tools but the trader can override and change these whenever he feels like it which defeats the purpose because he will increase the risk at the worse time (when emotions are most volatile and losses are the largest).
So for a retail trader the only way to survive in the long run is to create a "physical" risk limit by only trading 20% of his net worth (at max leverage). The other 80%, give it to mom or wife to put into CDs - that way he can't touch it when he feels tempted to in a big drawdown. Or invest the other 80% not so liquid assets like real estate.
Not a single one? In your post you show what you think is proper risk management and that a retail trader can practise it, yet you claim none do?
Mental plan is no problem if you're diciplined. Statements like these are often a reflection of the individual, so the fact that you're making these and not acknowledging that there will be many exceptions, suggests to me that these are your weaknesses.
When emotions are most volatile? You're assuming that everyone has a breaking point. I know for certain that nothing trading could throw at me would unsettle me, as I've experienced it all before. I'm certain that many, more experienced traders are the same way.
There are a great many professional gamblers out there that can't rely on any software to help them manage risk, and they do fine.
So a single, big-hedge-fund trader can trade the company's entire net worth if the situation is right? If not, as you say, then I don't see a whole lot of difference between limiting him and with a person limiting himself to "mini-bankrolls." Both are methods to reduce risk, and neither allows the entire account to be put at stake in the short-term.
If a retail trader is considered to not have any risk management because they get too emotional, then I guess they need to work on not getting too emotional.
At the end of the day, you go with what ya got.
When you have around the block for a while - you wont need anyone to tell you if day trade or swing or long term trading makes money. And the answer is = there is no method thats better.
Some do both successfully, others prefer one method - but the common principle amongst those make money consistently is they KNOW what works for them.
Forget Gurus and mentors. Unfortunately you have to find out yourself what works only one way and it costs money and the emotional baggage that goes with failing.
The bottom line is most folks dont stand a chance with any method simply because they are not prepared for the school of hard knocks.
Some do both successfully, others prefer one method - but the common principle amongst those make money consistently is they KNOW what works for them.
Forget Gurus and mentors. Unfortunately you have to find out yourself what works only one way and it costs money and the emotional baggage that goes with failing.
The bottom line is most folks dont stand a chance with any method simply because they are not prepared for the school of hard knocks.
That's right no retail trader has a real risk management (RM) plan unless:
1 He has RM built into his trading platform which enforces risk limits. The platform also can't allow the trader to increase risk limits in the heat of the moment, there has to be a cooling off period before increases in risk limits take effect.
And/Or
2 He only has 20% of his net worth in his trading account and 80% in illiquid assets.
If a retail trader thinks he has an RM plan that consists of a bunch of rules he follows then he has a make believe RM plan. Cause that RM "plan" resides in the part of the brain the gets routinely shut off whenever he experiences fear/greed/stress.
But don't worry, you guys on ET don't ever have to worry since you are all Jedi Knights that simply use the Force to materialize profits everyday.
1 He has RM built into his trading platform which enforces risk limits. The platform also can't allow the trader to increase risk limits in the heat of the moment, there has to be a cooling off period before increases in risk limits take effect.
And/Or
2 He only has 20% of his net worth in his trading account and 80% in illiquid assets.
If a retail trader thinks he has an RM plan that consists of a bunch of rules he follows then he has a make believe RM plan. Cause that RM "plan" resides in the part of the brain the gets routinely shut off whenever he experiences fear/greed/stress.
But don't worry, you guys on ET don't ever have to worry since you are all Jedi Knights that simply use the Force to materialize profits everyday.
LOL, thank you for your commentary.
There is a lot of truth to what you say. I believe firmly in risk management being the foundation on which long-term success is built and will take your comments into consideration in my trading plan.
Good trading