Bear in mind that the expected value of those long options is approximately their cost, because sometimes they will make money on black swan events. In the long-term you should break-even on long options, even long deep OTM options. So basically they are a nearly free hedge. Even if you write off the premium each year, you don't lose much. And you can do backspreads if losing the premium 98% of the time is an issue.
Daytrading leads to Inevitable Failure? Is Swing Trading the only Viable Path?
- Thread starter heynow
- Start date
Bear in mind that the expected value of those long options is approximately their cost, because sometimes they will make money on black swan events. In the long-term you should break-even on long options, even long deep OTM options. So basically they are a nearly free hedge. Even if you write off the premium each year, you don't lose much. And you can do backspreads if losing the premium 98% of the time is an issue.
I'm not an institutional trader, and I've had position limits with 24 hour cooldown since my first day trading for my own account.
I don't get volatile emotions when I lose or make money.
As soon as I got a big enough account for it to matter, I ring-fenced it in a limited liability company with no personal guarantees, and keep only an amount I can afford to lose. However that's mainly for broker risk, not my personal blowup risk which is lower than my chance of having a heart attack or dying in a car crash.
Short version: you're wrong.
Illiquid assets can be borrowed against, and illiquidity poses a far greater risk than going on tilt for a disciplined trader. Position limits can always be circumvented.
Even if somehow you avoid those possibilities, there's always suicide risk.
Basically you are trying to say you can legislate discipline and risk control, when that is clearly not the case. There are always risks which can't be totally avoided, and someone with no discipline will blow up in one way or another regardless of what controls are put in place - see the western financial and real estate sectors for an example.
Not all styles fit one person. Personally, I scalp gold 0700-1200 cst, with at least 120 round turns a day. I have friends who swing as well, but for me I do best getting in on momentum and exiting when it slows down.
It seems 90% of the threads on ET are Negative. How does anyone on this site make money? Or do they? They all crow how 90% of traders lose I guess 90% of the posts on this site are pure BS! Or most likely 90% of these posters are losers..... ET is Just an extention of the Yahoo boards and actually more amusing.
The numbers don't lie. Yes, the majority of people that flock to the markets intraday are just making a donation to the ones who know what there doing. It's like that old saying "you throw enough shit at the wall something will stick". Granted you want to cut your losers quick and let your winners run. It's all in the numbers. No trader is right all the time, but the key is to keep the losses small.
And yet here you say you are a reverse momentum scalper. Interesting.
http://www.elitetrader.com/vb/showthread.php?s=&postid=2411511#post2411511
"05-03-09 01:03 AM
I'm a reverse momentum scalper. When I see an extreme move in one direction start to slow down I fade it. If I'm wrong, I get out asap. I usually make 150-200 RT a day."
Some excellent comments here.
As someone who's been daytrading for many years, I can say I agree with Pabst's point about it's not a losing method so much as it is, losing traders trading incorrectly.
The blackjack analogy is great; I play at the Bellagio often, whenever I'm doing a trading seminar in Vegas, and by following the rules I usually can play for 6-10 hour sets at breakeven (I use Bloch's rules for basic strategy 100% of the time, after awhile it becomes mechanical). What's amazing to me is I can sit there for hours playing and watch dozens of players come and go, and NOBODY I've played with correctly follows basic strategy all the time. Why is this? Same reason traders fail. The winning techniques are there, but people don't want to (or can't) follow rules consistently.
And based on working with thousands of traders, I can say too that it's rare to find traders who 1) know how to daytrade the highest probability patterns consistently, integrating tape reading w/sectors and trin and specific micro-breakout patterns, and 2) have the discipline and skill to scale up/down based on the patterns and odds of the trade working out.
So I think it's mostly a discipline issue; many people either aren't willing to put in years to learn how it really works, and/or don't have the discipline and courage to do it right. It is *very* hard to daytrade correctly, even if you've been doing it fulltime for years.
Swing trading is easier, but can incur larger stops/losses as well, if done sloppily, so there's two sides to it.
#1 problem I've seen in traders is they overtrade choppy charts. They don't look for, and trade, high potential charts (for example on Friday I was actively daytrading SQNM ACAS BGP APOL etc, widest-range charts with volatility)... #2 problem is they don't realize how intense and hard this is.
I think it's much harder than being a corporate statistician/quality engineer, which I was for years, a long time ago, for example. Main reason is the emotions that get involved when you're trading w/thousands of your dollars on the line all the time.
Trading is all about taking a lot of shots, minor wins, minor stops are most of it, your edge is when there's a strong breakout (like doubling down on an 11 against a dealer's 5 - of course with trading there's no such limit as doubling, we can 10x our share size on high probability setups! great odds for us), then you can make moderate wins... the trick is, keeping all stops small, so the numbers come out like 40% small wins, 40% small stops, 20% moderate wins, 0% large stops. Thousands of trades over many years I've made, and that's the "solution set"... which means btw that having a broker w/low commissh load like ib is critical to success too.
Of all the many careers and things I've done in life, trading is the most exciting and most difficult. Kind of like dating a supermodel (but w/o the high maintenance, if you "get it" and play your cards, and trades, the right way).
Best wishes for success - gotta love this market, best since 99-01 I've seen for day and swing trades.
-k
As someone who's been daytrading for many years, I can say I agree with Pabst's point about it's not a losing method so much as it is, losing traders trading incorrectly.
The blackjack analogy is great; I play at the Bellagio often, whenever I'm doing a trading seminar in Vegas, and by following the rules I usually can play for 6-10 hour sets at breakeven (I use Bloch's rules for basic strategy 100% of the time, after awhile it becomes mechanical). What's amazing to me is I can sit there for hours playing and watch dozens of players come and go, and NOBODY I've played with correctly follows basic strategy all the time. Why is this? Same reason traders fail. The winning techniques are there, but people don't want to (or can't) follow rules consistently.
And based on working with thousands of traders, I can say too that it's rare to find traders who 1) know how to daytrade the highest probability patterns consistently, integrating tape reading w/sectors and trin and specific micro-breakout patterns, and 2) have the discipline and skill to scale up/down based on the patterns and odds of the trade working out.
So I think it's mostly a discipline issue; many people either aren't willing to put in years to learn how it really works, and/or don't have the discipline and courage to do it right. It is *very* hard to daytrade correctly, even if you've been doing it fulltime for years.
Swing trading is easier, but can incur larger stops/losses as well, if done sloppily, so there's two sides to it.
#1 problem I've seen in traders is they overtrade choppy charts. They don't look for, and trade, high potential charts (for example on Friday I was actively daytrading SQNM ACAS BGP APOL etc, widest-range charts with volatility)... #2 problem is they don't realize how intense and hard this is.
I think it's much harder than being a corporate statistician/quality engineer, which I was for years, a long time ago, for example. Main reason is the emotions that get involved when you're trading w/thousands of your dollars on the line all the time.
Trading is all about taking a lot of shots, minor wins, minor stops are most of it, your edge is when there's a strong breakout (like doubling down on an 11 against a dealer's 5 - of course with trading there's no such limit as doubling, we can 10x our share size on high probability setups! great odds for us), then you can make moderate wins... the trick is, keeping all stops small, so the numbers come out like 40% small wins, 40% small stops, 20% moderate wins, 0% large stops. Thousands of trades over many years I've made, and that's the "solution set"... which means btw that having a broker w/low commissh load like ib is critical to success too.
Of all the many careers and things I've done in life, trading is the most exciting and most difficult. Kind of like dating a supermodel (but w/o the high maintenance, if you "get it" and play your cards, and trades, the right way).
Best wishes for success - gotta love this market, best since 99-01 I've seen for day and swing trades.
-k