I agree with this response.
As a prop trader myself, I must admit these are challenging times to navigate. However, after 10 years as a trader, I have survived through various cycles and at each cross road there have been proclamations of the "death of trading". I have even convinced myself on many occasions that itâs all over. The truth is, as long as there is a market there will be trades to take and opportunities to generate returns. Without question, discretionary trading edge has been eviscerated at the microstructure level. The human mind just can't calculate risk/reward in philoseconds or capture market moving news while still in transmission to the trading platform. That being said, I still have seen that there are a few talented individuals that can consistently generate good risk adjusted returns and are surviving this cycle. As Harry Wanger mentioned above, if you are open minded and adapt then algorithmic trading can be to your advantage. Did anybody trade 2003-2004? We used to aim to make 15-25c in a trade in the most liquid stocks because there was hardly any movement. In todayâs markets, stocks regularly move more than 2% in a day and the index range tends to be wide - most likely to HFT influencing price. From a traderâs perspective, you can't ask for much more. You just have to be open minded and change with the times. Fight like a mercenary - on the winning side! The author is correct in outlining the 5 strategies that traders relied upon and each one of them marks a specific cycle in the last decade as technology opened access to non-institutional traders. To me, opening time frames is the next step into a swing style where you have to combine technicals and fundamentals to gain an edge. Those that survive will be similar to hedge fund traders in a sense - which I can see across our trading floor now. Slowly but surely the less talented have been thinning out over the months and the core trading group is growing stronger. There is more risk assumed in this strategy but that can be compensated for by adjusting capital allocations per idea and/or hedging with correlated securities to reduce risk. It will be interesting to see how this transpires. If ZH is correct, the markets will see another episode of derisking/panic which will favor the human traders that can capture emotion and fear in a declining market vs. complacency and grind in a rising market. Should that happen, the traders who survived will once again build their coffers before progressing into the never-ending evolution of trading.
That is from a "trading" approach which I do not believe will die. After all traders can always move to another asset class that is in play or foreign markets where there is still edge. From a business model perspective, the prop/day trading firms are definitely in a bind. The one point the author did not touch on is that many of these firms existed purely on earning the spread between the commission charged to the trader and what they are charged by the clearing firm. With trading volumes dropping by the month, margins in this business model have been suffering damage since March of 2009. Couple this with increased regulation, balance sheet capital at risk, and you have an industry in decline, possibly soon to meet its end. No question about that in my mind and I do agree that selling of training courses to neophytes is an unprincipled way to stay afloat when your own bottom line growth from trading has done nothing but compressed over the years.
As a prop trader myself, I must admit these are challenging times to navigate. However, after 10 years as a trader, I have survived through various cycles and at each cross road there have been proclamations of the "death of trading". I have even convinced myself on many occasions that itâs all over. The truth is, as long as there is a market there will be trades to take and opportunities to generate returns. Without question, discretionary trading edge has been eviscerated at the microstructure level. The human mind just can't calculate risk/reward in philoseconds or capture market moving news while still in transmission to the trading platform. That being said, I still have seen that there are a few talented individuals that can consistently generate good risk adjusted returns and are surviving this cycle. As Harry Wanger mentioned above, if you are open minded and adapt then algorithmic trading can be to your advantage. Did anybody trade 2003-2004? We used to aim to make 15-25c in a trade in the most liquid stocks because there was hardly any movement. In todayâs markets, stocks regularly move more than 2% in a day and the index range tends to be wide - most likely to HFT influencing price. From a traderâs perspective, you can't ask for much more. You just have to be open minded and change with the times. Fight like a mercenary - on the winning side! The author is correct in outlining the 5 strategies that traders relied upon and each one of them marks a specific cycle in the last decade as technology opened access to non-institutional traders. To me, opening time frames is the next step into a swing style where you have to combine technicals and fundamentals to gain an edge. Those that survive will be similar to hedge fund traders in a sense - which I can see across our trading floor now. Slowly but surely the less talented have been thinning out over the months and the core trading group is growing stronger. There is more risk assumed in this strategy but that can be compensated for by adjusting capital allocations per idea and/or hedging with correlated securities to reduce risk. It will be interesting to see how this transpires. If ZH is correct, the markets will see another episode of derisking/panic which will favor the human traders that can capture emotion and fear in a declining market vs. complacency and grind in a rising market. Should that happen, the traders who survived will once again build their coffers before progressing into the never-ending evolution of trading.
That is from a "trading" approach which I do not believe will die. After all traders can always move to another asset class that is in play or foreign markets where there is still edge. From a business model perspective, the prop/day trading firms are definitely in a bind. The one point the author did not touch on is that many of these firms existed purely on earning the spread between the commission charged to the trader and what they are charged by the clearing firm. With trading volumes dropping by the month, margins in this business model have been suffering damage since March of 2009. Couple this with increased regulation, balance sheet capital at risk, and you have an industry in decline, possibly soon to meet its end. No question about that in my mind and I do agree that selling of training courses to neophytes is an unprincipled way to stay afloat when your own bottom line growth from trading has done nothing but compressed over the years.
