>> What more evidence is needed?
Evidence of what? Obesity?
Endicott's genuine advice to young people who want to make it as pro traders
- Thread starter endicottsteel
- Start date
Evidence of what? Obesity?
One of the problems with the retail crowd is trying to find just the right tone to communicate with them. Let me try this again. First of all, no, you don't need math or use math to make money. You need math to optimize what you are doing and to analyze the results. Edges can come from lots of places. You don't need math to find edges, you need data analysis skills to go through data and find the signal from the noise. That's pretty straightforward. Where the math comes in is taking something you think will work and optimizing the parameters. In micro-economics it's analogous to a production function where we want to maximize revenues subject to a given constraint, usually a total cost function. With a little bit of calculus or using the solver function on excel you can find your optimal values. Anyway, I don't want to go deeper into this part for now.
The other part about liquidity, again, going back to simple economics, competitive markets usually don't have excess margin. In fact, the definition of a competitive market as some of you know is marginal revenue = marginal cost. If this condition does not hold, new players enter the market to capture that excess margin until marginal costs go up and equal marginal revenues. In a competitive marketplace, you often hear the term, firms compete on cost. Because when you are in a competitive market, the firm can't set the market price. All they can do is compete on cost and optimize their business such that their marginal costs is lower then their competitors. We see this play out precisely in trading where firms who are able to lower their marginal costs usually capture the market. It's very very difficult to compete in a competitive liquid market if you are the marginal player. And the marginal player is the one with the highest costs.
Less liquid markets have less competition and the signal to noise ratio is better. This means it's easier to extract valuable information. Now, we go back to the production function from earlier. Once we have identified a real edge in this less liquid market, we have to find our optimal condition. This means in plain english, given our liquidity constraints, our risk capital, and edge, what is the optimal strategy to maximize our profits. THIS is the "math" part. It's actually very important. If we can all agree at least on this one part. That in a market as competitive as trading, edges are hard to come by and they are probably relatively very very small and infrequent. This means that over time, to fully capture these excess revenues hidden in the infinite time and space of the markets, the profitable players need to be operating at the most efficient level possible to extract these revenues. That is only possible through a lot of analysis and a lot of math.
No, I don't think a newbie should should start out trading markets that have no liquidity. When I first got in this game many years ago, I worked for the notorious Wall Street firm Worldco. This was at the "height" of the nasdaq bubble in 2000 where all the rage was trading the high flyers on the nasdaq. Our firm did NOT trade nasdaq stocks. We did not even trade large caps. Our niche among the 1000 or so traders we had, was the mid cap space. Not completely illiquid by any means, but on the surface very dull and boring stocks. Avg daily volume 250k to 500k shares a day. While everyone else was trading CMGI and Inktomi and Network Solutions, we were trading names like Williams Sonoma, St. Joes, Brown Shoe, IGT, and PVC. How did that work out for us? We produced more mulit-millionaires then any firm on the street that was not an investment bank. I sat next to guys that pulled down 100k to 500k a day. It took me a while to "buy in" to the concept but when I did my life was changed forever. Now don't get me wrong, this was not even remotely easy. I busted my ass. I got into the office at 6:30 am every day and was the last guy to turn off the lights at night. I spent thousands of hours pouring through time and sales data. But the edges where there.
Good luck.
The other part about liquidity, again, going back to simple economics, competitive markets usually don't have excess margin. In fact, the definition of a competitive market as some of you know is marginal revenue = marginal cost. If this condition does not hold, new players enter the market to capture that excess margin until marginal costs go up and equal marginal revenues. In a competitive marketplace, you often hear the term, firms compete on cost. Because when you are in a competitive market, the firm can't set the market price. All they can do is compete on cost and optimize their business such that their marginal costs is lower then their competitors. We see this play out precisely in trading where firms who are able to lower their marginal costs usually capture the market. It's very very difficult to compete in a competitive liquid market if you are the marginal player. And the marginal player is the one with the highest costs.
Less liquid markets have less competition and the signal to noise ratio is better. This means it's easier to extract valuable information. Now, we go back to the production function from earlier. Once we have identified a real edge in this less liquid market, we have to find our optimal condition. This means in plain english, given our liquidity constraints, our risk capital, and edge, what is the optimal strategy to maximize our profits. THIS is the "math" part. It's actually very important. If we can all agree at least on this one part. That in a market as competitive as trading, edges are hard to come by and they are probably relatively very very small and infrequent. This means that over time, to fully capture these excess revenues hidden in the infinite time and space of the markets, the profitable players need to be operating at the most efficient level possible to extract these revenues. That is only possible through a lot of analysis and a lot of math.
No, I don't think a newbie should should start out trading markets that have no liquidity. When I first got in this game many years ago, I worked for the notorious Wall Street firm Worldco. This was at the "height" of the nasdaq bubble in 2000 where all the rage was trading the high flyers on the nasdaq. Our firm did NOT trade nasdaq stocks. We did not even trade large caps. Our niche among the 1000 or so traders we had, was the mid cap space. Not completely illiquid by any means, but on the surface very dull and boring stocks. Avg daily volume 250k to 500k shares a day. While everyone else was trading CMGI and Inktomi and Network Solutions, we were trading names like Williams Sonoma, St. Joes, Brown Shoe, IGT, and PVC. How did that work out for us? We produced more mulit-millionaires then any firm on the street that was not an investment bank. I sat next to guys that pulled down 100k to 500k a day. It took me a while to "buy in" to the concept but when I did my life was changed forever. Now don't get me wrong, this was not even remotely easy. I busted my ass. I got into the office at 6:30 am every day and was the last guy to turn off the lights at night. I spent thousands of hours pouring through time and sales data. But the edges where there.
Good luck.
Is this another goodboy alias?
Newly created alias... just happens to have access to Goodboys photos....
Durf often refers to himself in the 3rd person...
and NO, it is not Richard Gere or remotely resembles him, give it a rest Dave...
Just move on, accept you have been banned and are not welcome on ET...
Mav, are you still in prop trading? If so, what markets are you trading?
A dirty little birdy told me mav is actually a blown out failed trader...how's that for communication issues with retail?
You better stop talking to birds. And better up the dosage of Clozapine.
good insight Mav. I concur 'game selection' is so important. i used to watch the DOM & T&S on very liquid instruments just like the retail crowd. Most retail are trading things like flat price ES futures & Oil where it is very difficult to gain an edge using DOM & T&S. If they applied their analysis to less liquid instruments they could more easily find an edge. I can see why you targeted mid caps as there is enough volume there to do a lot of spins using your edge, the less liquidity the less spins possible. In the most liquid instruments it is very difficult to lean on size prints/volume clusters. I was looking at penny stocks the other day and there are some really inefficient price moves. The big boys and algos are not so interested here as they cannot get the size off to make it viable for them or there is easier meat for them in other instruments for the games they play. GL.
This retail crowd moron still doesn't get the point of learning maths and stats, if that is not needed to succeed in trading, as you eventually admit. This is not, and will never be, a 2+2=4 endeavour.
I don't know about illiquid stocks, I don't trade even the liquid ones. Maybe it takes a harvard graduate to figure that the bids are overwhelming the offers on such stocks' dom, I can't tell. Does it takes a phd to draw a resistance on such stocks, Sir?
I can do that on my own on the 6E, the GC or the ZB, and watch what happens around it and act accordingly.
I also know that the best maths-computers-scientists ever gathered for a trading purpose failed miserably with Long Term Capital Management, theatening the whole economy.
I don't know about illiquid stocks, I don't trade even the liquid ones. Maybe it takes a harvard graduate to figure that the bids are overwhelming the offers on such stocks' dom, I can't tell. Does it takes a phd to draw a resistance on such stocks, Sir?
I can do that on my own on the 6E, the GC or the ZB, and watch what happens around it and act accordingly.
I also know that the best maths-computers-scientists ever gathered for a trading purpose failed miserably with Long Term Capital Management, theatening the whole economy.
I love how when you say on this board you need to understand math, the avg ETer assumes only Phd's know math. Hahaha. Come on guys, math, not string theory. I never said you needed a Phd or even a Masters. You need to know MATH! For god's sake has our public school system failed us so bad that rudimentary skills in math are not being taught anymore? LOL. And please, lighten up on the LTCM bs, Every effing deadbeat on this board goes to them as their throwback as to why counting past the number of fingers on your hand is not necessary as LTCM surely proves. I love ET!