From $5k to $50k

[Chubbly]

You should not compare trading results to hedge fund results. They're dealing with hundreds of millions and billions, very different from a 50k to 1 million account. Hedge funds can earn 10% per year and live nicely off that, a trader can't. On the positive side, smaller positions are much easier to put on and off.

That wasn't the the point I was trying to make. Maybe I could have used a better example.

My point was be consistent over time. If you have a system that almost guarantees you 2% a month you will become rich. It just becomes a matter of time and scaling up (and not taking massive losses)
The problem is retail traders is they all think they can take 10K and be millionaires in a year if the start off by trading 5 contracts of CL

Most retail traders are losers, this is a fact. Sure there are guys like Schizo who can pull it off but he is not an average retail trader

 

[Chubbly]

@lawrence-lugar @Chubbly

Out of curiosity, I wonder if you guys don't mind sharing what this light bulb was. I don't imagine that this will mean giving away an actual edge, so I hope that it is appropriate to ask.

I will likely get crucified by people on ET because I go against what most do here which is similar to what the OP tried and will fail at if he continues his challenge.
But retail traders on ET love it because they feel it gives them hope that if someone can pull it off then they can as well. Foolish...

First go and read those 11 points I posted a few pages back. They were posted by his mentor but I came about the same conclusions after years of frustration.

I was only successful trading forex when I actually reduced my leverage, most brokers offer 100:1 that is way 2 high, think of going to 10:1 or 5:1 and eventually to 1:1. Oanda is a broker that you can trade at 1 penny a pip

Money Management is the most important thing you can do because you have 100% control of it. You have 0% control if a stock/currency/derivative goes up or down. Sit and think about that for a long time.
MM is 1000x more important than doing T.A. I actually never look at charts. T.A is for fools who think they can predict the future. They will claim they that predicted moves. Guess what a price can only do 2 things, go up or go down so someone doing TA will be right at least 50% of the time. People remember the times they were right and suppress the memories of when they were wrong which skews their thoughts.

If you use TA and are wrong 50% or more sit and think about that for a very, very long time.

Draw enough lines on a chart and you will see price react to them

I stopped trading live for 3 years and only did research. I read hundreds of research papers here https://www.cxoadvisory.com/
It was hard work, most people here won't do that. Instead they will stare at the Emini 5 min chart all day seeing if they can predict the future. Foolish....

As I said I spend 95% of my trading day researching and backtesting. Only 5% entering/exiting positions.

I found the most success in derivatives as I found they are sort 3 dimensional with price and time, buying and selling puts and calls but I spent years learning and fully understanding them before placing 1 live trade.
I actually do a lot of trading either ATM or ITM and rarely OTM, maybe 5% OTM is as far as I go

VIX is where I was found most success in derivatives. Look at it closely, study the term structure. VIX really only goes from 10-30 the vast majority of time. Study this and think of ways to exploit this. There are so few instruments where you know what it's boundaries are.

ET feel free to argue with me. But I make money day in and day out doing 1-4 trades a week

 

[d08]

Opportunities are not consistent, sometimes you make a lot, sometimes you make nothing or lose. 2% on a small account will take forever to reach real numbers. Why wouldn't you scale up right from the beginning?

I do agree that most newbies are completely unrealistic. Then again, if you know what you're doing, you can make hundreds of percent trading multiple strategies and managing your margin accordingly.

Staring at charts is not foolish, some of us get ideas by just observing, many of the best inventions in the world have been made by simply observing and thinking - not reading the works of others.

 

[Chubbly]

. Why wouldn't you scale up right from the beginning?

Because you have to have a good idea of your win/loss rate in order for you to survive to continue making trades.
You can't control an event like what happened in Linked yesterday
Study the Risk of Ruin and scale up accordingly
http://www.automated-trading-system.com/resources/risk-of-ruin-and-drawdown-calculation-tool/

 

[Chubbly]

The vast majority of retail traders are not traders, they are gamblers which is what the OP was doing
http://business.financialpost.com/news/addicted-to-trading-when-online-investors-become-gamblers

 

[Levels]

But retail traders on ET love it because they feel it gives them hope that if someone can pull it off then they can as well. Foolish...

Yes, I agree with this. Someone else's results really have no bearing on any other person. Yes, most traders will lose, but just because many lose doesn't mean one can't win, and, just because one is a winner, doesn't mean others can follow in his footsteps either.

I was only successful trading forex when I actually reduced my leverage

Just goes to show how amazing it is when you take the money aspect out of trading, and hence out of the decision making process.

Money Management is the most important thing you can do because you have 100% control of it. You have 0% control if a stock/currency/derivative goes up or down. Sit and think about that for a long time.

Couldn't agree more. Poor money management can make the greatest edge lose you money, but it can also take the absolute shittiest entries, getting always into the wrong direction, and keep the losses minimal.

T.A is for fools who think they can predict the future.

This isn't my conclusion, but it really doesn't matter how anyone trades since everyone sees something different.

People remember the times they were right and suppress the memories of when they were wrong which skews their thoughts.

This is very true.

VIX really only goes from 10-30 the vast majority of time. Study this and think of ways to exploit this. There are so few instruments where you know what it's boundaries are.

This is very interesting and I do see the significance.

Thank-you for an incredibly useful post, and for actually answering the question about what the light bulb moment was. (At ET, there appear to be so few answers to actual questions, but lots of tangential crap) I certainly do agree that if its edge vs. MM, MM is king. To make money though, you of course need both. Your post certainly shows you have both.

 

[Chubbly]

Thank-you for an incredibly useful post, and for actually answering the question about what the light bulb moment was. (At ET, there appear to be so few answers to actual questions, but lots of tangential crap) I certainly do agree that if its edge vs. MM, MM is king. To make money though, you of course need both. Your post certainly shows you have both.

Thanks, but I agree with you. There is way 2 much crap posted on here and a lot of keyboard heroes. I thought I would find people who would intelligently discuss. I won't claim that my method is the only way of making money because I know it is not, so I constantly study and I always have a couple dozen paper accounts on the go where I do walk forward testing as well as many backtesting tools.

There are a million ways to make money in the markets. The irony is that they are all very difficult to find.
Jack D. Schwager

It is not impossible to make money staring at 5 min charts and betting you can take 5K to 50K. It is just much less probable

Think about this. With absolutely no TA I could enter 1000 total random positions, 500 would immediately become winners. As I said if you do TA and lose more than 50% of the time there is something seriously wrong with your understanding of trading and MM

I will stick around a bit longer to answer questions but I am thinking my time on ET is coming to an end soon

 

[Levels]

Think about this. With absolutely no TA I could enter 1000 total random positions, 500 would immediately become winners. As I said if you do TA and lose more than 50% of the time there is something seriously wrong with your understanding of trading and MM

This statement is far too much of a generalization. R:R is a very necessary component with trading (as I'm sure you know). A trader can be right only 40% of the time and still make money with 1:3 risk to reward ratio. This of course requires very stringent money management, as you pointed out. First you have to have the discipline to take the loss when you should, and to also hold out for the profit. Then you of course also have to have this stat well tested.

I find that many people who do an analysis of TA trading do so with random entries. But TA traders never enter randomly (at least not the profitable ones). As you said in your example that the VIX ranges in a 10-30 range, TA traders exploit this as well. If they simply stick to trading a range, with proper money management, the results should be much better than random. But I am not a statistician, nor have I done the research myself. But I have seen articles that try and prove that TA doesn't work, but their input is always random entries. What needs to be tested are entries that are not random, dare I say, entries from a successful TA trader. (but of course those are difficult to find, nor would they care to be tested just to prove a hypothesis)

On top of this, the TA trader, in addition to spotting areas where to look for a trade, will also use other factors that would tell them to initiate a trade or not. (ie. Although price is at the top of a range and common wisdom would dictate shorting, there is something else they use to tell them not to short here, or, something that tells them a short is more than likely to occur. This context is once again difficult to nail down for testing purposes, so you won't find any studies, but I do believe that its what separates successful TA traders from those that are not successful)

So for a trader to become successful, he needs proper money management, he needs an edge, he needs to read context properly, etc. All elements need to be present to make money, but remove just one and you lose money. Those that can figure out why they are losing money stand the best chance of making it. And I believe that this gets us back to what you were saying about the light bulb moment, and also falls in line with what @i am nobody was saying.

 

[Chubbly]

This statement is far too much of a generalization. R:R is a very necessary component with trading (as I'm sure you know). A trader can be right only 40% of the time and still make money with 1:3 risk to reward ratio. This of course requires very stringent money management, as you pointed out. First you have to have the discipline to take the loss when you should, and to also hold out for the profit. Then you of course also have to have this stat well tested.

.

You are getting closer. Yes, you can have a system that wins 90% of the time and still loses money, you can also have a system that wins 10% and makes money. What is the difference here? it is MM

I posted a system in another thread that has random entries, using absolutely no edge, just enter first week of the Month on SPX and showed it made money (a lot of money in fact) The only thing I did was MM, it was a purely mechanical system that I wrote. If you look at it closely you can decipher what i did as all entry and exits are there.

Here is a good exercise that I used to do with forex to sharpen my skills. Take the 32 main pairs. Randomly buy and sell so you are 16 buys/16 sells.
Now manage the trades as you see fit, do whatever it takes but NEVER EVER look at the charts!! only look at the total P/L

Do this over and over and over and over until you realize that you can become profitable using only MM. Remember you will be immediately profitable on 50% of the positions by doing absolutely nothing.
The first few times are hard. But you have to bend your mind and think differently.
NEVER look at the charts, human brains are wired to look for patterns.

The results will be enlightening and profitable for those who are willing to take on the endeavour.

 

[Chubbly]

One more thing for the TA people. Consider this, Steve Nisson is considered to be the father of candlestick analysis having brought them to N.A and written many books about it.

Yet he does not trade.....

You would think the man who is the master of candlestick patterns would be able to use his knowledge and use the markets like he is raiding a piggy bank

Yet he does not trade.....

If the master of chart analysis does not trade what hope do you have?

This was one of the critical pieces of information that I learned and I stopped using charts and then I became profitable