From losing money to taking money from markets

G

gmst

There are multiple steps that are needed for anyone to move over from the side of losing money to making money. This will be a very short thread from my side, I will write them down here real quick my observations and leave after that.

1. Get a working system - Could be v. simple as a moving average crossover - something like 50d crossing over 200d or so. Could be buying selling high/low of last 40 days or 80 days. Do it over multiple markets and you will have a winning system. Or could be complex stuff like reversals, momentum, range studies, market internals etc. Or, could be super complex - an automated market making system, vol arb system etc. Point is get a working system in place. Use edge test, test the model over other markets, walk forward, backwards etc. to make sure that system is just not curve fit rather captures a real market behavior.

2. To get the working system in place, you will need to model the market using a tool. Multicharts, Ninjatrader, TS, Amibroker, Matlab, Excel are obvious choices. OK for a start. Get a tool, lean its intricacies and start playing with data.

3. Get money management strategy - choices are a fraction of Kelly, Optimal f etc. If you are traditional advice seeker, go with 2% risk a trade rule - which I consider to be sub-optimal.

4. Alright, now a working system has been developed. Start trading it without modifications and don't trade anything else. This step is important. I have been successful in first 3 steps, but have failed miserably step 3. I had my first system working from Q2 2010, had I been trading it on a real account, my account would have grown at least 5x times by now.

5. Keep developing more systems. Start working on portfolio management - a system of systems over multiple markets is the holy grail. Challenge would be how to implement multiple systems over a single market and then how to implement multiple systems over multiple markets. Next challenge would be how to decide which systems-markets to trade and which to cease trading.

6. Finally, move to next level - co-location, data farms, opm, customized developed software etc. etc.

I have covered ground till step 4 and am currently in step 5. However, I never made any money, because I never followed step 4 without fail. That has been my sore point.

Finally, learn from others failures and successes. There are many prominent wannabe traders on this board who have been successful at times, but have not been able to move to a professional always successful level. They have faltered at one of these steps. Just analyze these steps, and success is guaranteed.

Finally finally, :) the toolset that is needed for success in this businesss is screen time, statistical analysis of markets, programming (at least easylanguage), risk appetite, determination, perseverance etc. Good luck to all.
 
Another important point. I am convinced every wannabe trader upon think deeply about themselves will realize that they are actually getting what they truly want from the markets. Neke wants excitement and mass-following by betting big, Lescor wants silent money and success, Frosty wants to program and auto-trade, Dustin wants to make money by trading stocks. All these 4 examples I have taken have been involved in the markets for more than 10 years, yet 2 of them have become professional successful traders, whereas other 2 are unsuccessful in trading. The reason is these unsuccessful traders want attention and auto-trading more than they want to make money silently. No disrespected is intended here - I used names just to illustrate Ed Seykota's point as it applies to different traders.

So, for anyone who wants to become successful in markets, he has to want to truly make money from the markets, otherwise he would be just getting some other need fulfilled from the markets.

Below from Mkt Wizards - From Ed Seykota interview:

Q) What can a losing trader do to transform himself into a winning trader?
A) A losing trader can do little to transform himself into a winning trader. A losing trader is not going to want to transform himself. That' s the kind of thing winning traders do.

Q) Don't all traders want to win?
A) Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.

I think that if people look deeply enough into their trading patterns, they find that, on balance, including all their goals, they are really getting what they want, even though they may not understand it or want to admit it. A doctor friend of mine tells a story about a cancer patient who used her condition to demand attention and, in general, to dominate others around her. As an experiment prearranged with her family, the doctor told her a shot was available which would cure her. She constantly found excuses to avoid appearing for the shot and eventually avoided it entirely. Perhaps her political position was more important than her life. People' s trading performance probably reflects their priorities more than they would like to admit.
 
You don't have to be a systematic trader to be successful. You don't have to be so deep into analysis and left-brain oriented. *It can vary from one trader to another what makes them successful.* For me it is very simple, find the trading theme and then spend the rest of your time with money management/position sizing and all that boring stuff like cutting losses and letting profits run. I mean in the 80s and 90s it was the greatest bull market of all time for equities and more specifically tech, telecom, and small cap growth. You didn't have to be the brightest bulb in the bin to have made money in stocks during that era. In this decade the theme has been all about bonds of all stripes and colors - from governments to munis to emerging markets and especially since December 08 junk corporates.
 
0007Arb - you are correct. Thanks. I just wrote my experiences while trying to become a systematic trader. I do trade discretionarily + systematic.
 
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