Gems: Rs7

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TriPack

Note: As all the threads in the GEMS series, this thread will contain hand picked and minimally edited posts direct from the author, in this case RS7. I hope you gain as much from this series as I have gained.
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Working with a large firm.....over 1000 traders....I can tell you that in equities trading, the very best traders averaged about 11 cents per trade when the market was trending.(Sure, there was a period we were doing better than 50 + cents, but that was an abberation. Just buy Amazon and Yahoo and the rest every day).

Now at that time, stock prices were substantially higher. Today those traders are closer to 2+ cents per trade. The actual dollar amounts are really irrelevant. If a trader has 100k to trade, or 10mm, they are going to use only what they feel is justified. So the return on those numbers can't be very accurately stated. NO ONE uses all their buying power all the time. In todays market, they are all happy (IMHO) to achieve 1% per month relative to their total allowable buying power. Of course 2 cents on an $8 stock is about equivalent to the previously mentioned 11 cents when the same stock was at $40. Now the question becomes.....how much does it COST to make the transaction? Well about 2 cents is probably a good guess. So net profit? Zero sounds about right. So how do we make money? Guess what....the good traders saved for this rainy day. Summers especially have been bad times to trade anyway.

Having said this, I emphasize that this is EQUITY trading only. Is there opportunity in basket trading? Futures? Index tracking stocks? Option strategies? I certainly hope so. And I believe so, which is why I intend to go that route. If I am wrong, I will have to wait out the market. And yes, there is an argument to be made that we are once again in a "trending market"....(trending down). But as I speak, the dow is down 200 points (10am eastern). Is there anyone who doubts we can close positive today? Down 500? Rough market!

By the way...these results are for daytraders only....including overnighting limited to single night holds.

 
I will say, however, that I have been trading for the "gaps" as well as daytrading for over 15 years. And almost exclusively overnighting for the past 6 years. When it works, it is great. I made a lot of money when it did. I also gave back a bunch in the past year. Fortunately, I realized early on that it was working less and less over that time, and I cut back substantially. I traded intraday more and overnight less. If not for the daytrading, I would have been hurt pretty badly.

The thing is, in a trending market, you play the momentum. In a choppy market, as we have had, you have to take what the market gives you.....which isn't easy. Lots of work, lots of concentration. Small gains, smaller losses (hopefully).

When overnighting was working, I could withstand 50K per day losses knowing that I would make up for them "tomorrow". Now I risk very little on overnights. Two years ago, I thought nothing of taking 2-3 million (buying power) home overnight. These days, 500k is heavy for me. And most of the time I go home flat. It is true that I have not given great emphasis on technicals in quite a numer of years. Perhaps a mistake. But I have devoted much study to what works and what doesn't. Relative strength and momentum were working for years. That has ceased to be the case.

As far as averaging down (or up in shorts) that are against you overnight, seems to work lately....true....but there is a rather easy explanation for that (which is too many people are doing the same thing). So why bother? Why not be flat overnight, and buy the first down move when being long was your plan? (opposite on shorts). That way you don't have to make up your losses in your original positions?
 
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Originally posted by darkhorse
short term traders are better off exploiting the high probability event and stepping out of harms way. a precision edge dissolves after x amount of time. sticking around is for the positional crowd
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I agree for the most part...however....I have always believed that just as you should have a reason to get INTO a trade, you should have a reason to close the trade. Now for some people it is a profit (or loss) target. For some, it is perhaps time, whatever. But IMHO, if there is no reason to get out, why get out? Let the runners win (am I the first to say this?)
 
Let me clarify.....we WERE NOT going for pennies. Personally, my average gains and losses were closer to about a dollar. Better months, less losers, better gains, etc. But at the end of the day (month really), the totals ended up being as stated. This included some home runs and some disasters. They tend to even out. One morning I came in long a stock called Vertical Net. (VERT). It opened up about 9 pts. I sold when I was up 12. Home run? I thought so, but was disappointed I didn't have the patience to hold longer. It was up 70 points that day. Today? Last I looked it was at about 50 cents!!! At least I wasn't an investor!!!!

Oh, and my (our) average holding time was WAY more than 20 minutes.


Fortunately buying power seldom was a factor for us recently. Not because it was unlimited, just because there were less irresistable positions. So trading lightly allowed longer holds on winners. When I used to hold 40 or so positions, in all honesty my p&l was my best alert to when to focus on a position that was deteriorating. Now holding a handful..say 8-10 positions, usually less, it is easier to see and "feel" when to exit a particular trade. Boredom should NEVER be a factor. I have seen so many traders get impatient because they were ready to have lunch, play golf, or just want to stop concentrating. But it's a job! Those reasons (excuses) were for babies! Someone here said that trading is "the hardest way to make easy money"..a great statement. Unfortunately it attracts a lot of immature "traders". Stay focused. It is a real job.
 
I really have been trying to avoid using actual numbers in this forum. I have expressed returns as percentage of X, etc. And I don't want to get real specific still. However, let's say that I come from a neighborhood where you would expect to lose 40%. Now obviously, either something I do works in that neighborhood, which keeps me stuck there, or......I should trade a smaller account and get a ten times better return. But knowing that I started smaller and still never could get 1% a day, let me make some assumptions about this situation.

Here is what I know: I have traded in a room with a guy who makes money seemingly every day. But he never holds a position for more than 2 minutes. He scratches on most trades. He has never had a one point gain or loss. He goes home happy to be positive. He has said to me, and this is pretty much verbatim.."where else can I make 30k a year"? And the truth is, he is right. He has exceeded his expectations of himself. He is the Peter Principal personified.

So how come I make and lose more in a normal day than he makes in a year? Am I smarter? He kills me in his winning percentage. Both percentage of trades, and percentage of winning days.

Why then is he not trading in my neighborhood? He trades 500-1500 shares one position at a time. I have often had 40 or more 5000 share positions on at once. He has never taken a position overnight. I have made and lost the big money on overnights.
OK...I will end the suspense right here. The real difference is FEAR.

He is afraid to lose, so he doesn't. I know losing is part of trading, so I do it all the time. (not that I am happy about it).
It has been said here at ET, as well as everywhere else in the world of trading that you HAVE TO LOSE TO LEARN HOW TO WIN.
Sad but true. Also, it has been said that you can't trade scared. Also true.

I have worked with lots of traders for lots of years. Traders need a certain mentality. FEAR is the limiter. And understand that being FEARLESS is different from being RECKLESS!!

Now... lets say I could make 1% a day trading 30k (which I admit I don't think I can). So now I am making over 200% a year, which grosses me 60K. I am stressed out all the time, need to win every day, and still am not paying the bills.

On the other hand, I can make my measily 1/10th of 1 percent per day on the hypothetical 5mm, and get my 20% return. I don't sweat the money every day. I can take lots of losses, and yet.....what is 20% of 5mm? I CAN PAY MY BILLS!!!!!

Certainly I understand that everyone has to start small. It takes TIME to learn to trade. Learn from mistakes.

Why risk big money even if you have it to learn on? No reason whatsoever. Everyone loses when they start. Everyone! Yes, there is such a thing as beginners luck. But believe me, you are actually better off losing early in your career when trading small. If you get lucky and make money off the bat, it is luck, and you haven't learned a thing. So when your luck runs out, you have no real experience to fall back on.

You will know you are a trader when you get to the point that when you lose, you know from experience that it is just a temporary setback, and you will make money in the future just as you have in the past. At this point, you can step it up. You don't have 5mm to trade? Just 30k? Let it grow. Know when to be heavy. Know when to be light. Understand risk. Understand money management. The account will grow. People will give you money to invest. One way or another, you will grow as a trader. Just get past the FEAR! How long does that take? Anyone who says less than 3 or 4 years is a loose cannon or a liar. Trading is an excercise in self education. It takes that long. If you are dedicated, you will find a way to get through that time. It isn't easy. Nothing worth doing ever is. And there are very few careers as financially rewarding.

I wish I had the wisdom to impart to you all on how to make shortcuts. There aren't any I know of. Yes, there are some natural born traders. I know some. I am not lucky enough to have been born with that kind of head. They are a rare breed. Out of all the traders I have met in my time (thousands), there is only one I know of who was just absolutely born to trade. He can remember every trade he ever made. I get up in the morning and I don't remember what positions I am still holding from yesterday. I see stuff trading pre-market on CNBC, and I ask myself "do I have that?" So obviously I am no rocket scientist. Just a guy that put in my time. How many Bobby Fishers are there on the planet? Us mortals have to pay our dues.
 
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Originally posted by peter77
rs7 is dead right about fear being a limiting factor but it also part of the survival instinct.

You have to know when a certain size will change your psychology. I make competely idiotic moves when size get too big, so I'm stuck at 30K.

The penny ante stuff is OK for some of us.
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Peter....you are right. It is all about psychology. And overcoming the fear is just that.

And don't think that it is "penny ante stuff". It is all relative. I WISH I could have made 3-5 hundred a day my first couple of years trading. What I did say is you can and will grow over time. It just happens. You may think you are "stuck". But like playing a musical instrument, learning a foriegn language, doing a sport, or anything else that takes "practice", you start to exceed old levels. You "break through" so to speak. You have your revelations. You jump to another level. We have all experienced this in some aspect of our lives.
 
I think it is determined by how many sectors you want to trade in.
In my case I will generally trade in

Techs..
Broken down into several categories such as semis, software, networking, internet, fibre optic, alternative energy, etc., etc.
Then we have:
Banks
Brokerages
Oil Services
Drugs
Biotechs
Retailers

So right there you have 7 groups, and the techs need to be subdivided into at least another 5 or more subgroups.
There are so many groups. There has to be a limit because of the size of the screen and the size of my brain. I could look at defense, consumer, transportation, metals, homebuilders, and on and on. But I leave that to others. There are just too many. I stick to where the volume is. When it changes, then I will too.

So on my screen, I will have about the 10 or so thickest trading stocks in each group. (More semis than brokerages, and so on). So that becomes better than 120 stocks on my screen. I really have more...but you get the idea.

Now of these, there are a significant number of stocks I have never traded, or that I trade very rarely. Then there are the usual suspects which amount to about 30-40 which I trade frequently. Of those, I do probably 90% of my trades in the same 15-20 stocks. (which change over time) But I like seeing all the stocks because even though I don't trade most of them, I find it helpful to see how the stocks I do trade are doing relative to their group, and how the group is relative to the market.

No such thing as too much information. I have software that scans all the stocks I have ever traded searching out the parameters I put in. Occasionally this will point out some obscure (to me) stock because of exceptionally high volume, or movement, or whatever. This kind of software is commonplace.

Seeing all those stocks at once also gives me a better "feel" for the market.

Oh yeah, I keep some indexes, s&p futures, market and up down voume, tick, trin, and most important, the TIME. That way I have one sure thing .... I know it will go up from 9:30, and is a major short at 12:59 (but you gotta cover right away)
 
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Originally posted by catcando
. Let me put it more directly. I am considering going full time with 30K and plan to make a high 5, low 6 figure income after the first several months of trial and error. Is this realistic? .
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I don't know what your backround is. I was a stockbroker for a few years as were a lot of daytraders. Whether this was an advantage or disadvantage can be argued. Then I was an on the floor market maker for several years. Again, I don't know if this was a help or hinderance.

I went to work as a daytrader for a trading firm in 1996. I started with 125k (of their money). I held my own, and was raised to 250k in a short time. My income for that first year (which was really 9 months, was 16k. My next year (a full year) was better, but still less than 30k. My best years my average got up to about 300k+. But by this time I had a lot more buying power, and a cooperative market. In 2001, I had an ok first half, and a losing second half. My total income was less than 100k.

So I believe there is potential, but is it realistic to make the kind of money you are talking about in the first several months of "trial and error"? I truly doubt it.

Now there are people that make posts on this site (Treykool comes to mind)....that are super stars right away. I work in a firm with over 1000 traders. I know the stats. More people than not don't make anything their first year, and their first two in many cases. And they are trained. And they have way more than 30k to work with. They learn from their mistakes. They have rules to follow (which IMHO are imposed not so much to help them make money, but to help them from losing).

Now I consider myself a better than average trader. But in this market, I am still struggling. I am just getting by, and the stats say I am in the top 20% of my firm. I will in all likelihood be going to another firm very soon in which I will be able to trade different styles and fall back on what I know from my days as a Market Maker. My wins will be smaller (% wise), but my success rate should be much greater. But this will involve some very sophisticated strategies, which cannot be implemented without being a BD or MM. I could not do this from home without a HUGE amount of money, and even then, because different rules apply, I doubt the strategies would pay off after requirements (margin) and commisions.

I don't want to discourage you. I think trading is the greatest way to earn a living. I just think you need to be realistic. You need to understand the learning curve can be long and not particularly steep. Plan on not making a lot of money for a while. Don't get into financial straights. Be patient and your time will come.

I know you will hear different. I know from reading posts here than just about everyone but me makes a ton of money right away. I just wonder if this is a site that attracts only the born to win trading geniuses. Hope you are one of them. I was not, am not, and yet am at the top of my firm, which is well capitalized and staffed with well trained traders. Many of which have been around for 15 years or so.

I wish you all the best of luck. I hope that the 30k is not your life savings. In any event, go slow, learn from your mistakes, and take your losers quickly. Better to lose a little on what later turns out to be a winning trade than to get into the wish and hope and pray mode. You can always get back into at trade. There is always another trade. Don't stay married to the losers!
 
I started this thread yesterday. I had my own thoughts about it, but was curious what I would read in the responses.

I am surprised I haven't seen one particular word used...a word I expected to see (unless maybe I missed it...) That word is BLAME. It seems like the most superstitious guys I work with, or at least the ones that make it public, seem to BLAME their loses, bad luck, whatever on external factors.

Kind of sad to me. A particular trader walks by, and these guys freak out that he is "kinahurah", "moosh", "jinx", whatever.
Sort of freaks me out that these "jinx" guys get ostracized just for breathing. Usually they are the newer smaller traders that need their confidence BOOSTED, not torn down.

Trading is such a mental game. Confidence is so important. Seems so unfair that a new trader gets labeled by big traders as "cursed"......everyone starts somewhere.

So to me, it is just a lame way to lay BLAME on others. Even when they lay blame on inanimate objects, it becomes someone elses fault that the object was made visable, present, or whatever.
 
here's a little something that seems to work more times than not.....

a stock is indicated up pre open...say it closed at 30, and is indicated 31-31.5....then it is raised to 32-33, then it is raised again.....at this point, put in a limit order to sell short at say 33 and change. Somewhere in the middle of the last indication. Most of the time, it is the specialist that was right the first time, so the stock will get to the original 31-31.5 indication.

Inverse on down indications....if it keeps dropping, buy and close position when it approaches original indication.

Doesn't always work, but does more than not. If you are wrong with these trades, you can be very wrong, so keep your stops tight!!!
 
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