The grail really is to not trade at all most of the time. There are 10 grand slam fat pitch over the plate trades a year. If you only take those, you will have outperformed nearly everyone. Reason why most fund managers underperform their indexes is because they are always involved and too big to move. I recently read an article on trading regarding trader statistics and it showed that profitable traders only really make 10% of their potential over the course of their career because of commission, slippage, and emotional loss fatigue. Imagine a trader who has traded 500 million shares over a decade which is average for a professional prop daytrader. He has paid someone $2.5-$3.0 million in fees.
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Holy grail of daytrading
- Thread starter Lights
- Start date
Quote from Lights:
The grail really is to not trade at all most of the time. There are 10 grand slam fat pitch over the plate trades a year. If you only take those, you will have outperformed nearly everyone. Reason why most fund managers underperform their indexes is because they are always involved and too big to move. I recently read an article on trading regarding trader statistics and it showed that profitable traders only really make 10% of their potential over the course of their career because of commission, slippage, and emotional loss fatigue. Imagine a trader who has traded 500 million shares over a decade which is average for a professional prop daytrader. He has paid someone $2.5-$3.0 million in fees.
While I wholeheartedly agree that one needs to be selective in taking trades (in my opinion, the kinds of imbalances between the various sides of the market which lead to profitable trades on the timeframe I trade aren't formed in an instant), I have not found a correlation between the amount of time in between trades and the trade outcomes.
If I could identify my 10 best trades in advance, I'd be doing so, but I don't really know of any way to do that consistently. That might just be a failure on my part, but I think it's simply a feature of any trading strategy. Even if your strategy only triggered 10 trades per year, I highly doubt that all 10 would end up winners.
Quote from logic_man:
While I wholeheartedly agree that one needs to be selective in taking trades (in my opinion, the kinds of imbalances between the various sides of the market which lead to profitable trades on the timeframe I trade aren't formed in an instant), I have not found a correlation between the amount of time in between trades and the trade outcomes.
If I could identify my 10 best trades in advance, I'd be doing so, but I don't really know of any way to do that consistently. That might just be a failure on my part, but I think it's simply a feature of any trading strategy. Even if your strategy only triggered 10 trades per year, I highly doubt that all 10 would end up winners.
A trader who has successfully traded long enough can easily identify the fat pitch but they are rare which is why I say 10 winners a year. Most trades that an active trader takes have poor risk/reward and they know it but still participate on a nearly hourly basis because of the fear of not participating in a big move. A trader who can let go of a big move where risk/reward was not favorable will outperform nearly everyone in the long run. Also, many traders bypass an easy trade because they are emotionally destroyed on recent losses from overtrading. Another thing is commission and slippage. Traders give up millions over a decade on over trading.
Quote from logic_man:
While I wholeheartedly agree that one needs to be selective in taking trades (in my opinion, the kinds of imbalances between the various sides of the market which lead to profitable trades on the timeframe I trade aren't formed in an instant), I have not found a correlation between the amount of time in between trades and the trade outcomes.
If I could identify my 10 best trades in advance, I'd be doing so, but I don't really know of any way to do that consistently. That might just be a failure on my part, but I think it's simply a feature of any trading strategy. Even if your strategy only triggered 10 trades per year, I highly doubt that all 10 would end up winners.
There are simple indicators that work 100% of the time. ie Mcllellan Oscillator thresholds on big market corrections. This is one of quite a few that have high probabilities but extremely rare. But if i can find conditions where i only trade with even a 70% chance of winning, I'd outperform my own personal trading history threefold. Oftentimes traders will overtrade and try to frontrun it fearing they will miss out and the trade just goes against them another few days for 20% loss and wiped out on margin or he'll make back an unrealized loss and cover, again overtrading and miss out on the big move cos of emotional trauma.
Quote from Lights:
A trader who has successfully traded long enough can easily identify the fat pitch but they are rare which is why I say 10 winners a year. Most trades that an active trader takes have poor risk/reward and they know it but still participate on a nearly hourly basis because of the fear of not participating in a big move. A trader who can let go of a big move where risk/reward was not favorable will outperform nearly everyone in the long run. Also, many traders bypass an easy trade because they are emotionally destroyed on recent losses from overtrading. Another thing is commission and slippage. Traders give up millions over a decade on over trading.
I think we might end up having to agree to disagree here. I simply don't think the market works in such a way that anyone could identify 10 "fat pitch" opportunities and hit home runs on all 10. Simply trading less doesn't eliminate all uncertainty from trading strategy.
What would help convince me is if you could point to one or two well-known traders who have actually accomplished this.
7 out of 10 I can believe. 10 out of 10, consistently, doesn't seem realistic.
I'm fear i couldn't identify the slam dunk trades if i wasn't making at least some smaller trades which allows my mind to feel out the market. Perhaps for people like me, an alternate Holy Grail would be to maximize buying power to the 10 slam dunk trades while minimizing buying power for the more crappy trades. Not sure if I wasn't hitting some buttons, i would be able to just sit back and not trade for 5 weeks and then go all in when i finally saw the golden setup. My mind might be stuck on day time TV or Sports or something if i went that long without trading.
Quote from silk:
I'm fear i couldn't identify the slam dunk trades if i wasn't making at least some smaller trades which allows my mind to feel out the market. Perhaps for people like me, an alternate Holy Grail would be to maximize buying power to the 10 slam dunk trades while minimizing buying power for the more crappy trades. Not sure if I wasn't hitting some buttons, i would be able to just sit back and not trade for 5 weeks and then go all in when i finally saw the golden setup. My mind might be stuck on day time TV or Sports or something if i went that long without trading.
Billy Beane was featured in the film Moneyball who proved he could win big with a team payroll 1/4th of the NY Yankees just making statistically probable player and coaching decisions at opportune times. I work for a stat arb firm and realize I was trading blind for the past 5 years trying to use "the force"
Quote from logic_man:
I think we might end up having to agree to disagree here. I simply don't think the market works in such a way that anyone could identify 10 "fat pitch" opportunities and hit home runs on all 10. Simply trading less doesn't eliminate all uncertainty from trading strategy.
What would help convince me is if you could point to one or two well-known traders who have actually accomplished this.
7 out of 10 I can believe. 10 out of 10, consistently, doesn't seem realistic.
By reading your posts i conclude that you have a lo-o-ong way to go.
Quote from ocean5:
By reading your posts i conclude that you have a lo-o-ong way to go.
And you are?
Your comment is completely substance-less. Why do you conclude that? Come on, "thrill me with your acumen".
Again, as I said to the original poster, show me someone successful who's talked about his trading strategy as being aligned with what this thread is claiming.
Quote from Lights:
Billy Beane was featured in the film Moneyball who proved he could win big with a team payroll 1/4th of the NY Yankees just making statistically probable player and coaching decisions at opportune times. I work for a stat arb firm and realize I was trading blind for the past 5 years trying to use "the force"
Even so, Billy Beane didn't strike gold with every prospect he selected using the Moneyball approach.
I don't know why you can't just admit that your original post, while containing some good points, paints an unrealistic picture of what can be done? Failing that, point someone out who's doing this.
The stat that's floated around for years from Steve Cohen is that his best traders are right a little less than 65% of the time. Given that Cohen can definitely afford to wait for "fat pitches", why didn't he say his traders were right all the time by just waiting for the creme-de-la-creme of market setups?