How many years are necessary to consider yourself a successful trader?

[JamesEM]

"We rarely hear the inner music, but we are all dancing to it." - Rumi

And so it is with the market.

Note that many traders- Linda Radke included- talk about how their early music education and training gave them -in their view- a distinct advantage because reading and practicing music causes you to learn and implement pattern recognition- and that while there is foundation of technical skills that must be learned, you must also have a feel or gift for it to go beyond.

I see those points and accept them, but I also think there is a more basic factor at play- and that is that classically trained musicians (but not limited to) have already sorted themselves into that sub-species of humans that can/must mentally and physically be able to spend massive amounts of internally motivated time alone and self-directed, practicing- even though the future is uncertain.

People who hear a performance and say "gee, I wish I could play like that" are often no different that the endless number of people who say "gee, I wish I could trade, could you show me how to do it after work next Friday." How the hell do you know whether you can play the cello. When was the last time you put at least ten hours a day into practicing something for years?


Alright, nuff of that.

I found your comment really interesting (re: dancing and music). Having been heavily involved in the dance/performance industry for 19 years and counting, I realized - some years into my trading journey - that, for the most part, my experiences as a dancer, dance teacher & performer were working against me in my pursuit of profitable trading...

My theory goes like this: Performers emote...they look to "move" people (i.e. control/manipulate their emotions). Experienced traders know that- save for some level II, order flow games -there is no way for us as market participants to manipulate "their" emotions (again, caveat emptor, this assumes that you don't have a large enough bankroll to move the market).

So, in the main, we can say that performers look to actively cause people to feel while traders look to observe people as they are feeling (then take appropriate action).

Paradoxically, the involvement in music does, IMO, improve ones ability to read the market...it's the performance aspect that causes an issue. My 3 cents...lol.

 

[lcranston]

My theory goes like this: Performers emote...they look to "move" people (i.e. control/manipulate their emotions). Experienced traders know that- save for some level II, order flow games -there is no way for us as market participants to manipulate "their" emotions (again, caveat emptor, this assumes that you don't have a large enough bankroll to move the market).

No, however, your sensitivity to all of this -- particularly how price movement prompts emotional responses in traders, how it "controls" and "manipulates" their emotions -- enables you to recognize the manifestations of the emotional responses in others in order to take advantage of them, even if that is limited to avoiding them. The trick, of course, is to avoid becoming entangled in all of this yourself. But if you understand what's going on, you are more likely to be able to see it, distance yourself from it, and profit from the emotional entanglements of others.

 

[sle]

Likewise, every time you have traders arguing about complex math models, and how beneficial they are, or, as in another current thread, if volume is important, or any other conceivable way to trade the market, what is missing from these discussions is the results attained.

Anything I introduce into my trading process is evidence-base in one or another way.

For some things I resort to historical back testing, which is obviously an approximation but it’s better than nothing. For some things, I attempt to build a theoretical model and validate the inputs using historical or real time data.

Does it change the final results? For some things the results are evident in a matter of days. For example, in high frequency type of strategies the tweaks change the outcome very quickly in a statistically significant way. In some cases it takes years to see the results filter into the actual PNL, such as any changes designed to protect from the rare events.

PS. I said it elsewhere that anyone who is voluntarily sharing results in this business is usually trying to sell you something

 

[TreeFrogTrader]

I hope Putin restrains himself to flat keys only but he would do it agitato molto

They say that the "difference between a conductor and God is that God does not think he is a conductor." I think that same analogy might apply to Putin as well.

Probably applies to Trump too.
Could probably make a whole liszt!!!

outta here, going downhill fast

 

[JamesEM]

No, however, your sensitivity to all of this -- particularly how price movement prompts emotional responses in traders, how it "controls" and "manipulates" their emotions -- enables you to recognize the manifestations of the emotional responses in others in order to take advantage of them, even if that is limited to avoiding them. The trick, of course, is to avoid becoming entangled in all of this yourself. But if you understand what's going on, you are more likely to be able to see it, distance yourself from it, and profit from the emotional entanglements of others.

I'm not sure what the "no" was aimed at as you've pretty much rehashed one part of my argument..

The other part, was the distinction between being the catalyst for changing emotion in an audience (as a performer) as opposed to being an observer of the collective emotion (what I call "the emotional market sphere") and acting inspite of that which, of course, means you can't become a part of it as you rightly pointed out.

 

[lcranston]

I'm not sure what the "no" was aimed at as you've pretty much rehashed one part of my argument..

The other part, was the distinction between being the catalyst for changing emotion in an audience (as a performer) as opposed to being an observer of the collective emotion (what I call "the emotional market sphere") and acting inspite of that which, of course, means you can't become a part of it as you rightly pointed out.

Sorry. I was agreeing with your comment that "there is no way for us as market participants to manipulate 'their' emotions." The "no", in other words, was actually "no, but", that is, "no" you can't manipulate someone else's emotions "but" you are likely better able to see the emotional responses of others, understand them, and profit from them due to your sensitivity to emotional responses and the possibilities inherent in the emotional responses to price movement. A great many traders are so discombobulated by their own emotional responses that it is near impossible for them to be sensitive to the emotional responses of others, thus missing out on some excellent opportunities.

 

[Gotcha]

PS. I said it elsewhere that anyone who is voluntarily sharing results in this business is usually trying to sell you something

Fair enough, but let me ask you this. Clearly someone investing tens of millions of dollars cannot be expected to have the same return as a day trader. (ie. You don't see hedge funds with 200% returns). So many funds operate within the 10-20% range, which is excellent. So many funds also lost money in 2007/08, and some perhaps got away without a huge loss. But obviously, buy and hold over the past decade has been excellent.

So taking this into account, if an active trader of a huge fund, such as a hedge fund, isn't outperforming an index by a wide margin, what can be said about their complex investing ideas? Yes I know there are things like risk adjusted returns, etc., but for all the talk here about how essential something is to their trading, the fact that the trade still only works out maybe 60% of the time makes me wonder how important that one thing is.

Over in the volume thread, I really do think @Scataphagos has it right. When a trader is ready to place a trade and uses volume, does it improve the win rate? Does it reduce the trades that don't work out if the volume doesn't work right? If you operate with a roughly 1:2 risk to reward ratio, if the volume filter causes you to skip a trade that ends up working out, and hence you miss your profit, does a slightly higher win rate, if said volume analysis helps you to increase the win rate by a few percent, actually translate into more profits?

The point is that a trader who on average wins 3 points and risks 2 points wins 50% of the time, and yet has a very simple approach, is doing just as well as a trader with similar stats, and yet does complex analysis, how is this analysis beneficial? What is the impact of more analysis if win rates aren't drastically increased, or stop can be drastically reduced, or profit target drastically increased?

 

[JamesEM]

Sorry. I was agreeing with your comment that "there is no way for us as market participants to manipulate 'their' emotions." The "no", in other words, was actually "no, but", that is, "no" you can't manipulate someone else's emotions "but" you are likely better able to see the emotional responses of others, understand them, and profit from them due to your sensitivity to emotional responses and the possibilities inherent in the emotional responses to price movement. A great many traders are so discombobulated by their own emotional responses that it is near impossible for them to be sensitive to the emotional responses of others, thus missing out on some excellent opportunities.

Thanks for clarifying...it dawned on me that that could have been what you meant as I made my way upstairs to the PC (was on the mobile/cell before).

Can I take a moment to say that I LOVE the word "discombobulated"?! lol.

On emotional responses: I completely agree. For me, awareness through some sort of "meditative" practice (doesn't actually have to be meditation) allows me to see myself in the third person - the "Observer" as Alexander Elder wrote in "Trading For A Living" (if my memory serves me correct). When I began using these practices, I would catch myself soon after making the cognitive bias - riddled error. Then, over time, I would catch myself just before making it.

Now, I manage, much more often than not, to see what my "self" would do, then know that that is indicative of what the masses are probably doing. Great for trading, but leaves me feeling quite lonely...but I digress!

 

[lcranston]

Thanks for clarifying...it dawned on me that that could have been what you meant as I made my way upstairs to the PC (was on the mobile/cell before).

Can I take a moment to say that I LOVE the word "discombobulated"?! lol.

On emotional responses: I completely agree. For me, awareness through some sort of "meditative" practice (doesn't actually have to be meditation) allows me to see myself in the third person - the "Observer" as Alexander Elder wrote in "Trading For A Living" (if my memory serves me correct). When I began using these practices, I would catch myself soon after making the cognitive bias - riddled error. Then, over time, I would catch myself just before making it.

Now, I manage, much more often than not, to see what my "self" would do, then know that that is indicative of what the masses are probably doing. Great for trading, but leaves me feeling quite lonely...but I digress!

Wyckoff suggested something like this a century ago, that one should step outside himself and observe himself and that one should justify to that other self all the rationales for taking the trade. If one can't be convincing, then the trade shouldn't be taken. It all sounds very New Age but it's really just a form of self-talk, though it does help to short-circuit all the emotional nonsense.

 

[sle]

Fair enough, but let me ask you this. Clearly someone investing tens of millions of dollars cannot be expected to have the same return as a day trader. (ie. You don't see hedge funds with 200% returns).

It's fairly common for high frequency firms to post returns that are in high double digits. For ultra-high frequency, their capital turnovers are staggering and they do post 100-200% percent returns with double digit Sharpe ratios. It's possible to do in ways that are not very sensitive to latency. For example, I have strategies that produce 50-60% returns on capital with Sharpe ratios of 5+. Unfortunately, the output capacity of those strategies is not sufficient for me.

So taking this into account, if an active trader of a huge fund, such as a hedge fund, isn't outperforming an index by a wide margin, what can be said about their complex investing ideas?

Majority of funds are incentivized to produce returns that are de-correlated from the markets. It's called the "market neutral mandate", which is probably the key selling point of most hedge funds. Nobody needs to pay 2/20 to go long the market, you can do that by buying some SPYs.
For example, while I am not a stand-alone fund but just a monkey for hire, I have very tight beta limits. This means I can't just go long the market, while an individual investor can (and definitely should). In a year when the market is up 20+% and volatility is down to 5%, I am likely to underperform the market, while in 2008 and 2011 I had triple-digit returns.

The point is that a trader who on average wins 3 points and risks 2 points wins 50% of the time, and yet has a very simple approach, is doing just as well as a trader with similar stats, and yet does complex analysis, how is this analysis beneficial? What is the impact of more analysis if win rates aren't drastically increased, or stop can be drastically reduced, or profit target drastically increased?

First of all, unless the two traders are perfectly systematic, it's very hard to say who does what in terms of analysis. Our brains are complex black boxes and it's likely that @Scataphagos does a lot in his head unconsciously while someone else might need to do it explicitly.
Second of all, most institutional strategies can (and usually are) very simple and literally can be explained on a napkin. Even though the stuff that can sound very intimidating is actually pretty simple once you understand it. The relevant mathematics or financial terms are just a way to express simple ideas.
Complex analysis comes in once you start thinking about execution, managing risk, managing multiple concurrent strategies etc.