Intraday Portfolio Trading

C

ChaosNSX

There was a thread recently that touched upon a topic that I haven't seen discussed to much and has sparked my interest in participating.

http://www.elitetrader.com/vb/showthread.php?s=&postid=1195831

Theres a reason why its not all discussed that much, but I won't go into enough detail to get the death threats.

Seems a large percentage of the new people, and some old are looking everyday for the easy shortcuts. From many of the posts i've seen people are chasing their tails, or just don't have clue what direction to go. Whereas there are many directions you can run in later, there are only a few for the undercapitalized trader. You can either scalp, or you can actually learn how to directionally trade and manage your positions with portfolio risk.

With all thats going on in the exchanges and our current trading environment its only fair to reiterate what has been taught and read and reread just doesn't sink in till after you loose your first 25k or so.

One of my favorite sayings taught to be me was.
"Trade SMART not Size"

If your a scalper your thinking, I only trade 1k to 2k at a clip and I have close stops ect. Thats great, except for wheres your ability to grow? Liquidity issues even in the largest stocks will make it hard to make money scalping. Even in the thickest stocks you soon have a diminishing return factor due to the decrease of volatility in the thicker issue. One disclaimer though. I am only talking about liquid issues, not the illiquid stuff where the trader plays market maker. Scalping over all is a great skill to have, but there is no real longterm trading career in it. Hedgefunds don't want scalpers, IBanks don't need them. You are highly likely to burn your self out, and when you do where are your transferable skills? You have been trying to buy and sell pretty much the spread for the last few years? 12.5 cents is only the spread, its an 1/8th you need to realize thats not a market move no matter how dull the market is.

So where does that leave the new trader. A. S/He can go the scalping route, take on more risk than they are able to probably psychologically handle to begin with per position. B. Learn to directionally trade and actually embrace the management of risk spread over a portfolio of concurrent trades.

Now I know your thinking scalping seems easier. Is it? Maybe it is, but how many times in the P&L thread have we seen one stock destroy a good guys day?

Lets look at the quote again. "Trade SMART not Size"

Its actually easier to trade a well managed 100 share intraday portfolio up to $100 a day consistently than it is to trade one 100 share position at a time and by the end of the day end up with 100 dollars. Scale this and so on. Also there is not the same liquidity crunch and susceptibility to montage games.

Whether you believe what I just stated or not its up to you.
Also when you develop these skills they are transferable to larger portfolios.

So what I would like to do is start a disscusion about this topic.
have you ever thought about trading this way? Do you currently trade this way? Do you think scalping better? Lets get it all out in the open. Why such an emphasis on size? It almost seems as our current trading culture is a socialization of losing behavior patterns.

Just something to think about, and I wish everyone the best trading going forward.
:)
 
I agree with you (I think)

I think it is much better to trade 10 stocks at $100 risk than 1 stock at $1,000 risk. Smooths your equity curve, spreads the risk, allows you to gradually change from one direction to the next, cuts way down on the EMOTION.

Liquidity is a big factor and that is also a major reason I trade multiple stocks. Other wise I would not be able to move enough money in and out to make it worth while.

I think it is a numbers game. Find an edge and then play the edge as much as you can. Spread what money you have thin enough to catch as many "Edges" as you can and increase the dollars per trade as the account grows, always sizing so that you can play as many as possible.

Works for me,

boots
 
Excellent topic ChaosNSX

I'll preface this by saying I personally feel scalping is too sensitive to technology changes and too mentally draining, so I really dislike it, however as long as there is demand for liquidity on short time frames, there will always be inefficiencies for ultra-short term traders to exploit.

Scalping isn't necessarily catching dime spreads either. It's often just as 'directional' as swing trading when the opportunities call for the hold. It's simply a smaller time frame with tight and fast (and usually unquantifiable) risk management rather than an entirely different technique like liquidity trading.

Most people who have been at scalping for a while recognize that it's a dead end and will plateau at a certain level of liquidity. Most who love trading in general will use it as consistent income that can fund a real account in time, diversified over seveal techniques, rather than as a stepping stone into a buy side job.

The problem with scalping, and the reason why it's so prevalent on these boards over every other kind of trading, is that it's a primarily employed by unscrupulous prop firms as a commission generating technique. Prop firms who constantly shark for "unsophisticated investor" types basically overcharge recruits and cause the technique to be overused and eventually unprofitable for all but a small few of traders. Little to no risk on the firm's part, little to no effort to teach, no disgruntled employees as they disappear in 6 months, but generates consistent returns.
 
yeah, even on vlo i had difficulties gettin' filled a 2k shares pos today and had to wait for price to move back and forth quite a few times before gettin' just 1.5k. and it's pretty active these days...most times the stocks i trade can't accomodate much, sure not enough to make a few cents gains worhtwile.
 
I can write 100 pages on this topic. But my first comment is, why not trade both styles or any other style that you can milk for a profit? My experience is that the best PnL days are when I am actively working the markets for 10 to 20 YM or 1 or 2 ES, and my portfolio positions are being managed too. In fact, if I traded size on the scalps some days, instead of having the scalping be the gravy, it could easily turn into the meat.

I understand that you probably understand this and are looking for something deeper, but I don't know how to get into it deeper without spending a month discussing this subject matter.

nitro
 
Don't know if we are going to need 100 pages, I think 50 and then we may have covered everything. I can understand your comment about the meat being the gravy sometimes. I really only see this even being a possibility when the markets serving sloppyjoes. On a prime rib day like today, any portfolio trader who adequately managed their risk, probably eclipsed the performance derived from scalping.

I think the main thing to point out is that scalping was amazing in the 90's but I think with the advances in portfolio management technology, and trade algorithms constantly enveloping and providing liquidity to portfolio traders, even better than human scalpers can, the pendulum is swinging back and hard.

Maybe scalping does have long term viability, but only to High frequency trading black boxes with fast connections. To the rest of us there is portfolio trading if done right.
 
I think you may be confusing scalping with arbitrage. There is no need for a super fast connection or a computer when you are scalping.

nitro
Quote from ChaosNSX:

Don't know if we are going to need 100 pages, I think 50 and then we may have covered everything. I can understand your comment about the meat being the gravy sometimes. I really only see this even being a possibility when the markets serving sloppyjoes. On a prime rib day like today, any portfolio trader who adequately managed their risk, probably eclipsed the performance derived from scalping.

I think the main thing to point out is that scalping was amazing in the 90's but I think with the advances in portfolio management technology, and trade algorithms constantly enveloping and providing liquidity to portfolio traders, even better than human scalpers can, the pendulum is swinging back and hard.

Maybe scalping does have long term viability, but only to High frequency trading black boxes with fast connections. To the rest of us there is portfolio trading if done right.
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oh no, for arbitrage you would not just need a fast connection you would need a "Lightning" fast connection.

As for not needing the computer I would think to do so now a days without one is asking for trouble, but were digressing.
 
Quote from ChaosNSX:

oh no, for arbitrage you would not just need a fast connection you would need a "Lightning" fast connection.

As for not needing the computer I would think to do so now a days without one is asking for trouble, but were digressing.
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A run of the mill DSL connection is fine for scalping. When I said you don't need a computer, I mean you don't need and automated system doing the "scalping". I do it all the time "by hand" on a standard DSL connection.

nitro
 
Yeah you can do it by hand and with dsl or cable, but your fills are not going to be great. Especially on a stock thats about to tank or lift. Especially with the new rules comming out. Speed is going to take more of the center stage, and the autobots have a nice foothold on the speed department if they are hosted near the respective exchange. To clarify I am mostly talking about equities. You can't say speed doesn't count in stocks. Theres been quite a few thread talking about it.

Back to portfolio trading though. It was a day like today that can drive home a point. One of the other key thing I find is the portfolio style works best if you build the portfolio per position, vs executing them all at some arbitrary price. Although sometimes there is not enough time to always do that.



Quote from nitro:

A run of the mill DSL connection is fine for scalping. When I said you don't need a computer, I mean you don't need and automated system doing the "scalping". I do it all the time "by hand" on a standard DSL connection.

nitro
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