Learning Curve for sucesssful trading
- Thread starter DuyLe
- Start date
The obvious answer (to me) is lack of discipline and expecting too much too soon. A little knowledge is dangerous, and can certainly cause problems. One step at a time, developing a comfort level with the basic strategies (opening only, MOC imbalances, all the basic stuff), and then and only then, spreading their wings to include the more sophisticated techniques (M&A, pairs, automation, etc.).
Which instruments are more a factor of the traders capital and where they fit into the whole equation. A CME member firm trader with super low round trip costs (about 1/5th of what I pay) is tough to beat, no matter how good you are. Options are priced at fair value when looking at conversions and reverse conversion pricing.
I may be accused of being biased, but I honestly think that trading equities, while using the e's as leading indicators is easier than trying to trade the futures. "Back in the day" when on the CME floor, we had a much bigger edge with the arbitrage opportunities - still there, just not as big.
All that being said, the instrument and the strategies should match the traders personality and level of patience.
(as you can easily see, there are so many factors, hard to define - and there is always that "X" factor that some traders possess).
FWIW,
Don
<i>"I may be accused of being biased, but I honestly think that trading equities, while using the e's as leading indicators is easier than trying to trade the futures. "Back in the day" when on the CME floor, we had a much bigger edge with the arbitrage opportunities - still there, just not as big.
All that being said, the instrument and the strategies should match the traders personality and level of patience."</i>
I've met a fair number of traders who used to make money in stocks and now don't OR have perpetually failed in stocks that switched to eminis and created success.
imo, the absolute biggest pitfall in eminis (or any instrument) is over-trading one's ability level. Too many traders fail right at the critical mark of breakeven to consistently profitable in their evolution as a trader, specifically due to over-trading.
Many if not most days, said traders are modestly profitable at some point in the session. However, because the tapes are still wiggling, they feel an obligation to trade bell to bell. That too often results in net-loss by day's end, <b>solely due to skill level of the individual trader.</b>
It takes a certain skill level to make money consistently. It takes another step or three up the ladder rungs to make money consistently when trading all day, every day.
Why? Because any given day offers at least one portion that developing traders can identify successfully. But, so much happens intraday that is over the head of developing traders, they give back too much realized profit.
In a nutshell, self-honesty and patience play a big role. Self-honesty to understand a trader's objective is to make money consistently, not catch every wiggle or hit record max gains every other day.
Patience to let the process unfold in its own individual timelength is the hardest part.
*
I'm trading the ES in low-beta fashion right now, aka working towards commodity pool = hedge fund operation. My objective is to lose small, win small or win big each day. So far this month it's +6pts, +6pts, +4pts and +3pts ES thru four sessions. Today's session alone had potential for 20+ pts ES (or more) if I were still gunning every signal.
But... trading for max gains every day likewise demands accepting some days of modest to large intraday losses. No one, I repeat no one EVER consistently makes big gains without at least occasional stiff losses. That's just the nature of risk = reward.
Most retail traders fail because they purposely choose to ignore that fact. They want the pleasure of large gains all the time without the pain of corresponding losses on the other side.
If most retail traders traded within their ability, more would succeed. I'm personally capable of trading a lot more aggressively than currently opt to be. I personally like the low beta, low anxiety approach of small to modest gains and nil loss. I see too many traders churn & burn themselves out emotionally, mentally and then financially by trading above their current level of ability.
#1 reason for failure? imo it's overleveraging and overtrading, which are basically the same thing. That is a universal flaw across all instruments and timeframes.
Who amongst us has not been guilty of the same? Those that survived the learning process can look back and plainly see reality. Hopefully those still on the path to success will heed such advice and learn from our (costly) mistakes rather than repeating the process.
All that being said, the instrument and the strategies should match the traders personality and level of patience."</i>
I've met a fair number of traders who used to make money in stocks and now don't OR have perpetually failed in stocks that switched to eminis and created success.
imo, the absolute biggest pitfall in eminis (or any instrument) is over-trading one's ability level. Too many traders fail right at the critical mark of breakeven to consistently profitable in their evolution as a trader, specifically due to over-trading.
Many if not most days, said traders are modestly profitable at some point in the session. However, because the tapes are still wiggling, they feel an obligation to trade bell to bell. That too often results in net-loss by day's end, <b>solely due to skill level of the individual trader.</b>
It takes a certain skill level to make money consistently. It takes another step or three up the ladder rungs to make money consistently when trading all day, every day.
Why? Because any given day offers at least one portion that developing traders can identify successfully. But, so much happens intraday that is over the head of developing traders, they give back too much realized profit.
In a nutshell, self-honesty and patience play a big role. Self-honesty to understand a trader's objective is to make money consistently, not catch every wiggle or hit record max gains every other day.
Patience to let the process unfold in its own individual timelength is the hardest part.
*
I'm trading the ES in low-beta fashion right now, aka working towards commodity pool = hedge fund operation. My objective is to lose small, win small or win big each day. So far this month it's +6pts, +6pts, +4pts and +3pts ES thru four sessions. Today's session alone had potential for 20+ pts ES (or more) if I were still gunning every signal.
But... trading for max gains every day likewise demands accepting some days of modest to large intraday losses. No one, I repeat no one EVER consistently makes big gains without at least occasional stiff losses. That's just the nature of risk = reward.
Most retail traders fail because they purposely choose to ignore that fact. They want the pleasure of large gains all the time without the pain of corresponding losses on the other side.
If most retail traders traded within their ability, more would succeed. I'm personally capable of trading a lot more aggressively than currently opt to be. I personally like the low beta, low anxiety approach of small to modest gains and nil loss. I see too many traders churn & burn themselves out emotionally, mentally and then financially by trading above their current level of ability.
#1 reason for failure? imo it's overleveraging and overtrading, which are basically the same thing. That is a universal flaw across all instruments and timeframes.
Who amongst us has not been guilty of the same? Those that survived the learning process can look back and plainly see reality. Hopefully those still on the path to success will heed such advice and learn from our (costly) mistakes rather than repeating the process.
Equities are not a zero-sum game but equity trading is a zero-sum game.
Unless you can prove to me that losses of some players do not turn into profits of some other players.
I will also question the notion that positive expectancy is due to upward bias. If this is true, we can easily conclude that nobody can make money trading currencies since in the forex market there is no notion of absolute upward movement.
I tend now to agree with some people that positive expectancy is mainly due to the right psychology rather than anything else. In a zero-sum game of poker, the player who is the best bluffer wins. Same in the markets. We have seen the bluffing lately taking place a lot.
Ron
I agree with forex trading, but that's a completely different animal.
Corporate earnings, and not necessarily the long term upward bias (although certainly a logical expectation historically), makes for the "non" zero sume game.
And, since the companies issue stock initially, and those who buy that stock "may" all make money while still funding the company and not buying from other traders is the "how" traders can make money without others losing money. Not a big deal, just market mechanics.
I agree the single most important thing about trading is the psychology of the trader, self-confidence in their training/skill level.....Regardlessof the instrument they trade.
BTW, I came in short Emini's, got up early at home, covered my 1523.75 sale from yesterday at 1503.50 this morning two hours before the opening - pure, unadulterated skill, LOL (NOT!).
All the best,
Don
Corporate earnings, and not necessarily the long term upward bias (although certainly a logical expectation historically), makes for the "non" zero sume game.
And, since the companies issue stock initially, and those who buy that stock "may" all make money while still funding the company and not buying from other traders is the "how" traders can make money without others losing money. Not a big deal, just market mechanics.
I agree the single most important thing about trading is the psychology of the trader, self-confidence in their training/skill level.....Regardlessof the instrument they trade.
BTW, I came in short Emini's, got up early at home, covered my 1523.75 sale from yesterday at 1503.50 this morning two hours before the opening - pure, unadulterated skill, LOL (NOT!).
All the best,
Don
Lets try something.
yes I know that in real life it is much more complicated, but in simple broken down accounting it's the same so just to entertain the brain.
Suppose you and I and two other guys named investor 3 and investor 4 were the only shareholders of a company XYZ and the float was 100k shares and we each owned 20k shares and a MM owned 20k. The company treasury owns 50K shares. You and I have margin accounts and investor 3 & 4 are cash accounts, short interest is 20% .
We all bought the IPO at $50.00, the short sold at $100.00 to the MM today. Needless to say this is a thinly traded security. Anyhow, the stock is trading at $100.00 at the close and earnings come out at 4:01 PM,
The company misses on revs and guides lower for the next 3 quarters (must be a financial) the MM backs off of the bid down to $80.00 and you and I decide to dump 10k shares each to unload half of this pos. The MM buys our shares @ $80.00, the short decides to cover half but the MM puts the inside ask at $90.00 and so he covers 10k or half @ $90.00 Investors 3 and 4 had been watching Maria Bartiromo rip on some poor CEO instead of paying attention to the earnings call.
At 5PM Fast Money comes on and in the opening statement announces XYZ earnings flop and down as much as 20% in AH trading. Investors 3 and 4 run to their computers and crank up their Scottrade accounts and find the best bid now at $50.00 and it is the short trying to cover lower. Investor one sells half of his position @ 50.00 to the short who is now the only profitable one in this trade. Investor 3 totally freaks and uses a market order to sell all. The best bid is $40.00 and is from our friendly neighborhood liquidity provider Mr. MM who has aggregate bids in lots of 10k each bid is tiered 5 points. The last tick of the day was $25.00
since you and I had some insider knowledge of a possible bid for the company, we were not worried.
At 7:00 AM the next morning it was announced that XYZ was being bought by private equity for $50.00 per share and the offer was accepted. The following day company XYZ burned to the ground and there was a lapse in fire insurance coverage during the acquisition and there is absolutely nothing left.
How much did each individual profit or loss and was the original market disbursed among them or did some blow up into thin air?
anyone want to take a stab at it?
You don't know poker. The best bluffer is not the best player. How do you assume that everyone knows how to extract maximum value from their hands? Mike Matasaw is one of the best bluffers and he's hte biggest loser, else your definition of a bluffer is different. Trust me when I say the best bluffer is not the one who wins in poker. It's the best poker player who does.
I personally think poker is alot like trading, but I donno anything about trading yet.
How about this. If you exclude the IPO money that the Company receives from buyer A who pays $50, sells to B at $60, sells to C at $70. Sells to D at $80. Stock goes to $100. Did not everyone "win"? D sells at $100, goes short at $100., stock goes to $90, E sells short to D who made $10.
You get my point I think.
Don
You get my point I think.
Don
Quote from austinp:
<i>"I may be accused of being biased, but I honestly think that trading equities, while using the e's as leading indicators is easier than trying to trade the futures. "Back in the day" when on the CME floor, we had a much bigger edge with the arbitrage opportunities - still there, just not as big.
All that being said, the instrument and the strategies should match the traders personality and level of patience."</i>
I've met a fair number of traders who used to make money in stocks and now don't OR have perpetually failed in stocks that switched to eminis and created success.
imo, the absolute biggest pitfall in eminis (or any instrument) is over-trading one's ability level. Too many traders fail right at the critical mark of breakeven to consistently profitable in their evolution as a trader, specifically due to over-trading.
Many if not most days, said traders are modestly profitable at some point in the session. However, because the tapes are still wiggling, they feel an obligation to trade bell to bell. That too often results in net-loss by day's end, <b>solely due to skill level of the individual trader.</b>
It takes a certain skill level to make money consistently. It takes another step or three up the ladder rungs to make money consistently when trading all day, every day.
Why? Because any given day offers at least one portion that developing traders can identify successfully. But, so much happens intraday that is over the head of developing traders, they give back too much realized profit.
In a nutshell, self-honesty and patience play a big role. Self-honesty to understand a trader's objective is to make money consistently, not catch every wiggle or hit record max gains every other day.
Patience to let the process unfold in its own individual timelength is the hardest part.
*
I'm trading the ES in low-beta fashion right now, aka working towards commodity pool = hedge fund operation. My objective is to lose small, win small or win big each day. So far this month it's +6pts, +6pts, +4pts and +3pts ES thru four sessions. Today's session alone had potential for 20+ pts ES (or more) if I were still gunning every signal.
But... trading for max gains every day likewise demands accepting some days of modest to large intraday losses. No one, I repeat no one EVER consistently makes big gains without at least occasional stiff losses. That's just the nature of risk = reward.
Most retail traders fail because they purposely choose to ignore that fact. They want the pleasure of large gains all the time without the pain of corresponding losses on the other side.
If most retail traders traded within their ability, more would succeed. I'm personally capable of trading a lot more aggressively than currently opt to be. I personally like the low beta, low anxiety approach of small to modest gains and nil loss. I see too many traders churn & burn themselves out emotionally, mentally and then financially by trading above their current level of ability.
#1 reason for failure? imo it's overleveraging and overtrading, which are basically the same thing. That is a universal flaw across all instruments and timeframes.
Who amongst us has not been guilty of the same? Those that survived the learning process can look back and plainly see reality. Hopefully those still on the path to success will heed such advice and learn from our (costly) mistakes rather than repeating the process.
this one is a beauty....excellent post