Please review I welcome all advise

I've been around for over 10 years in this business and have been at multiple firms and talked to the owners.

It seems to me that the success or failure of your business largely depends on luck and good fortune. I never understood why some idiot managers make so much money while some really hard working smart ones lose so much.

If anyone can find a consistent reason why a prop firm location makes more money than another (other than the number of profitable traders) please share it with us!

Software, costs, location doesn't seem to affect profitability as I've seen/heard profits coming from all different software and countries.

Just my 2cents worth.
 
Quote from since1997:

I've been around for over 10 years in this business and have been at multiple firms and talked to the owners.

It seems to me that the success or failure of your business largely depends on luck and good fortune. I never understood why some idiot managers make so much money while some really hard working smart ones lose so much.

If anyone can find a consistent reason why a prop firm location makes more money than another (other than the number of profitable traders) please share it with us!

Software, costs, location doesn't seem to affect profitability as I've seen/heard profits coming from all different software and countries.

Just my 2cents worth.
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I agree with your observation.

I would add that the lower the burn rate the longer can survive. The longer can survive the better chance some traders are successful.
 
Quote from bkktrading:


Look forward to your reply
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I think focusing on European futures is a better direction but first, try to find an edge there. I know some exists, definitely moreso than in US markets.

Other than that, I think you're having a problem looking at your idea with non-bias. Just look at the numbers. If you start with 4 traders, it will be years before you even break even, let alone make profit. This is a game of numbers, it's a volume game. You have fixed expenses to deal with. Maybe you're planning to run this out of your home, but you still needed computers, monitors and a proper internet connection. You still need access to direct trading & clearing, some software.

I highly suggest that you draw up a basic excel with projected expenses & revenues. Then do an IRR calculation. I will tell you right now that starting with 4 traders and having them play on simulator for 5 months, your IRR is not likely to be worthwhile. Also, simulator and live trading are two different animals. 5 months on simulator is a long time and time is money. Since you're keeping limits very low, might as well send these guys live quicker.

It sounds like you're still developing a trader incubation project, but once again, what exactly about your method makes it so special? Is your own personal style of trading successful & consistent? Is this something you think you can teach others? Not just money management or discipline, but certain tricks & setups that you consistently use and that can be quantified into a pleasing rick/reward ratio.
 
Quote from Anaconda:

I think focusing on European futures is a better direction but first, try to find an edge there. I know some exists, definitely moreso than in US markets.

Other than that, I think you're having a problem looking at your idea with non-bias. Just look at the numbers. If you start with 4 traders, it will be years before you even break even, let alone make profit. This is a game of numbers, it's a volume game. You have fixed expenses to deal with. Maybe you're planning to run this out of your home, but you still needed computers, monitors and a proper internet connection. You still need access to direct trading & clearing, some software.

I highly suggest that you draw up a basic excel with projected expenses & revenues. Then do an IRR calculation. I will tell you right now that starting with 4 traders and having them play on simulator for 5 months, your IRR is not likely to be worthwhile. Also, simulator and live trading are two different animals. 5 months on simulator is a long time and time is money. Since you're keeping limits very low, might as well send these guys live quicker.

It sounds like you're still developing a trader incubation project, but once again, what exactly about your method makes it so special? Is your own personal style of trading successful & consistent? Is this something you think you can teach others? Not just money management or discipline, but certain tricks & setups that you consistently use and that can be quantified into a pleasing rick/reward ratio.
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I scalped the chop for ticks. I was a range player. I believe trading the chops back and forth before the breakout can be more profitable than trying to guess when the big breakout will occur. It also is a great way to reduce risk exposure because risking only a couple ticks per trade.

Eurex markets would be ideal because I would not have to pay for memberships to get member rates.

I do have a spreadsheet that has the calculations. However the thing I cannot predict is the ability get profitable traders. I could make all the spreadsheets I want but monopoly money is not real until I test it with real traders:)
 
Quote from bkktrading:

I scalped the chop for ticks. I was a range player. I believe trading the chops back and forth before the breakout can be more profitable than trying to guess when the big breakout will occur. It also is a great way to reduce risk exposure because risking only a couple ticks per trade.

Eurex markets would be ideal because I would not have to pay for memberships to get member rates.

I do have a spreadsheet that has the calculations. However the thing I cannot predict is the ability get profitable traders. I could make all the spreadsheets I want but monopoly money is not real until I test it with real traders:)
More...

Interesting.

All through out the thread, when you mention about trading itself... you are always guessing, thinking, and believing.

How can you teach someone, something you cannot do? Having a trader at your firm who is profitable (hopefully it's you...) mentoring some newbie and not having one is solely the only factor that determines whether you'll make it as a prop. owner or not. Everything else that's been mention in here is BS, without it.
 
Quote from TSGannGalt:

Interesting.

All through out the thread, when you mention about trading itself... you are always guessing, thinking, and believing.

How can you teach someone, something you cannot do? Having a trader at your firm who is profitable (hopefully it's you...) mentoring some newbie and not having one is solely the only factor that determines whether you'll make it as a prop. owner or not. Everything else that's been mention in here is BS, without it.
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Okay I will give you my strengths and weaknesses.

strengths
I was always profitable as a prop trader. Every shop I traded at was a high frequency scalping shop. Scalping was defined as cutting losses quickly. Never holding a position into a number or overnight. All shops had very cheap commission structure. I focused more on the tape than a chart. Chart only used to find congestion areas. For example, if coming to support area Ipaid attention to level of support but more important to what volume trades around this area. What happened when volume traded? Did it hold? What price did it hold? Can I tick the volume bid? Etc. Same on resistance.

The key to scalping is getting a sense when a breakout will occur and either stay on the sidelines or trade with the breakout. UNDER NO CIRCUMSTANCES SHOULD A BREAKOUT BE BOUGHT OR SOLD. As a scalper the best thing to do is stay on the sidelines to wait for the new boundaries to be formed and then play them. If uptrend forms then buy dips when volume buying comes back into market on drifts lower--- opposite for downtrend. Only a seasoned scalper who understands that getting lucky with a breakout trade is just that luck!! If he can keep his discipline than a breakout trade is just a secret weapon of his arsenal.

The reason a scalper should stay away from breakouts is the psychological damage a winning breakout trade can do to a scalper!!! A scalper makes 2-4 ticks per trade. Loses 1-3 ticks(example numbers for argument). Then he buys a breakout and makes 30 ticks. Now all of a sudden he is getting chopped up and cannot figure out what happened. Well what happened is he started to trade breakouts!!!!!! 90% of breakouts are fake or have quick pull backs that can destroy the scalper!!

bad decisions in my trading career

I always dreamed of trading on my own. I was naive!! I did not understand how many different hats needed to be an independent trader. As an independent trader you are a risk manager, business manager, trader, strategic planner(position sizing, contracts to trade, etc.). At the prop shop I was only a trader!! I never knew that I would be terrible wearing all hats of an independent trader.




Quote from TSGannGalt:
Interesting.
How can you teach someone, something you cannot do? Having a trader at your firm who is profitable (hopefully it's you...) mentoring some newbie and not having one is solely the only factor that determines whether you'll make it as a prop. owner or not. Everything else that's been mention in here is BS, without it.
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I happen to disagree a bit on this. I believe I should teach the trader how to tape read, read a basic chart(I do not like tech analysis), etc. I can provide the "firms" risk limit and idea of frequency. I cannot teach talent! Not all young traders are motivated to be great traders. Tiger Woods could mentor a thousand golfers and it would not make a difference if they did not have the talent to golf.

The great thing about scalping is if you have the discipline and have the balls to trade often without judging each trade you can be successful. The biggest road block to successful scalping is trying to get an intellectual understanding of what is happening! By the time the chart shows you the trade ---- it is over!! I was having a beer with a huge Eurodollar trader. Someone asked him how he got his understanding of the movement of interest rates. He looked at this guy for about 5 seconds and said "I do not know what YOU ARE F---- TALKING ABOUT I know the contract tick size is $12.50 and the contract goes up and down in price and that is all I have ever known."

Please rip my rebuttal to bits if you find holes!! I put this thread out there because if and when I do this I want the plan to be sound and rational. I agree with you I have been vague and lacked confidence whenever I discussed my trading record and ability. Please be honest!!! I want to either develop a good foundation to start the business or stop before I start!!


Thank you,

bkktrading
 
Quote from bkktrading:


The key to scalping is getting a sense when a breakout will occur and either stay on the sidelines or trade with the breakout. UNDER NO CIRCUMSTANCES SHOULD A BREAKOUT BE BOUGHT OR SOLD. As a scalper the best thing to do is stay on the sidelines to wait for the new boundaries to be formed and then play them. If uptrend forms then buy dips when volume buying comes back into market on drifts lower--- opposite for downtrend. Only a seasoned scalper who understands that getting lucky with a breakout trade is just that luck!! If he can keep his discipline than a breakout trade is just a secret weapon of his arsenal.

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There is nothing unique about this strategy. I don't see how you expect to get greater than a 10% success rate with this.

I'm sorry but I think if you analyzed this idea with business sense, you would stop wasting time on it. Your profit generation depends on the success ratio, and right now, you have no hard numbers whatsoever to show that it is adequate. Even the methodology is kinda generic.

You have spent 2 years on this already and are still at least a year from potentially showing a glimpse of promise. I think your efforts & capital would be better used somewhere else.
 
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