Pro Trader vs Amateur Trader

[deaddog]

So a skilled professional will outperform more frequently than not (look for 60% outperformance), and when they underperform, it'll typically be because of +2std event...which typically are banner years (when the market rallies extremely high). Because of their skill, they will outperform in a crash.

Does outperform mean that when the market drops 40% they only drop 35%?
Does that skill involve shifting assets so that the drawdown in minimal?
How does one manage a portfolio that only holds equities? Are there managers who will move back and forth between stocks and cash or is that seen as market timing?

 

[longandshort]

Does outperform mean that when the market drops 40% they only drop 35%?
Does that skill involve shifting assets so that the drawdown in minimal?
How does one manage a portfolio that only holds equities? Are there managers who will move back and forth between stocks and cash or is that seen as market timing?

yes some managers move to cash, but an equity only pm can also do this by hedging risk through put options. if your manager's mandate does not allow for them to make changes, then you are paying for active management but getting closet indexing.

 

[Handle123]

Does outperform mean that when the market drops 40% they only drop 35%?
Does that skill involve shifting assets so that the drawdown in minimal?
How does one manage a portfolio that only holds equities? Are there managers who will move back and forth between stocks and cash or is that seen as market timing?

Most of my acquaintances are larger traders who I met 30 years ago, so only chat with couple hedge fund guys and they don't talk much nor will I.

It is easier to outperform the Indexes if you understand how to hedge well. So many people think once you buy options you keep forever, not true. Many think you get only options to hedge, not true. Learn how to use chart patterns to understand when to hedge open profits. Why should I lose 10% plus on stocks when stocks retrace? So beating the Indexes is most hard for majority of retail and hedge funds. Hard for hedge funds as when there are redemptions, they might have to dump positions. I can't be only one who has figured out how to hedge open positions.

 

[deaddog]

i Have never understood hedging. You buy one security that will move in the opposite direction of the one you hold. So as one goes up, the other goes down and you don't lose any money. But you don't make any either.

Or you spend a little to buy OTM options so in the case of a black swan event you won't be wiped out, kind of like buying insurance.

Why, when your position starts to move against you, don't you just get out? FOMO.

I guess I can see it if you are highly leveraged. I tried option trading at one time but commissions and the spread took all my profits and then some.

My hedge is get the hell out.

 

[Laissez Faire]

Hello Laissez,

1. How can algorithmic trading be a waste of time if you're making 105% per year? And how is it more stressful?

Four words:

Effort, Time, Money, complexity and Lack of Trading Ideas.

Everyone thinks algo trading is simple, it is Not. It takes a quality high performance server to optimize and back test. My optimizations take nearly 7 hours because my server is not the best.

For me, and my situation, I am not seeing favorable rewards with algo trading. The retail trader is too handicap, it will take a team of traders and programmers around the clock and lots of hours to get some Edge.

Well, I don't think most people in the know would consider algo trading to be simple. Far from it.

I've outsourced quite a few programming tasks to external consultants and I'm well aware of how painful this process can be. Particularly when you have to use a 3rd party and can't do it yourself. Idea generation, back-testing, coding, de-bugging, etc. If I knew then what I know now I would have spent a few years learning to code well before getting started on the trading aspect.

But I digress...

Regarding your algo. My comment was mostly that it seemed puzzling to consider algo trading a waste of time when you've made such good returns on it and having already put in the effort. Is the algo still up and running or did it stop making $$$? Did you consider getting some backing to trade algorithmically?

I suppose there are few if none algorithms that will work successfully throughout all market conditions, so maybe that's what you're getting at and the huge amount of work it takes to constantly be developing and updating/changing, etc.

Discretionary trading cures all that: I can trade 1 NQ contract as much as I want, however, I want, whenever I want, make good guesses/gambling, and trade my price action experience with low leverage starting with about $3000. Aim at my $200-$400 per day, and I hit that in about 1 hour and DONE. After 1 hour of trading I am done for the day and I go enjoy my life or practice some more in SIM to get better. I think discretionary trading is better than algo trading. I discovered I am good at guessing and gambling with my current trading experience and be content with that and just do the best I can and stay out of drawdown. get my account up and start redrawing cash out every month to pay a bill or 2 or get some debt reduce. Best to keep it simple.

Not to be funny, but I basically read the price action every morning for 2 hours and take a guess for scalps. Stop when I get about $200-$400 and stay out of drawdown. I am just guessing (call it gambling if you like too) based on my trading experience. I am just trading my trading skills I have learned so far. Starring at price, and guessing.

If you can do that consistently I fully understand your choice. Especially when time is in short supply.

My attempt at criticism of the 'pro trader' in terms of being discretionary was that his signals seemed a bit like shooting from the hip, i.e., 'this looks like a good buy down here'. I'm not sure that approach can work long term unless the trader have a ton of experience and is trading intuitively based on thousands of hours of screen time.

But what do I know...

 

[themickey]

To be an algo trader, one really needs to do the job themselves or work in a dedicated team environment where you 'own' a coder. Outsourcing coding won't work long term because coding requires hundreds upon hundreds of tweaks. One is forever adding and removing ideas and modifying thoughts/strategies. Ideally coders need to love maths and love coding.
I'm a discretionary stock trader who self codes.
I run a system on algos but there is no automation, the discretionary part is which stocks I select. In terms of timing that's discretionary because I like to observe price action for the day.
There are too many variables in stocks and in how the market is behaving which makes it impossible for me to automate.
I don't want automated signals going day in and day out, I would run out of money to trade, even if I limit my trade size to $2000 a trade, I would need millions of dollars to handle it.
Currently I'm close to having a hundred positions on and there are still positions I can't buy because there's a limit to cash available and that's without automation, but my trade size though is larger than $2k.

 

[ChipShotTrader]

between 2 and 3. Ken Fisher is...interesting, but I wouldn't really call them a legit investment management firm, they are closer to wealth management. Most good managers are walled off from retail except through Fund of funds. There are a handful of great mutual fund PMs, and to find them, you'd want to look at their 3-5 year sharpe vs. their benchmark. You should expect slight underperformance in a banner year for equities, with high outperformance during normal years.

Ken Fisher got a major start living off his father's name (Philip Fisher), and the fact that his father's book influenced Warren Buffett's Berkshire Hathaway, "Common Stocks and Uncommon Profits (1958)".

He then built his firm around financial journalism. And of course, major free advertising:
"Fisher's Forbes "Portfolio Strategy" column ran from 1984 to 2017, making him the longest continuously-running columnist in the magazine's history."

I ran into him at an airport lounge in Chicago, back in 2015. He was a douchebag. And SO glad it's been confirmed:

https://twitter.com/x/status/1181816149371043840

"Ken Fisher believes slavery should have never been abolished".

Real nice guy!!!

And he is still writing, because that's what he does!
https://www.realclearmarkets.com/ar...rates_signal_the_end_of_techs_run_803271.html

 

[Handle123]

"Pro Trader vs Amateur Trader"

There's many difference's, most do not go into trading thinking it is a business, they never consider making a LLC when they become consistent. They not willing to give up 3,000 hours plus a year for many years to get to expert level. I have never dreamed of big houses or cars, it always been the challenge of me against me, money been a way to keep score. I have achieved goals that many only dream about, I like to be able to walk around without being noticed. I love the feeling when I awake knowing I will make money, but like anyone else who been doing it 4 decades plus, it is a job, gets like playing same video game for 4 decades.

My mindset has evolved through the years...

 

[deaddog]

"it always been the challenge of me against me, money been a way to keep score."