Scaling a Holy Grail (swing trading)

S

Smart Money

Hey all,

No, I don't have a Holy Grail. And reading this thread won't help you figure out one through reverse engineering. But I do have a question. Let's say a person could routinely make money like they had a Holy Grail through their experience and smart loss prevention methods. Like....say they could make 50% to 100% a year. Most importantly, suppose they did this through Swing Trading STOCKS in their own personal account.

Then one day, they are discovered and offered a job running a mutual fund, or assisting on a mutual fund, etc. So instead of playing with their $10K, $50K, $100K account, they find themselves in a position with the responsibility of handling a multimillion dollar account.

My question is what kind of slippage or restrictions would they have? For example, trying to trade a $10 stock that has a Volume of 100,000 shares a day is super limiting. But maybe dropping a $1 million into Microsoft during a transaction wouldn't be noticed. I guess I'm asking where you'd start running into trouble scaling up, and how you'd counter it? Do the big traders accumulate over several days? Or ignore some stocks completely? Or just deal with slippage?

Thanks,

Smart Money
 
Smart Money said:
Do the big traders accumulate over several days? Or ignore some stocks completely? Or just deal with slippage?
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I think that we first need to discuss what big traders are hoping to accomplish and how they do it. It is my opinion that big traders are getting into trades based on fundamentals. You have guys like Buffet and such that buy companies because they like their statements and projections and want to run the business.

These guys are not looking at charts. In fact, the charts look the way they do because they are buying. As you point out, institutional buying if done all at once wouldn't be possible, so it has to be done in little chunks. From what I gathered, once a big order needs to be placed, it is up to the traders at the firm to get it done. Buy a bit... wait... sell a bit... wait... buy more as others are enticed to sell, thinking its gonna drop more, etc. And somehow by the end of the day, its been one big up trend. You see shit like this all the time in the ES. A panic sell, clears out some stops, and yet, its bought up. Why is someone lining up to buy when price is dropping?

So yes, I would say over several days if the order is big enough sounds about right. Even if the volume is low, if the research says the company is a good buy, I doubt that would scare a fund away, especially if someone knows something big in the pipeline.
 
Gotcha. Good info, thanks. But aren't there also funds that trade on TA? What do they do? Or are they secret funds that aren't generally available to the public?
 
I'm sure the big funds spread their orders around, Every stock's absorption of large positions is different but obviously a function of their volume. I don't think the way I trade currently would scale but I don't think swing trading is rarely the basis of an entire fund. I was once offered a job to add trade volume to some guy's fund because he didn't trade enough to qualify as a money manager because he had some proprietary model that just gave him trade signals a few times a year, if at all.
 
Smart Money said:
Gotcha. Good info, thanks. But aren't there also funds that trade on TA? What do they do? Or are they secret funds that aren't generally available to the public?
More...
Well this opens up a whole different issue. Yes, I'm sure there are firms out there that specialize in this sort of thing. I forget the name of this one firm, but it apparently had only 1 or 2 losing days in about 700 or 800 trading days. But I think these firms are still quite small when compared to major firms like pension funds and things like this.

I read over and over again that most firms don't use any TA, and then you read stuff where sometimes during an interview you can see charts on their monitors. Then there are stories of how they only look at the DOM.

You only have to go as far as ET to realize that there really isn't any good info out there. You have people here who denounce TA, you have others here to swear by it, and yet, hardly anything tangible to go on.

If we look at performance stats, its only the really big firms that have to publish stuff, and their results are what, 2-10% per year maybe? Many hedge funds might even be down for the year.

Anyway, trying to figure out what someone else is doing is difficult, and may not even be that helpful for you. What they do you might not be able to. They can perhaps hold shitty investments for a long time. Look at Ackman holding onto Valeant. A move like that by a retail trader would be a killer.

So as cliche as it sounds, what anyone else is doing really doesn't matter all that much. Its only what you can do, what you see, what appetite for risk you have, etc.
 
I think it was on 60 min short like "inside the black box" / HFT or something like that

A firm on there have team of quants doing computer black magic said they have losing days, but no losing weeks.
 
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