Short term trading vs. long term trading

Quote from lindq:

I've found over the years that there are more upside surprises than downside. One key is staying diversified and carrying a number of positions whenever possible. You can't simply take a daytrader's mentality of carring a heavy position in a single stock and moving it to a longer timeframe. You need to be in a position that if a stock does take a hit, it is a minor shock and not a big one.
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Here's something to ponder: if you got in toward the beginning of a swing, and out around the end of it, what you would find is that you would average 2-3 points per day in the ES. Go back for instance to the move that began in late November from around 1040. Let's say you bought there, and sold near the top in late January for 1140. A successful trade by anyone's measure....100 points. You would have had to sit with this position for 44 trade days. This works out to 2.27 points per day.

Let's say you bought at 1100 on March 25 and sold today at 1140. Another nice trade....40 points. 3.07 points per day for a holding period of 13 trade days.

Now here's the question: Could you make 2-3 points per day trading the ES in and out? If you could, this equals most of the longer term position trades you might have made had you had very good timing and the patience to allow them to make their move.

Trading in and out take more time, and certainly much higher commissions and/or slippage....a factor that you wanted to ignore but is foolish to ignore because they are a major factor.

My personal opinion is that day trading almost always "sounds" better theoretically. But in my opinion the traders that make the most money are the guys who hold positions for a longer period of time.

OldTrader
 
Your posts are always so good. Thank you for your contribution in this persons thread.

Please keep sharing your wisdom. Now don't let this go to your head, get back to work!

Michael B.




Quote from OldTrader:

Here's something to ponder: if you got in toward the beginning of a swing, and out around the end of it, what you would find is that you would average 2-3 points per day in the ES. Go back for instance to the move that began in late November from around 1040. Let's say you bought there, and sold near the top in late January for 1140. A successful trade by anyone's measure....100 points. You would have had to sit with this position for 44 trade days. This works out to 2.27 points per day.

Let's say you bought at 1100 on March 25 and sold today at 1140. Another nice trade....40 points. 3.07 points per day for a holding period of 13 trade days.

Now here's the question: Could you make 2-3 points per day trading the ES in and out? If you could, this equals most of the longer term position trades you might have made had you had very good timing and the patience to allow them to make their move.

Trading in and out take more time, and certainly much higher commissions and/or slippage....a factor that you wanted to ignore but is foolish to ignore because they are a major factor.

My personal opinion is that day trading almost always "sounds" better theoretically. But in my opinion the traders that make the most money are the guys who hold positions for a longer period of time.

OldTrader
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Quote from Grob109:

I trade with limited capital in intraday futures. That is the short operation for me.

For equities, I use streams of money to use up all my capital. That is because I have an upper limit of shares in any one investment. That is the long operation for me.

If I take an equal basis in capital to compare results, I get a ratio.

Intradaytrading in futures is better than position trading in equities. I make 50 times the profits in intraday than in position trading. 50:1.

I do not consider the opportunity cost because it is negligible.

I move capital from intraday to equities.

I have spent years and years optimizing how to do things in each arena.

Yesterday, I had one partial fill (bar 60, 14:26 approx) situation on an ES trade. It may take me 30 trades to exit a max position in equities. This is because of two things: I do not trade more than 10% of cumulative daily volume nor do I trade in blocks larger than those showing on T&S in real time. You may see from this that I am at an edge vis a vis efficiency. No one is able to make a lot of money if they are using too much money in a given play.
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I am not sure if I understood correctly but from what you say may I infer that if you had only a small capital to trade, say something below 100,000, then you would commit all of it to day trading since you can make 50 times more with the same amount of money in comparison to position trading?

Also, would you say that you are a worse position trader than day trader or rather that day trading can yield higher returns with the same risks (and an appropriate capital)?
 
No, I think what he is saying is that he is balanced or diversified. There are less than 8 hours to a trading day for most, and one can do only so much.

Michael B.

P.S. If he just speculated, he could be gambling. Instead he looks at the WHOLE picture as a return and a velocity of annual return.

P.S.S. Excuse me for putting my nose in this. Do I have this right? Jack?



Quote from neutrino:

I am not sure if I understood correctly but from what you say may I infer that if you had only a small capital to trade, say something below 100,000, then you would commit all of it to day trading since you can make 50 times more with the same amount of money in comparison to position trading?

Also, would you say that you are a worse position trader than day trader or rather that day trading can yield higher returns with the same risks (and an appropriate capital)?
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Quote from OldTrader:

Here's something to ponder: if you got in toward the beginning of a swing, and out around the end of it, what you would find is that you would average 2-3 points per day in the ES. Go back for instance to the move that began in late November from around 1040. Let's say you bought there, and sold near the top in late January for 1140. A successful trade by anyone's measure....100 points. You would have had to sit with this position for 44 trade days. This works out to 2.27 points per day.

Let's say you bought at 1100 on March 25 and sold today at 1140. Another nice trade....40 points. 3.07 points per day for a holding period of 13 trade days.

Now here's the question: Could you make 2-3 points per day trading the ES in and out? If you could, this equals most of the longer term position trades you might have made had you had very good timing and the patience to allow them to make their move.

Trading in and out take more time, and certainly much higher commissions and/or slippage....a factor that you wanted to ignore but is foolish to ignore because they are a major factor.

My personal opinion is that day trading almost always "sounds" better theoretically. But in my opinion the traders that make the most money are the guys who hold positions for a longer period of time.

OldTrader
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There is ONE side of the equation that is not being considered here: You will have to be correct everyday without fail at 2 pts per day to equal the one trade triggered on the swing position!
This is not possible by any means. You will lose more with increase frequency of trading. The more you trade or overtrade the greater the risk of ruin. the less the frequency the higher degree of success when if you are correct in your analysis and execution of your trade signals.

p.s. just because you hold onto a position over an extended periond of time doesn't mean that you will make more money.
You can lose 64 out of 100 trades and still come out on top.
or you can lose 6 out of 100 and still be in the red.
Money Management & Trade Management along with a Robust System is key.:cool:
 
Quote from neutrino:

I am not sure if I understood correctly but from what you say may I infer that if you had only a small capital to trade, say something below 100,000, then you would commit all of it to day trading since you can make 50 times more with the same amount of money in comparison to position trading?

Also, would you say that you are a worse position trader than day trader or rather that day trading can yield higher returns with the same risks (and an appropriate capital)?
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Now, I see more closely that you are getting responses from people that trade one market two ways. Like the ES or NQ.

My answer was dealng in a way that is parallel to Gary Smith's recommendations. That is, capital is taken out of index profits and applied in streams of short term equities applications.

The viewpoint of doing intraday trading and also short term investing is a practical pragmatic approach for two types of markets, each of which have their specific efficiencies to deliver capital to me.

I work appropriately to extract efficiently what is being presented to me by different kinds of markets each having their specific efficiencies to produce opportunities.

Two pairs of efficiencies.

People who trade the indexes us multiple contracts. I trade at market based upon keeping on the right side of the market at all times. Sometimes I am sidelined due to no activity. By saying I get to a place where it is possible to have partial fills on market orders you can see my capital limitation. I cannot put more into the effort because I would have to change my modus of operation to a less efficient one. As markets get bigger, I will do more. I am capital limited.

For equities, I limit my money streams to a maximum numbers of shares because of two limitations. Timely actions are limited by how much I impact the market personally. I do a series of market trades to enter or exit. As the money velocity of a holding declines I exit. I enter as money velocity increases and passes the stock I am exiting. This is simple first derivative stuff. And it is even more crude. For any price I only hold a maximum number of shares that directly relate to the stocks daily volume. There is a linit that I thought up for how this works.

I trade high beta stocks simply because they make a lot of money for me. They are efficient in providing capital to me. I am efficient in taking capital out.

You can see I enter late and leave early. Equally important is picking high beta stocks to enter and hold. I strive to not impact the market as I trade so it takes me many partial fills to not affect the market.

Now you can see four different efficiencies that basically determine the ratio that I gave you.

My views are basically oriented as a person's who is proactive and creative. The REX person posts from a viepoint that is not proactive and creative.

I am an amateur and I have had the opportunity to look far and wide to see where to operate with a lot of considerations. Time is the most important consideration. I acheive the highet money velocity that I can, all based upon my skills as an individual to participate in the market place. I divide the 7 hours of the day between indexes and equities.

Equal ammounts of capital applied to two different markets turn out to provide a very high contrast in profit taking efficiency. 50:1.
If I compare my best day in each, the cash on cash ratio is 1:100.
 
Quote from ChartingMarkets:

Good question and scenario. First let me address it with this:

When you decide to swing trade you have to be mentally ready to pay for the same real estate twice over. That means the following:

If you short a stock like LEH which by the way Broke the neckline of a Head and Shoulder pattern on the daily chart today. Neckline was near 81. I went short this today at 80.48 for 2500 shares. Now with a trade like this I don't know if its going to reach its implied long term target of 72 in 1 day or 1 million days. That I just don't know. What I do know through experience is that most H&S patterns that breakdown and follow through properly will at first go just about 38%-50% of the vertical distance of the pattern before coming back up to retest the broken support area. In this example of LEH I shorted 2500 at 80.48 I have already covered today after the fast drop 1250 shares at 78.09. This lowers my cost basis down substantially. Now as I write this LEH is beyond 38% but not at 50% so with this stock I will hold the remainder and probably cover the rest of it drops to 76 either today or tomorrow or whenever. If it then comes back up to the neckline a few days from now I will re-short again at resistance. This gets very subjective but the trick is to re-short at the point where you don't lost that much if your are wrong. Now if I cover the rest of my shares at 76 area and LEH continues to drop all the way down to 72 well thats the way it is. In my experience its a rarity of a H*S to make its entire vertical distance without a fight back up to the broken support area so I play the odds of past patterns and stick with my plan. Call it pot odds much like in Poker. Now I never knew when I put on this trade if LEH was going to drop this fast in 1 day or do it in 10 days or come back and stop me out. Thats the risk you take dealing with probability.

Now what I mean by paying for the same real estate twice is that when swing trading you have to be mentally prepared to let the stock zip back and forth giving up maximum profit at any given moment for greater reward later on. With the risk being you give up everything if you let the entire trade come back to your cost. The way I deal with this in order to minimize that effect is by scaling out of the trade at predetermined places based on past experiences with these types of trades.

I will post a chart here of LEH to illustrate this trade.
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covering rest of LEH here at 76.25
 
Quote from ChartingMarkets:

covering rest of LEH here at 76.25
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Nice work :) I looked at the LEH chart yesterday when you entered the position (almost at the open) - it really takes conviction to enter at such point, so the profit was well-deserved. Cheers !
 
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