Spread Trade Training
- Thread starter bone
- Start date
- Status
I wanted to offer a public response about a private message I received. We do NOT concentrate in any particular product type or space. Far from it. We have literally thousands of spread combinations in every worldwide electronic exchange. My feeling is that price trumps everything and that's what we base our analytics on. If it correlates appropriately, and if the exchange will offer us margin credits, we are definitely good to go. I personally could care less if it's DJ EuroStoxx vs FTSE or a CBOT 2's-5's-10's Butterfly. If it looks sexy and sets up well with good targeting - we take it.
If it's electronic we spread it. We have special technical studies and some techniques that are designed especially for spread trading.
Having said that, most of my clients certainly tend to spread futures because it is so inexpensive to do in terms of overnight margin. Futures meaning stock indices, short and long term interest rates, grains, softs, energy, metals, etc. etc.. A client can typically carry several different spreads overnight for just a few thousand dollars of margin - especially if you are staying away from the more volatile products. The sizing is usually quite good, and scalability is excellent in the major products. We like to swing trade, and the volatility and modeled trading range of a particular spread determines that specific trade's holding period and profit / stop-loss targets.
My clients seem to be very satisfied with the approach, and we have refined it quite a bit over time.
If it's electronic we spread it. We have special technical studies and some techniques that are designed especially for spread trading.
Having said that, most of my clients certainly tend to spread futures because it is so inexpensive to do in terms of overnight margin. Futures meaning stock indices, short and long term interest rates, grains, softs, energy, metals, etc. etc.. A client can typically carry several different spreads overnight for just a few thousand dollars of margin - especially if you are staying away from the more volatile products. The sizing is usually quite good, and scalability is excellent in the major products. We like to swing trade, and the volatility and modeled trading range of a particular spread determines that specific trade's holding period and profit / stop-loss targets.
My clients seem to be very satisfied with the approach, and we have refined it quite a bit over time.
During our Weekly recorded Group Webinar last night, we heard from a French client who paper traded for several months at around a 60 - 65 % W/L ratio. He went live a few months ago, and his live performance W/L ratio is 75%. He admits to being very selective in the live markets to date as he builds his account capital. We reviewed his trade summary performance metrics spreadsheet in detail.
Generally speaking, I find that clients who paper or SIM trade my system for several months fare the best in live markets and I strongly discourage clients who want to go live early on in the process. And yes, I freely admit to the world that if IMHO a client is doing something not in his own best personal interest, I will be as rude as it takes to get the message across.
Some clients profess that they need to have some "skin" in the game to learn. I can understand that. But the paper or SIM trading is an academic exercise where I want the client to take as many trade set-ups as he can find, and to track his performance metrics ( especially max drawdowns ) continuously. Somehow, I consistently find that even the "skin" guys trading live one lots early in the training and development process do not take nearly as many trades as the paper or SIM clients. And IMHO this is definitely NOT a good thing. It is somewhat human nature for even a well capitalized person to become timid even with one-lot spreads. I've seen wealthy guys get totally pissy at paying off a $20 bet for Christ Sakes. Strange.
It takes years after medical school to become a competent cardiologist. You have to apprentice for a time with a master electrician before someone is going to let you wire their house. I think it vital to prove out a new trading system to YOURSELF before you commit live capital. You have to be very comfortable with the risk profiles, and you have to be very confident in your own ability to make smart trade entry choices and solid profit and stop/loss targets. I need for clients to be able to identify and correct their own faults, and to be able to model and build their own spread combinations using the methodologies I teach them including correlation analysis and proper trade entry signal confirmation ( we key off of three independent factors ). Teach a man to fish and he can eat for life.
Generally speaking, I find that clients who paper or SIM trade my system for several months fare the best in live markets and I strongly discourage clients who want to go live early on in the process. And yes, I freely admit to the world that if IMHO a client is doing something not in his own best personal interest, I will be as rude as it takes to get the message across.
Some clients profess that they need to have some "skin" in the game to learn. I can understand that. But the paper or SIM trading is an academic exercise where I want the client to take as many trade set-ups as he can find, and to track his performance metrics ( especially max drawdowns ) continuously. Somehow, I consistently find that even the "skin" guys trading live one lots early in the training and development process do not take nearly as many trades as the paper or SIM clients. And IMHO this is definitely NOT a good thing. It is somewhat human nature for even a well capitalized person to become timid even with one-lot spreads. I've seen wealthy guys get totally pissy at paying off a $20 bet for Christ Sakes. Strange.
It takes years after medical school to become a competent cardiologist. You have to apprentice for a time with a master electrician before someone is going to let you wire their house. I think it vital to prove out a new trading system to YOURSELF before you commit live capital. You have to be very comfortable with the risk profiles, and you have to be very confident in your own ability to make smart trade entry choices and solid profit and stop/loss targets. I need for clients to be able to identify and correct their own faults, and to be able to model and build their own spread combinations using the methodologies I teach them including correlation analysis and proper trade entry signal confirmation ( we key off of three independent factors ). Teach a man to fish and he can eat for life.
Dear Mikettes,
I do not feel that I am arrogant - that implies asserting superiority over others. If I was "superior", I would not be able to admit that I am wrong or that I overstepped. I do that all the time in posts. I also possess a sense of fairness - which arrogant persons do not. In my trading, I take or mark a loss every day - so that is certainly not a very reinforcing aspect to superiority.
I am very assertive in my convictions when it comes to hypocritical behaviors, being taken advantage of or being gamed in my personal conduct and business affairs, and I admit to being hard on clients who at first ignore the "soft-sell reasoned" approach and continue to repeat mistakes and ruinous self-destructive habits or ignore sound advice meant to protect their financial best interests. I cannot continue to have a good consulting business when clients lose money. Humans frequently sabotage themselves and bad habits can be very hard to break.
I've had several or more clients who are active members on the Big Mike forum, and am open to taking more clients who are willing to put in the effort and do the work.
I do not feel that I am arrogant - that implies asserting superiority over others. If I was "superior", I would not be able to admit that I am wrong or that I overstepped. I do that all the time in posts. I also possess a sense of fairness - which arrogant persons do not. In my trading, I take or mark a loss every day - so that is certainly not a very reinforcing aspect to superiority.
I am very assertive in my convictions when it comes to hypocritical behaviors, being taken advantage of or being gamed in my personal conduct and business affairs, and I admit to being hard on clients who at first ignore the "soft-sell reasoned" approach and continue to repeat mistakes and ruinous self-destructive habits or ignore sound advice meant to protect their financial best interests. I cannot continue to have a good consulting business when clients lose money. Humans frequently sabotage themselves and bad habits can be very hard to break.
I've had several or more clients who are active members on the Big Mike forum, and am open to taking more clients who are willing to put in the effort and do the work.
100% agree bone. There are a few lucky people who for whatever reason possess the large quantities of patience and discipline needed to be successful in this business. For the rest of us it is very hard to break bad habits and it will be a long journey where most wont make it to the destination. I can imagine trying to teach people to be successful traders can be very frustrating.
Every really big independent trader in Bond and Note Pits at the CBOT used to keep a trading journal. One of my mentors, David Ellis from the CME S&P pit - demanded that I keep one. I know it sounds hokie and old-fashioned, but anything you can do to avoid repeating mistakes and to reinforce good judgment is positive P&L. Being brutally honest with yourself reaps huge gains. With this very high level of self reflection and analysis also comes the ability to take losses just as easily as you take a trade entry. And that's when decent traders become incredibly good traders.
To do it effectively without getting picked off - very expensive. Just price out your own dedicated ECN that can compete and RTS or Portware for execution and you are looking at North of $50K per month from what I have been told, YMMV. My mantra the past few years has been that swing trading spread positions is a much more effective and a more efficient use of capital for MOST types of clients.
Due to a Confidentiality Agreement, I cannot disclose the name of a very prominent Chicago HF firm I did some project consulting for in 2010 and 2011. All I can say is that HF is much more competitive and infrastructure dependent ( $$$$$$$$$$$$ ) than ever and margins have certainly compressed.
For my own personal trading, I would prefer not to deal with all the turbulence and flipping and execution hassles. Besides, spreads are so freaking cheap to margin overnight. I just can't get behind automated intraday for my own personal trading unless I had access to a good arbitrage that hasn't been exploited by a gazillion shops yet. And I haven't lucked into one of those recently. But if I do, I would ride that horse until it fell over dead - then I'd share.
I do have some clients who trade as you describe, but like the old saying goes... if you have to ask then you can't afford it :eek:
yeah keeping a journal is something every rookie knows they should do but most don't do it religiously. I once met a trader who had journalled and took a screen shot of every single trade he had ever made in 10+ years. He just had the sort of character where he liked keeping records of everything to the point of obsession. Needless to say he was very profitable.
- Status