That “One Trade”…that changed your Life F-o-r-e-v-e-r
- Thread starter pak
- Start date
When looking at the PnLs, there are always two charts
At a minimum the charts show the date and ticker symbol - symbol has been the same for over a year - I only day trade 1 instrument at a time
I understand you like I already told before. If you see passive aggression, you see something that in reality is not there. I have and see no reason to be agressive. Maybe you stumbled across an acorn that was not there?
If you understand - then why it a pity you "we" cannot judge
Either you understand..., or it a pity - cannot be both - hence the passive / aggressive
With understanding - there is no pity - only empathy
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btw...; ever eat an acorn - not all that tasty..., squirrel otoh - with dumplings - that's good eatin right there (essentially rat with a bushy tail)
RN
First of all, my native language is not English.
Secondly, I never studied psychology nor all the exact definitions of all English words and constructions of sentences.
"I understand" that you don't want to give to much details, wouldn't do it either. And "it is a pity" because it would be interesting to know. I say "we" because I am not the only person who reads this. Others probably find it a pity too.
But I understand your personality better now.
Pity that we cannot have a normal conversation.
If you want to find hostility it is not difficult. When you have enough imagination you can find it everywhere.
You know how to write empathy, but empathy is not your strongest point.
I hope I did not write too many mistakes against the English language and used "I" or "we" correctly and at your convenience. And if I offended you in any way, please forgive me. I am just stupid and cannot change it.
And here a bit of basic math
Start the day out with X capital in your trading account (only the net $ amount - no buying power)
Increase / decrease said amount over the day - no matter if one trades 1 instrument..., or 20 dozen
Determine the delta (iow - subtract what you ended with - from what started with -> net capital only..., no buying power factored in)
Divide this delta - by what you started with
That provides the % gained / lost for the day
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example
Begin of day = - $10K
EOD = $11K
Delta = $1K (got lucky and made a profit
)$1K / (divide by) $10K = 10%
Made - 10% today
Again - whether you traded 1 instrument..., 20 dozen instruments..., 1 share..., 10 gazillion shares
Long as it traded in the same account - this tells the story
If multiple accounts - simply add them up (beginning of day / then EOD - and do the same exact math
RN
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@Redneck: Made me reflect if this (% of return) is an important question in the first place. Please allow me to verbalize my musings. They have not been vetted, so I could have committed some grave fallacies of reasoning. If so, please feel free to point them out.
What came to my mind first were the words of Franz Kafka:
"Better to start right than to start with what is acceptable"
I know measuring performance as a percentage of return is the acceptable thing to do, but is it the right thing to do?
For a fund manager
(A) A fund manager measures performance as a percentage of assets (returns) not for the purpose of evaluating herself, but to compare her performance with her peers. This comparison is not an act done for the sake of itself, but has an ulterior motive -- the motive of accumulating capital. So, returns, seems to me, is used as marketing tool to attract capital.
(B) But, the investors are not naive. They want to know how the fund manager obtained her returns; so, they are interested in returns per unit risk. Risk is a huge subject in itself. With an ethical fund manager, an investor faces two types of risk: (i) risk of capital loss -- this is a knightian uncertainty. This cannot be measured ex-ante; (ii) risk of return volatility -- this assumes that capital investment will be intact, but the returns are volatile. This can easily be measured ex-post. However, when returns per unit risk is calculated only the return volatility is used as a proxy for total risk. This, although acceptable, is not meaningful to all investors. In fact, the only group of investors that can use this measure are managers of Defined Benefit Plans. For our purposes, we do not have to go any further. Note: Leverage is not the same as risk.
So, a fund manager uses returns as a comparative tool to attract capital, while the investor uses returns, rightfully or not, to evaluate the manager.
For an Independent Trader
(A) On the surface, it looks like returns could be used as a proxy to opportunity cost for an independent trader -- i.e., from an economic sense, do it make sense for the independent trader to do what he is doing give other opportunities available to invest the capital.
(B) However, this thought does not capture the intrinsic benefit derived by the trader by owning a business. So, the proxy proposition can be discarded.
(C) Is there any other use for returns to an independent trader? I would submit that the answer is a resounding 'no'. A better measure would be ex-post expectancy for a period -- a period that makes sense to the Trader (and not any one else) based on his trading style. A positive expectancy would mean the trader should be in business; and the size of expectancy would provide the trader a means to plan expansion of business.
For example, if a trader makes $10 net profit every 10 days of trading with $10,000 capital, then, in a year (assuming 200 trading days), the trader would make $200 per year. What is important is that the trader consistently make $10 very 10 days ex-post. The 10 days is picked by the trader based on his trading style (his understanding of this trade signal, # trades taken, yada yada yada). From a yearly return perspective, this could seem very small 2%, but we all know the business of trading is unlike many other business -- it can be leveraged. So, to make $200K, the trader would need $10M, but could use leverage. A path exists to "grow" the business. Returns are useless 'cos the Independent trader is interested in earning a living for himself and his family; and, the absolute dollar-amount of net profit is what matters to him.
As a side note: I get an impression that many (or, may be, just a few) ET-ers do not understand the prop-house business model. Everyone understands a fund manager's business model and seem to think the same model applies to prop-houses too. In an another thread, when poster said that a prop-house had a 80% profit-sharing plan, one responder responded stating that this was all non-sense for even the best hedge fund managers command 35% performance fees. What was surprising was that many readers agreed with that responder. Only if that responder had taken time to understand the difference in business models (and legal constrains faced by fund managers) he wouldn't had exposed his ignorance by making his claim.
For Trader in ET evaluating other Traders
(A) I really don't understand why one independent traders needs to evaluate another Independent trader. Is it because for a trader to agree with another trader, one needs conformation that a trader is really a successful trader? Imagine the situation we would run into if a star NFL quarterback refuses to listen to his coach for the sole reason that the coach was not a successful NFL quarterback. Yet, this seem to reoccur again and again here.
(B) Or, is it because traders in ET are skeptical about other's success? If that is the case, then any amount of "supporting documents" is not enough. One can always, and for valid reason, ask for more confirmation. My question is (rhetorical of course), if one does not believe in a clam made by a trader, why not just ignore that trader and move on? Why all the rattling and finger pointing? If one is claiming success by lying, it is the liar's problem not the listener's, isn't it?
(C) In any account, returns of an independent trader are not meaningful to another independent trader. It seems to me that what another independent trader should be interested is in a trader's expectancy -- not the size but the direction: Is the independent trader having a positive or negative expectancy. Note: This expectancy can be defined only based on the trader's period 'cos that is what makes sense to that trader.
When it quacks like a duck, and walks like a duck, most probably it is a duck. But the problem is one needs to be aware how a duck sounds, and how a duck walks before one can make the above inference. Maybe that is the problem here. Not very many people have seen ducks or are ducks themselves, so they have problems making the inference!
But then what do I know -- clearly very little!
@Redneck, I would be interested in your thoughts on why you think this (% of return on assets) is an important question, and why a trader should be continuously focused on it. Definitely not interested in how much you make, for this doesn't help me grow my knowledge!
Regards,
Moniod.
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What language is that?
Bulgarian...
Clearly I disagree with this sentiment
Please recall as you read through - this meant for a trader - focused on trading..., not a trader - focused on becoming a trader
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I set a daily goal of making between X and Y%
Those percentages have commensurate dollar amounts – equating to a range in dollars
This gives me a defined goal – every day – to work toward (I find without a defined goal I tend to wonder.., especially over time)
This daily goal - is an anchor I use – to center / set / prepare myself – I know what need be done…, best I get my head out of my ass…, nut up.., get it done
It gives me a defined goal – that when hit – I’m done for the day (eliminates overtrading/ unnecessary risk/ second guessing)
When I start making over this goal – I know it time to sweep the account and begin anew - too much capital in the account = too much risk exposure / have exceeded the point of diminishing returns
When I consistently make less that this amount – something amiss
Could be one thing…, could be multiple – either way I am able to back track…, identify…, fix it/ them
Could also mean; I am simply getting lazy (under-trading / not pushing myself appropriately – or - I’m tired…, and it time for vacation
This one aspect
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Next;
Affords me the ability to track / ensure capital utilization is consistently optimal
Never my intent to trade for the shear fun of it - nor it my intent to ever over expose my ass
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Next;
To attain the targeted range (daily goal)
It necessary I capture a specific % of the ADR (which since ADR is measured in one direction – capturing a little in both directions obviously goes toward this and eases the one direction requirement)
But / and – it also necessary that I’m able to purchase a certain number of shares on each trade
In short; it necessary the instrument move enough.., be priced right.., have adequate volume…, have adequate liquidity
Knowing where I need to end up – I’m able to back into..., and find / ensure - I’m trading the appropriate instrument
I've found either too much…, or too little (movement / price / volume / liquidity) – can be (and usually is) bad for me (not conducive to my optimal trading / performance)
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By tracking daily % goal vs actual – I get quicker (least I believe it quicker) insight into behavioral changes / nuances of the instrument I’m trading
Thumb on the pulse as it were
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And…, saving the best for last!!!
Trading is strictly a performance based business
We are paid solely based on our performance
Which I'm perfectly fine with (actually love this aspect) – but…, it also means
I better damn well be focused squarely on my performance
And so I am – every day…, every trade
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Aside;
Off the top of my head – can’t think of another occupation were employees / bosses aren't held accountable…, don’t have goals to meet
Trading is no different in this aspect - we must hold our self accountable..., we must have goals to meet (to get there - best always know where there is)
What is different - we simply can’t afford an off day…where other’s certainly can
Come ready…, or simply don’t bother coming - is my mindset
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And so no one walks away from this with the wrong impression
Do I have losing trades
Absolutely..., positively bet your ass I do – nearly every day
Losing trades are a normal part of trading – just as profitable trades are
Neither impedes me..., nor my trading in the slightest
I can dig out of a hole…, because I have dug out of a hole – many times (matter of fact I did so this past Friday)
I’m fully prepared..., and expect to do so again – when / as often as - required
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Just a dumbass redneck; doin the best I can.., with what I got
And all along the way - holding my self accountable / setting goals / measuring my performance / ensuring I'm utilizing capital optimally / ensuring I'm trading the correct instrument / tracking if - when the instrument's behavior evolves
Hope this makes sense Sir
RN
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