The Electric Day Trader and Ruin. How probability oppposes short-term investors.

let me say this: i secretly hope you can make a living off trading

the phrase ‘the odds are stacked against you over the long run’ is like saying ‘there is no Santa Claus’ to an eight-year-old

we dream, we want to be free . . . i do too . . .

but i don’t want to fall into the trap of ‘learning’ and ‘feeling thrilled’ while trading, just for the sake of it. markets are interesting, but i do want to make money. consistently

what i don’t want to do is to simply transfer my savings to intermediaries, who have a vested interest in keeping a very high turnover. So they are energizing, galvanizing, stimulating, involving, revolving etc. the trading crowd

i want to take a dry approach to the situation, instead

if you’re doing it for fun, or hoping to make a quick buck now and then, that’s ok

but if you’re undercapitalized vs your expectations, it may be more prudent to stay away, or paper trade, really

for example, if you have $1 million, and you have decided you can commit $100,000 to your trading account (knowing that if you blow up, in the worst case scenario, you won’t be hurt, it won’t affect your lifestyle), you can probably make, what, 20-30% per year (just a guesstimate) on your trading account. if you’re good. 20-30K per year off trading. not bad, but nothing grand. still ok if you like what you’re doing

but, taking another extreme, if you have a total wealth of $100,000, and can commit, say 10K to trading, there’s nothing wrong with that in itself. but do the math, and see if this suits you. well maybe it does, maybe it doesn’t. but the plan should be balanced against expectations, at least I think so

the unpleasant conclusion from this is that trading, including day trading, may be more suitable for already wealthy/rich people

by the way, i think commodity trading is a slightly different story, although, for full disclosure, i’ve never live-traded commodities . .. there are successful people in commodities, and maybe more of them, on average, than in equities. maybe. but it’s a very dangerous game, and you better really know what you’re doing . . . you need to get special forces training before you go into an actual combat situation . ..

Varima Garch
 
I have been daytrading for 4+ years and my biggest daily drawdown to date is < 3%, in fact its usually no more than 0.5% on avg. The 25% drawdown in the example is dumb, no experienced trader will risk 25% on one trade, thats just poor risk management. Btw the long term guys (yes I am talking about the looooong term investors) can get wiped out as well with poor risk management. Risk of ruin applies to everyone, not just daytraders. You need to get out of the trade if you are wrong, thats trading (and probably "investing") basics.

Most ppl fail at daytrading because its very difficult to find a good positive edge, many ppl think they have one but they have none in reality. Some get lucky for a couple of months and they mistake that luck for edge. No amount of psychobabble or emo crap can replace a good edge, you can never be profitable if you have no edge, its that simple.
 
Quote from Pa(b)st Prime:

I recently wrote an article in TM on something related. It's not just risk per trade but risk per campaign that needs to be considered. If a trader took 10 straight shorts during the index rally, even if he only lost 2.5% per trade he'd be down 25% on the move. Not to mention if you were wrong in two or more highly correlated markets.

In some futures markets-soybeans, Bonds, currency futures, gold-it's pretty hard to limit your loss to anything less than $500 a contract. Five bills is only a 5 dollar move in gold. One needs to be pretty darn exact to trade with a 2 dollar stop.
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Truth #1: any type of successful trading is hard. Damn hard. I think everyone who tries their hand at this profession very long will agree. I don't think there has ever been a long period of time where trading is easy. Some single events, some days, some weeks are easy... but not entire months or years at a stretch.

Truth #2: we as individuals usually make successful trading much harder than it really is. Every one of us brings negative emotions and behaviors into our business operation that delays, stalls or kills the process of learning to succeed.

Truth #3: each of us needs to develop and secure some type of consistent market "edge" while at the same time develop and control our negative emotional behaviors. That requires playing mix & match with endless different variables and nil constants on the path of making it all work.

*

I've stopped by here from time to time for the past 37 months. One thing that's apparent? The content never changes. Endless threads about how trading is hard, trading is impossible, nobody makes money trading, etc x1,000.

One thing that is equally sure for the next three years if ET is around: the exact same topic threads will crop up to an even greater degree from now thru May 2012. Know why that is a fact? You will see more threads flogging the myriad topics of failure and far fewer threads discussing key components to success.
It is a fact for fundamental reasons based on the very makeup of this website.
 
is this a shared account? One post you can hardly put together a single correct English sentence and this now sounds very different ...hmm....

I still dont get what your point in this thread is and your revelations to the rest of us. Anything new that we did not yet know?

I really would like to know if you dont mind....

Quote from Ms Varima-Garch:

let me say this: i secretly hope you can make a living off trading

the phrase ‘the odds are stacked against you over the long run’ is like saying ‘there is no Santa Claus’ to an eight-year-old

we dream, we want to be free . . . i do too . . .

but i don’t want to fall into the trap of ‘learning’ and ‘feeling thrilled’ while trading, just for the sake of it. markets are interesting, but i do want to make money. consistently

what i don’t want to do is to simply transfer my savings to intermediaries, who have a vested interest in keeping a very high turnover. So they are energizing, galvanizing, stimulating, involving, revolving etc. the trading crowd

i want to take a dry approach to the situation, instead

if you’re doing it for fun, or hoping to make a quick buck now and then, that’s ok

but if you’re undercapitalized vs your expectations, it may be more prudent to stay away, or paper trade, really

for example, if you have $1 million, and you have decided you can commit $100,000 to your trading account (knowing that if you blow up, in the worst case scenario, you won’t be hurt, it won’t affect your lifestyle), you can probably make, what, 20-30% per year (just a guesstimate) on your trading account. if you’re good. 20-30K per year off trading. not bad, but nothing grand. still ok if you like what you’re doing

but, taking another extreme, if you have a total wealth of $100,000, and can commit, say 10K to trading, there’s nothing wrong with that in itself. but do the math, and see if this suits you. well maybe it does, maybe it doesn’t. but the plan should be balanced against expectations, at least I think so

the unpleasant conclusion from this is that trading, including day trading, may be more suitable for already wealthy/rich people

by the way, i think commodity trading is a slightly different story, although, for full disclosure, i’ve never live-traded commodities . .. there are successful people in commodities, and maybe more of them, on average, than in equities. maybe. but it’s a very dangerous game, and you better really know what you’re doing . . . you need to get special forces training before you go into an actual combat situation . ..

Varima Garch
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Ms Varima-Garch


Registered: May 2009
Posts: 22


05-27-09 02:23 PM

andrew lo is academic and the successful trader

..................._END_

I am a skeptic, show me where an academic is a sucessful trader.

PS: let me correct that, show me where Andrew Lo is a winning trader.
 
Quote from Robert Weinstein:

"Random walk theory was invented by college professors to explain why they can't beat the market average at cocktail parties" RW
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Precisely! What's the saying, "If you can't beat them,...formulate a cock-a-hoop theory to prove them wrong"


Very unsporting indeed.




Dackster.
 
Quote from Robert Weinstein:

"Random walk theory was invented by college professors to explain why they can't beat the market average at cocktail parties" RW
More...

Allow me to elaborate . . .

"Random walk theory was invented by college professors to explain why they were too lazy to research price action on their own and who couldn't beat the market average so they had to write something to talk about to potentially get laid at cocktail parties"

You go Bob . . .
Spring abounds in the North . . .
Have fun and prosper . . .
 
Assume that you plan to trade indefinitely rather than aim toward some specific objective
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Substitute "trade" for any other verb in the english language and the absurdity of his premise becomes glaringly apparent.
 
Afraid I had to stop reading at "For simplicity’s sake..", since yet another "postulate a spherical cow" argument isn't going to improve my game :-/
 
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