you can't put a price on your dignity; your time is a close second.
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The Real Cost of being a Proprietary Equity Trader
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you can't put a price on your dignity; your time is a close second.
continuing the current Octover 2005 article.... (there's a limit of characters on each post to being under 10,000 words, so I had to break up the article into pieces)....
continuing article
Some Constraints
The aforementioned list of day-trading approaches is far from comprehensive. In fact, there are hundreds, if not thousands of combinations and permutations for each method or combination of methods that can and do fill books. Without going into the merits of any methodology, all day trading suffers from the same constraint â time. Day trading involves executing strategies within highly limited timeframes. The longest is from open to close. The shortest can be a few seconds. In all cases, once the time limit is imposed, there is no flexibility unless the day trade is extended to the following dayâs (or nightâs) session, in which case it no longer is a day trade. Given the time constraint, an obvious pitfall is any potential lack of price movement within the defined interval. If a trade cannot be completed within the allotted time interval, it must be abandoned.
In addition to the time constraint problem is the problem of transaction velocity. There are two facets of transaction velocity. First, of course, transaction velocity is associated with trading frequency, and the more frequent the trading, the higher the transaction costs. The second aspect of transaction velocity, often ignored, is apparent only when trading is ongoing. As alluded to at the beginning of this article, there is a physical process required to formulate, enter and exit a trade. Some models are too sensitive to allow a realistic physical market entry and exit.
As an example, I recall a system Iâll call âXâ to avoid casting aspersions on the creative process of the systemâs inventor. System X dates back to the introduction of handheld programmable calculators. A day-trading system was programmed into a handheld that consistently identified $0.02 price movements in soybean futures. The problem was that the $0.02 moves would come and go before a trader could post the entry and exit orders. The computer simulation then assumed you had executed a trade when, in fact, you were out when you were supposed to be in and in when you were supposed to be out!
More emphasis, by far, has been placed on day-trading transaction costs. Although rates can be negotiated down to bare bones, even at the lowest cost levels a high-velocity system can chew up profits with commissions. This is why many day-trading systems that look great on paper turn out to be duds when used in real markets with real commission costs.
Fortunately, a growing emphasis is being placed on physical demands of day-trading, which includes time required to execute entries and exits. The common term associated with this, of course, is slippage. In many cases, by the time a trader has identified a trade, entered the order, received a fill and calculated an exit, the intended transaction has been missed. Even if not completely missed, there can be considerable erosion between the amount anticipated and the amount realized. If this is characteristic of the day traderâs approach, profitability will be negatively skewed.
Physical demands also include the routine of getting up every morning, mounting the saddle and riding the market from beginning to end. It may sound easy, but day trading can be extremely exhausting. Unless you have nerves of steel and a cast-iron stomach, day trading will extract a physical toll. Among the exhaustion symptoms I have experienced or witnessed friends and associates experiencing are headaches, digestive problems, sleeping disorders, tension or anxiety, irritability, delusion and depression.
continuing article
Some Constraints
The aforementioned list of day-trading approaches is far from comprehensive. In fact, there are hundreds, if not thousands of combinations and permutations for each method or combination of methods that can and do fill books. Without going into the merits of any methodology, all day trading suffers from the same constraint â time. Day trading involves executing strategies within highly limited timeframes. The longest is from open to close. The shortest can be a few seconds. In all cases, once the time limit is imposed, there is no flexibility unless the day trade is extended to the following dayâs (or nightâs) session, in which case it no longer is a day trade. Given the time constraint, an obvious pitfall is any potential lack of price movement within the defined interval. If a trade cannot be completed within the allotted time interval, it must be abandoned.
In addition to the time constraint problem is the problem of transaction velocity. There are two facets of transaction velocity. First, of course, transaction velocity is associated with trading frequency, and the more frequent the trading, the higher the transaction costs. The second aspect of transaction velocity, often ignored, is apparent only when trading is ongoing. As alluded to at the beginning of this article, there is a physical process required to formulate, enter and exit a trade. Some models are too sensitive to allow a realistic physical market entry and exit.
As an example, I recall a system Iâll call âXâ to avoid casting aspersions on the creative process of the systemâs inventor. System X dates back to the introduction of handheld programmable calculators. A day-trading system was programmed into a handheld that consistently identified $0.02 price movements in soybean futures. The problem was that the $0.02 moves would come and go before a trader could post the entry and exit orders. The computer simulation then assumed you had executed a trade when, in fact, you were out when you were supposed to be in and in when you were supposed to be out!
More emphasis, by far, has been placed on day-trading transaction costs. Although rates can be negotiated down to bare bones, even at the lowest cost levels a high-velocity system can chew up profits with commissions. This is why many day-trading systems that look great on paper turn out to be duds when used in real markets with real commission costs.
Fortunately, a growing emphasis is being placed on physical demands of day-trading, which includes time required to execute entries and exits. The common term associated with this, of course, is slippage. In many cases, by the time a trader has identified a trade, entered the order, received a fill and calculated an exit, the intended transaction has been missed. Even if not completely missed, there can be considerable erosion between the amount anticipated and the amount realized. If this is characteristic of the day traderâs approach, profitability will be negatively skewed.
Physical demands also include the routine of getting up every morning, mounting the saddle and riding the market from beginning to end. It may sound easy, but day trading can be extremely exhausting. Unless you have nerves of steel and a cast-iron stomach, day trading will extract a physical toll. Among the exhaustion symptoms I have experienced or witnessed friends and associates experiencing are headaches, digestive problems, sleeping disorders, tension or anxiety, irritability, delusion and depression.
I
I'm french and I as my english is far from perfect ..I'm a little bit confused.
If I sumarise your comments...
To be a prop trader .. we need money...$25 000 to 50 000
+ fees...
We have to trade according to their rules...crazy scalping fews skiny ticks.. instead of following all the move...
and the chance of acchieving a good living is very low....
Am I wrong?
I'm actually searching for some of theses companies to offer my service...
I only know swift trade could give me some others name..
Thank you
I'm french and I as my english is far from perfect ..I'm a little bit confused.
If I sumarise your comments...
To be a prop trader .. we need money...$25 000 to 50 000
+ fees...
We have to trade according to their rules...crazy scalping fews skiny ticks.. instead of following all the move...
and the chance of acchieving a good living is very low....
Am I wrong?
I'm actually searching for some of theses companies to offer my service...
I only know swift trade could give me some others name..
Thank you
Quote from montana:
I
I'm french and I as my english is far from perfect ..I'm a little bit confused.
If I sumarise your comments...
To be a prop trader .. we need money...$25 000 to 50 000
+ fees...
We have to trade according to their rules...crazy scalping fews skiny ticks.. instead of following all the move...
and the chance of acchieving a good living is very low....
Am I wrong?
I'm actually searching for some of theses companies to offer my service...
I only know swift trade could give me some others name..
Thank you
No "rules" just risk parameters.
Stopped "scalping" years ago. Function with the NYSE specialists.
Keep overnights, trade core positions.
Do pairs trading, M&A, automated entry/exits, etc.
Use $1Million or more daily, free of charge.
Success is up to you, we can't predict how hard you're going to work, and how quickly you'll pick up our training.
Don
So if I understand I have little problem..money...
I don't need specific training...I a m good technical analyst...for exemple I have forecast long time ago the last top on the cac 40 4650...for the 04 10 2005 Price and time...and I use my approach is ok to all markets...all time frame...One guy told me "that if we where living in middle age I could I'have been burnt as sorcerer !!!(one comment among many)...so I don't really need to be trained...a few tips probably...
But I' m always broke cause I don't I have the money to trade...
vicious cercle...
Thank you for your answer...
I don't need specific training...I a m good technical analyst...for exemple I have forecast long time ago the last top on the cac 40 4650...for the 04 10 2005 Price and time...and I use my approach is ok to all markets...all time frame...One guy told me "that if we where living in middle age I could I'have been burnt as sorcerer !!!(one comment among many)...so I don't really need to be trained...a few tips probably...
But I' m always broke cause I don't I have the money to trade...
vicious cercle...
Thank you for your answer...
Quote from montana:
So if I understand I have little problem..money...
I don't need specific training...I a m good technical analyst...for exemple I have forecast long time ago the last top on the cac 40 4650...for the 04 10 2005 Price and time...and I use my approach is ok to all markets...all time frame...One guy told me "that if we where living in middle age I could I'have been burnt as sorcerer !!!(one comment among many)...so I don't really need to be trained...a few tips probably...
But I' m always broke cause I don't I have the money to trade...
vicious cercle...
Thank you for your answer...
You don't know how many times every week I hear the same thing...."I don't need training" and "I don't have any money" at the same time.
If you really think you can do it, then start small, show how much discipline you really have by saving some money to trade retail for a while...compound the money.
Good Luck,
Don
"Physical demands also include the routine of getting up every morning, mounting the saddle and riding the market from beginning to end. It may sound easy, but day trading can be extremely exhausting."
ya, right. i am sitting here jamming away to music on the overhead speakers, chatting with Lescor (Corey), working away on my excel sheets, watching positions, floating orders, paying bills, planning the weekend, taking notes and studying options ... and saying to myself that I need to put on some clothes and take a shower.
and, oh yeah reading Elitetrader.
i dont think it gets more contrary to the article of day trading being stressful. it is all about perspectives.
patrick
ya, right. i am sitting here jamming away to music on the overhead speakers, chatting with Lescor (Corey), working away on my excel sheets, watching positions, floating orders, paying bills, planning the weekend, taking notes and studying options ... and saying to myself that I need to put on some clothes and take a shower.
and, oh yeah reading Elitetrader.
i dont think it gets more contrary to the article of day trading being stressful. it is all about perspectives.
patrick
continuing the current Octover 2005 article.... (there's a limit of characters on each post to being under 10,000 words, so I had to break up the article into pieces)....http://www.sfomag.com/homecoverdetail.asp?ID=1260859405&MonthNameID=October&YearID=2005
continuing article
Consider the advertisements. âSpend just a few minutes a dayâ¦â âEnormous profits from intraday movesâ¦â âLearn how to day trade for huge gainsâ¦â Indeed, some day-trading stints can generate substantial returns. The ultimate goal is to retain the winnings without sacrificing health, happiness and family. Ad copy tells about all the advantages and may have dozens of endorsements. We never hear about failures in marketing literature and pitches.
System Failures
Another interesting and almost stealth day-trading pitfall is system failure. System failures can range from your workstationâs meltdown to a platform failure and even an exchangeâs system crash. Without describing all the details, I was involved in a successful day-trading system for one of the commodity markets. In the middle of my session, the entire exchange platform crashed, and I was left with open positions and no way out. And the market, of course, was not going in my desired direction. Suddenly I was confronted with a new and totally unanticipated risk. What do you do when an electronic market fails in the middle of your strategy?
I learned an important lesson about the advantages of side-by-side markets. These are markets that have both electronic order matching and open outcry execution. I also learned the importance of overnight sessions and global markets. Admittedly, day trading should not necessarily turn into night trading. Yet there was a time when the lack of liquidity during the night session extended an advantage to intrasession methodologies. Anyone who has traded energy or currency products certainly understands what I am saying!
One of the worst expressions bantered about by brokerage firms is ânot held.â These two words can engender the most awful, sinking feeling imaginable. The term means your broker is not held responsible for a lack of execution. If you read your account agreement, it is likely you will find language disavowing any responsibility for your order execution with the exception of willful misconduct or gross negligence. If you have never had to prove willful misconduct or gross negligence when asserting a claim, keep it that way. I have found it next to impossible to successfully argue that a brokerage firm acted with willful misconduct or gross negligence. Even in a case like Enron, the chance for recovery from a broker is slim.
The danger of a not-held situation is that your quote screen may flash that your objective has been reached when, in fact, there was no trade on your behalf. Thinking that you are in the market when youâre out or the other way around may cause you to execute another leg of your strategy. Alas, you can find yourself in unintended positions that are exactly the opposite of your intended winning strategy. By the time you learn you were not filled, you might execute dozens of trades based upon no position.
continuing article
Consider the advertisements. âSpend just a few minutes a dayâ¦â âEnormous profits from intraday movesâ¦â âLearn how to day trade for huge gainsâ¦â Indeed, some day-trading stints can generate substantial returns. The ultimate goal is to retain the winnings without sacrificing health, happiness and family. Ad copy tells about all the advantages and may have dozens of endorsements. We never hear about failures in marketing literature and pitches.
System Failures
Another interesting and almost stealth day-trading pitfall is system failure. System failures can range from your workstationâs meltdown to a platform failure and even an exchangeâs system crash. Without describing all the details, I was involved in a successful day-trading system for one of the commodity markets. In the middle of my session, the entire exchange platform crashed, and I was left with open positions and no way out. And the market, of course, was not going in my desired direction. Suddenly I was confronted with a new and totally unanticipated risk. What do you do when an electronic market fails in the middle of your strategy?
I learned an important lesson about the advantages of side-by-side markets. These are markets that have both electronic order matching and open outcry execution. I also learned the importance of overnight sessions and global markets. Admittedly, day trading should not necessarily turn into night trading. Yet there was a time when the lack of liquidity during the night session extended an advantage to intrasession methodologies. Anyone who has traded energy or currency products certainly understands what I am saying!
One of the worst expressions bantered about by brokerage firms is ânot held.â These two words can engender the most awful, sinking feeling imaginable. The term means your broker is not held responsible for a lack of execution. If you read your account agreement, it is likely you will find language disavowing any responsibility for your order execution with the exception of willful misconduct or gross negligence. If you have never had to prove willful misconduct or gross negligence when asserting a claim, keep it that way. I have found it next to impossible to successfully argue that a brokerage firm acted with willful misconduct or gross negligence. Even in a case like Enron, the chance for recovery from a broker is slim.
The danger of a not-held situation is that your quote screen may flash that your objective has been reached when, in fact, there was no trade on your behalf. Thinking that you are in the market when youâre out or the other way around may cause you to execute another leg of your strategy. Alas, you can find yourself in unintended positions that are exactly the opposite of your intended winning strategy. By the time you learn you were not filled, you might execute dozens of trades based upon no position.
It sounds like that article is basically saying that day trading can be tough, that you can encounter all sorts of problems and that you won't necessarily make as much as the advertisements claim.
And the premise of your sounding the alarm bells on the dangers of prop trading (although I infer from the article that you refer to this means daytrading in general) is based on this?
Anyone who endeavors to start trading as a career and does not fully understand all these issues upside down and backwards deserves any pain that the market metes out on them. It's not like the prop firm's advertising is the only form of information on what it takes to trade for a living. The resources are endless, this site being the main one I recommend to everyone who asks me about trading.
There is simply no excuse for failing and then saying "I didn't know", or "I was duped". None. If that is your line, then you probably failed because you can't take responsibility, not because you were taken in by the hype of the big bad prop firm.
When you step up to the plate, you know the risks. And if you don't, then you shouldn't be in the game.
And the premise of your sounding the alarm bells on the dangers of prop trading (although I infer from the article that you refer to this means daytrading in general) is based on this?
Anyone who endeavors to start trading as a career and does not fully understand all these issues upside down and backwards deserves any pain that the market metes out on them. It's not like the prop firm's advertising is the only form of information on what it takes to trade for a living. The resources are endless, this site being the main one I recommend to everyone who asks me about trading.
There is simply no excuse for failing and then saying "I didn't know", or "I was duped". None. If that is your line, then you probably failed because you can't take responsibility, not because you were taken in by the hype of the big bad prop firm.
When you step up to the plate, you know the risks. And if you don't, then you shouldn't be in the game.