The reality of "over-trading"

loyek590 · Jun 4, 2015

chrisjs87 said:
When you quote someone. It tells you in the upper left who is being quoted. It also copies the quote from the other person. and shows you. who is talking. to who.

Oh and also, this is a forum for posting about trading, so from time to time you might find that people are posting stuff and things about trading. Hope that doesn't confuse you too much.

I'm a trader, so I am always confused. What is the purpose of this thread? Was it just to encourage other traders not to be concerned with what some may call "over trading."?

at anyrate, I'll remember it when I trade those "50 lots"

loyek590 · Jun 4, 2015

I keep asking, but nobody can tell me what a "lot"is. And thankfully, I have never traded one and hope I never do

chrisjs87 · Jun 4, 2015

loyek590 said:
I'm a trader, so I am always confused. What is the purpose of this thread? Was it just to encourage other traders not to be concerned with what some may call "over trading."?

at anyrate, I'll remember it when I trade those "50 lots"

What is the purpose of male nipples? Life itself? Shut up, you dweeb. There have to be hundreds of active users on this site, and only you found this thread important enough to be a top contributor.

http://www.investopedia.com/terms/l/lot.asp

loyek590 · Jun 4, 2015

chrisjs87 said:
What is the purpose of male nipples? Life itself? Shut up, you dweeb. There have to be hundreds of active users on this site, and only you found this thread important enough to be a top contributor.

http://www.investopedia.com/terms/l/lot.asp

If I'm the only one who found your thread interesting, that ought to tell you something.

chrisjs87 · Jun 4, 2015

I think I know what you're driving at here.

I'll have the house to myself after midnight, so you can swing by anytime after 12:30. We'll have a couple hours to "overtrade" some bodily fluids.

I'll show you what "a lot" is.

tiddlywinks · Jun 4, 2015

Handle123 said:
This is absurd, when you don't care about what you will pay for fees and spreads, you will never trade 50 lots. One dollar difference in fees per trade times time 50 lot times 10 trades a day is $500 a day times 50 weeks is $25,000.

Of course cost of doing business matters. But if the cost of doing business is the difference between profitability or not, well, then the system ain't profitable to begin with. And if a trade is made or dismissed on the basis of cost of conducting business, well, then the trader has other problems that are much more difficult to deal with.

Handle123 said:
I finish at certain time each day so you can also say same goes, but I know based on 14 years of data broken down into 15 minute increments where the blunt of the profits are for me. I want to start having a better quality of life than go for peanuts. Best time to trade that has greatest volume.

This is part of your business/trading plan. Not some vision seen through rose colored glasses... I can risk 2 and make 10 handles and be done for the day! So no, the same does not go.

globalarbtrader · Jun 5, 2015

chrisjs87 said:
The mathematical edge you have should be a constant regardless of the number of trades you make.

The point is, it isn't.

a) The more you trade the shorter your holding period. Why should your edge on a 5 second trade be the same as on a one month trade? You're playing a different game, not just playing more hands of blackjack faster.

Turning over my position around 12 times a year, I get a Sharpe Ratio of 1.0 in backtest, of which I expect to pay around 0.05 SR in costs. Now in theory if I increased by trading by a factor of 16, then according to the law of active management by raw Sharpe would go to 4.0, and by costs to 0.80. Do I think I can get a Sharpe ratio of 4.0? No way. The Sharpe ratio of my signals doesn't increase like that. I'm very dubious I'd be able to get that kind of SR without becoming a HFT (and you can't just 'become' an HFT).

b) The more you trade, the more low conviction trades you're doing. The same logic then applies. You're paying hands of blackjack when the count isn't in your favour.

So agree with IaN that your trade frequency should be a key part of your plan.

(I'm talking about average frequency. Sometimes I do zero trades a day. Sometimes I do 10. But I can tell you exactly, for each instrument, what I expect my average to be over long periods of time,)

Handle123 · Jun 5, 2015

chrisjs87 said:
No that doesn't make any sense. The term "overtrading" implies that a higher frequency of trading results in lower profits. The purported solution is to trade less("Smart"), trade higher time frames, etc. It's all a mind game to delay reality from sinking in.

Trading emotionally, or without any sort of basis for making your trades is also certainly bad form, but that doesn't necessarily have anything to do with trade frequency.

I have developed and automated HFT system, and yes it trades frequently, but has nothing to do with over trading cause of the nature of the beast, has extremely low losing percentages, it has no emotions, it is perfect as it only can be as it has been programmed, it has no options to expand or reduce signals/number of contracts. Whether if does one trade an hour or fifteen trades an hour risk always the same as is targets, it can and often does over one hundred trades in 24 hours but does not over trade nor matters of lower profits. Same goes with my manual trading, only changes in profits based on well tested/traded Trading plan when you change targets.

People overtrade most often cause of revenge of inability of retain sensible discipline and newbies overtrade the most cause emotions are all over the place and they feel that Pros go after ever little trend or movement.

Overtrading is also due to lack of education, more is not better as we are taught, comes does to extremely well back tested Trading Plan, having all the bases covered first, and truly, until you be planning the game a long time like ten years, Good Trading plans are not fully developed cause as you grow in this craft, you become aware of something that might only happen every few years and don't have an answer, and if you don't have an answer, you are in the dark.

Teycir · Jun 6, 2015

Good high probability trades with great risk reward are just not so frequent. Trading too frequently (I'm not talking about algo trading) deteriorates overall PnL. Takes 2 to 3 years to understand that concept by trial and error, past that, when you understand why trading extremely selectively is the only way to make it, you become a consistent trader. The market is 90% noise and 10% easy $ clear high odds and or high returns opportunities. Say you play mean reversion on ES as a swing trader: the easy trade is a very stretched RSI 14 nearing a strong resistance/support. This kinds of setups happen 2 to 4 times a month. If you try to force trades when the good conditions are not met, you are just gambling.

chrisjs87 · Jun 6, 2015

Teycir said:
Good high probability trades with great risk reward are just not so frequent. Trading too frequently (I'm not talking about algo trading) deteriorates overall PnL. Takes 2 to 3 years to understand that concept by trial and error, past that, when you understand why trading extremely selectively is the only way to make it, you become a consistent trader. The market is 90% noise and 10% easy $ clear high odds and or high returns opportunities. Say you play mean reversion on ES as a swing trader: the easy trade is a very stretched RSI 14 nearing a strong resistance/support. This kinds of setups happen 2 to 4 times a month. If you try to force trades when the good conditions are not met, you are just gambling.

Taking on bad trades frequently obviously will result in PnL deterioration. I don't think anyone would argue that.