What do you think matters most in trading?

[fullautotrading]

What I'm having trouble grasping is how more opportunities will give you better returns.
Again my experience is mainly with the stock market where diversification is good up to a point but after that the returns tend towards average.

Think by extremes. A guy with a $1000 account will have the same opportunities as Warren Buffet ?

If you still are not convinced by the drawing. Let's make an example with numbers.

Investor 1 has funds X and is short 1 on 1 given instrument. Investor 2 has funds 10X and is short 3 on that instrument. Investor 2 is allocating his (larger) capital to other instruments too obviously, some of which are also long protective legs.

You can imagine, as an example, we are dealing with put options, for instance. Now the market falls and the margin requirements for that option go up.

Investor 1 experiences a decline of say L due to the pure loss and, say, that the rise of margin requirements arrives at (X-L) so that he finishes the available funds. He is forced to close the position.

Available funds for Investor 2 are 10X - 3L - 3(X-L) + PNL variation of other instruments + Total Margin Requirements Variation. He has 7X plus the (PNL variation of other instruments) minus the possible increase of margin req on the other instruments.

Now, considering that investor 2 can have any other instrument and obviously he has probaly used some of his capital to buy long protective legs too, it turns out that the (PNL variation of other instruments) may even be a significant gain which adds to the 7X (or a small loss).

Also, the total Margin Requirements Variation may not be reducing significantly his available funds due to the hedging effect of long legs and the portfolio margin method.

So for all practical purposes, having more $$$, and a proper algorithm that uses it efficiently, obviously, will give you often the possibility to continue trade where "smaller fishes" have to give up or stop.



Real-world example. Investor 1 (top) was trading around 1MM (and he did not mention he had not selected the portfolio margin method).

Investor 2 (bottom) and a larger account and was using proper margining.

What happened? When the mkt went down, the first one was not able to ride the way up because many of his position had been either hedged (with unfavorable buy orders) or even liquidated.

So he delayed significantly his returns.

The algo will still carve inexorably a profit because it exploits a real edge, but the unfavorable orders have dampened it.

It's quite simple stuff. Nothing arcane

 

[fullautotrading]

No sarcasm at all, I was telling as I see it.
I've never heard of trading with; quote: "no trades at all".
Nor do I doubt you. If you say so then I'll accept it as I don't categorize you as a bs artist.

Yup, the past 18 odd months my old form of a trading method has had the shit kicked out of it, so attempting another tact, my latest journal was exploring another method, but it too is found wanting so have atm have stopped trading.
The volatility/chop atm on ASX is beyond what I've ever experienced, but all good, working on that atm.

> I've never heard of trading with; quote: "no trades at all".

Well, you hear it now from me , themickey

When I started this journey decades ago I was really shocked by the staggering amount of BS I was witnessing. Many people literally copy and paste concepts mindlessly from others creating a real perpetuation of bullshit. Backtesting miths, TA miths. All stuff that I (and I guess many of my colleagues) would have liquidated as plain nonsense within the first 10 seconds. Instead, in this "trading world" they are even objects of comprehensive treatises and books

Lately, we had to witness even "quantum finance" It's really the happy fair of cluelessness and desperation

Most of my efforts and a lot of waste of time for me always derived from getting rid of bad external influences and all the nonsense which was presented as legit or meaningful.

Perhaps, it's because I come from a totally different background, but frankly, almost anything I have seen seemed BS to me

About the no trades, if I give you the following list of orders (or any arbitrary list with arbitrary order sizes and directions):

Thu 02 Jun 2022 12:53:14:518 edt SELL 20 @ 9.5 Comms: 28.4
Fri 10 Jun 2022 08:33:07:538 edt BUY 10 @ 12.75 Comms: 14.2
Mon 13 Jun 2022 11:53:23:570 edt SELL 10 @ 23 Comms: 14.2
Mon 13 Jun 2022 15:44:24:627 edt BUY 10 @ 26.5 Comms: 14.2
Wed 22 Jun 2022 13:32:54:347 edt SELL 10 @ 14.75 Comms: 14.2
Mon 27 Jun 2022 09:47:20:967 edt BUY 10 @ 10.25 Comms: 14.2
Mon 04 Jul 2022 18:54:11:082 edt SELL 10 @ 6.75 Comms: 14.2
Wed 06 Jul 2022 10:18:46:153 edt BUY 10 @ 7.5 Comms: 14.2
Thu 07 Jul 2022 10:25:57:396 edt SELL 10 @ 5.25 Comms: 14.2
Fri 08 Jul 2022 09:38:33:077 edt BUY 10 @ 5.25 Comms: 14.2
Fri 15 Jul 2022 10:00:13:306 edt SELL 10 @ 3.85 Comms: 14.2
Fri 15 Jul 2022 10:07:12:033 edt BUY 10 @ 4.45 Comms: 14.2
Tue 19 Jul 2022 11:30:59:013 edt SELL 10 @ 2.95 Comms: 14.2
Tue 19 Jul 2022 14:42:36:758 edt BUY 10 @ 3.05 Comms: 14.2
Wed 20 Jul 2022 10:33:40:536 edt SELL 10 @ 2.25 Comms: 14.2
Wed 20 Jul 2022 12:47:17:942 edt BUY 10 @ 2.5 Comms: 14.2
Thu 21 Jul 2022 15:35:03:462 edt SELL 10 @ 1.7 Comms: 14.2
Thu 21 Jul 2022 15:41:29:655 edt BUY 10 @ 1.9 Comms: 14.2
Wed 27 Jul 2022 11:16:03:696 edt SELL 10 @ 1.3 Comms: 14.2
Wed 27 Jul 2022 13:59:56:387 edt BUY 10 @ 1.55 Comms: 14.2
Wed 27 Jul 2022 15:24:04:160 edt SELL 10 @ 1 Comms: 14.2
Wed 27 Jul 2022 15:56:16:595 edt BUY 10 @ 1.3 Comms: 14.2
Thu 28 Jul 2022 11:13:40:348 edt BUY 10 @ 1 Comms: 14.2
Thu 25 Aug 2022 11:39:23:465 edt SELL 10 @ 7.25 Comms: 14.2

Can you tell me what identifies the "trades" that have been made here?

And, more importantly, is it really useful to reason in terms of "trades" for strategic purposes? Or is it better to allow order "superposition", ultimately forgetting about the concept of (disjoint) trades

Language boils down to agreed definitions. But the use and avoidance of certain terms may denote a different set of ideas being deployed.

 

[virtusa]

Your limit is that you do not know what I do in particular or, in general, how far human imagination can reach in this area with decades of hard work.

That's exactly my experience after more than 25 years trading.
The post below confirms what you say. The questions that are asked have no relevance with the way I trade.

When you place your 'bet' on a trade can you determine with exactness what the outcome will be?
Can you say the trade will be exactly this price at this time when I sell?
No!
You do not know for certain each individual 'bet' will be a winner or loser or at what price or at
what price or at what time.

@themickey
I think you think like the classical way of trading. But there are other approaches possible.
For me trading is not gambling at all. I see it probably like @fullautotrading .
My answer to your questions would be:

• I can never determine the exact outcome (because the market is dynamical).
• I can also not say the exact price when I sell.

But that's not important and not a proof of gambling.
What I know is:

• I get my signals not from price but from timing. So if I get a signal, I should buy/sell at market price, no matter what the price is. So I don't care about the price.
• Same for closing the trade. Timing is important, not price. Price will automatically be good if timing is good.
  
• I know with very high probability that I will always enter at a very good price and exit at a very good price.
• I also know that I will have a very high rate of winning trades.
• I also know that my average profit per winning trade is many times bigger than the average loss per losing trade. So very positive expectancy.
• My winning rate and profits are so far away from what normally the "gambling statistics" would be, that it is very clear and visible that it is not gambling.

Constant winning rates above 80-90% are not rates you can get with gambling. And profits that are a manifold of the losses neither.

 

[Goldlover]

We're curious, what is the one thing that matters most in trading, according to you?

View attachment 320192

Let us know what you think, and if your ideas click with other traders and add value, ninZa.co Indicators would like to give you a little gift as a token of appreciation!

Keep going and stay hopeful – that's key in trading.

 

[fullautotrading]

For a few dollars, there are literally PhDs giving away their reputations and turning their thesis advisors and the founders of quantum mechanics in their graves to grab a few skimpy dollars from the publication of trash can books.

If they had even the slightest idea, they would be trading instead of trying to profit from popular idiocy and gullibility

 

[deaddog]

Think by extremes. A guy with a $1000 account will have the same opportunities as Warren Buffet ?

If you still are not convinced by the drawing. Let's make an example with numbers.

Investor 1 has funds X and is short 1 on 1 given instrument. Investor 2 has funds 10X and is short 3 on that instrument. Investor 2 is allocating his (larger) capital to other instruments too obviously, some of which are also long protective legs.

Couple things to consider,

Position size is not equal. If the small account is short one then the large account should be short 10

You are assuming the position goes against you. If the position moves in your favor, the small account has a greater percentage return.

Hedging is done to propect capital, one instrument increases while the other decreases. This does not increase returns, only smooths out volatility.

I'll agree that if you have sufficient capital the mental stress of a huge drawdown may be less because you know that you won't starve to death. You are probably less inclined to buy at the top and sell at the bottom. Buy and hold the index or better yet dollar cost average into it.

However you haven't convinced me that having more capital will increase your systems returns.

 

[fullautotrading]

Couple things to consider,

Position size is not equal. If the small account is short one then the large account should be short 10

You are assuming the position goes against you. If the position moves in your favor, the small account has a greater percentage return.

Hedging is done to propect capital, one instrument increases while the other decreases. This does not increase returns, only smooths out volatility.

I'll agree that if you have sufficient capital the mental stress of a huge drawdown may be less because you know that you won't starve to death. You are probably less inclined to buy at the top and sell at the bottom. Buy and hold the index or better yet dollar cost average into it.

However you haven't convinced me that having more capital will increase your systems returns.

>Position size is not equal. If the small account is short one then the large account should be short 10

Of course, it is not equal. You do not trade a 10MM account like you trade a 500K account, simply proportionally resizing the orders. That would be an extremely naive and inefficient use of capital. If you can access more hedging tools and also "distribute" your capital, you will use these opportunities.


> You are assuming the position goes against you. If the position moves in your favor, the small account has a greater percentage return.

Not in general, because you need to consider the other active layers. You need to imagine that there can be hundreds of different instruments active. One has to consider the strategy in its entirety. In addition, if one takes stops worth 100K it is of no consolation if he is temporarily relatively more profitable

Example (93 layers):

>Hedging is done to propect capital, one instrument increases while the other decreases. This does not increase returns, only smooths out volatility.

Hedging is done to mitigate drawdowns, but it can also add additional profit (actually, under extreme circumstances, the profit stemming from the hedging devices can be a multiple of what you make ordinarily).

Look at this chart:

this is the "payoff" relative to the previous screenshot. When the S&P falls, the long legs "kick in" and the bot scalps them too. S&P falling means moving toward the "peak" of that (dynamically shifting) mountain on the left.

So you must imagine a machine that dynamically balances the long/short as much as possible, but as the price fluctuates it takes profit scalping from both the short and the long legs when it is possible. In the meantime, the decay is ordinarily working for you and you are covered on a very large range of underlying prices, with a cover-up that is dynamically "sliding" together with the underlying.

On top of all that, you have a stop-recovery mechanism based on rollovers (or as I call it, more properly, "information transfer"). So that the unfavorable orders you made, are gradually "unwound", when possible. A larger account has also a greater capacity to "unwind" the unfavorable orders (previously used to hedge), thus achieving a greater load on extreme moves

So things may not be as trivial as you envision. And that is why I told you that it depends entirely on your approach.

If you are not "convinced", of course, it is not a problem It's still useful to explain the arguments. For me, it's just a fact of life that a 10MM account normally makes more than a 1MM account or a 500K, in relative terms.

Clearly, if you trade "naively", making disjoint trades on "signals" (which, btw, by themselves alone will never provide you any edge), and, for a bigger account, you just resize the orders, it's obvious that you expect the relative return to be the same. That is trivial and does not even need to be mentioned. But it's not the proper way to scale up. You do not trade 10MM exactly as you trade 500K: simply resizing the same orders! Well, at least, I don't

 

[deaddog]

But it's not the proper way to scale up. You do not trade 10MM exactly as you trade 500K: simply resizing the same orders! Well, at least, I don't

If I get to 10MM then it will be because I scaled up using the same strategy that got me this far.
So far it has worked. No margin, limited risk, no stress and I manage to fund my lifestyle and grow my liquid net worth.

 

[fullautotrading]

If I get to 10MM then it will be because I scaled up using the same strategy that got me this far.
So far it has worked. No margin, limited risk, no stress and I manage to fund my lifestyle and grow my liquid net worth.

> If I get to 10MM then

I sincerely wish you do, deaddog!

 

[ironchef]

> If I get to 10MM then

I sincerely wish you do, deaddog!

It is like The Tales Of Two Cities here. There are pros and then there are retails.

We retails live in a completely different world and I appreciate you sharing your perspective. Your (and @virtusa's) perspective is something I will never have because no matter how successful I am, I will never be you or have your resources and tools.

Some of us do become very successful with portfolio size similar to your magic number, still we are non professionals.

Best to you sir.