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[pinabetal]

Ed Seykota View on Short Term Trading
An email question sent to Ed Seykota:

I have a simple question regarding short term trading. You and others have stated that short term trading cannot be as profitable as long term trading since transaction costs eat into profits and magnify losses. It is not because trends do not occur in short time frames as they clearly do. Since markets are fractal in nature, this makes sense. Therefore, if transaction costs could be reduced proportionately such that a reduction in timeframe did not lead to them being a larger part of costs incurred, then short term trading could be just as profitable as long term trading. Is that a correct conclusion to draw?

Seykota’s response:

Check your feelings about wanting to justify your positions by using qualifications and excuses. If pigs had wings, they could fly.

Seykota clarifies later on his site:

Intraday trading is tough since the moves are not as big as for long-term trading and there is no comparable reduction in transaction cost. In general, short-term trading systems succumb to transaction costs and execution friction. You might simulate your system over historical data and notice how sensitive it is to assumptions about where you get your fills. The shorter the term, the smaller the move. So profit potential decreases with trading frequency. Meanwhile, transaction costs stay the same. To compensate for profit roll-off, short-term traders have to be very good guessers. To improve guessing skills, you can practice dealing cards from a standard deck, one at a time. When you become very good at it you might be able to make money with short term trading.

Interesting, but I believe the opposite. One example is the long term upward drift in the equity markets--there is no such advantage in the short term.

Not to mention, u can risk smaller size and ride for massive gains if/when u hit it correctly in a trending market.

surf

true that upward drift is an advantage .....in some ways, however, at the cost of giving up compounding your money that short-term trading affords. And compounding is a huge exponential profit maximizer.

 

[heavenskrow]

It sounds like you're taking frequent trades (my guess) so I'll share with you how I personally managed my trading in a prop futures setting. I hope its helpful and feel free to follow up if I miss the mark.

1. The first bump is the hardest - 1 to 2 lots. For me, I waited until I was several thousand dollars positive and a couple draw checks in the bank first so that first bump was purely about building up a few thousand dollars in positive equity.

2. Subsequent bumps were strictly on a personal reward basis. My own rule was: 3 Green Day's in a row and I took a bump up. 2 Red Days in a row and I took a bump back to the previous sizing level.

3. I kept a trading journal. I know it's cliche and corny but it works. I kept my sizing bumps in my journal. I also tried to be as brutally honest with myself as I could in the journal. I reviewed my entry, my exit, my analytics, my reasoning, and my emotions. Sincerely that journal was responsible for the consistency increases. It was also a great position management reinforcer. Keep in mind that I am using a mouse, a TT screen, CQG, and later a Bloomberg in this setting. No algos - occasionally an Autospreader.

4. In terms of losses I would usually give up a day but NEVER more than a week. What drove that was that a few years into this adventure I was supporting a family with my trading. You gain perspective when you are paying a mortgage, insurance, tuition, cars, kids, vacations, 401K, etc. etc. out of your trading. In a twisted way the fact that it was no longer just about me really throttled my loss threshold.

Yeah I've been doing #3 for quite a bit and it's the one thing that's helped me on my road to consistency. Takes up a lot of time but it's well worth it. Heck I'm sure most of the trading journals of profitable traders are worth more than any book on sale right now as it contains a lot of important information.
Really helps to identify why you lost on a trade, or what caused that trade to be a big winner.

 

[Gotcha]

Heck I'm sure most of the trading journals of profitable traders are worth more than any book on sale right now as it contains a lot of important information.

Totally agree here. So often even when a trader wants to explain what they do, they never quite get it right. But when you are able to look at their trades, it sometimes paints a much different picture. Even given a set or rules, different people will do different things with it. The actual trades that are entered, and where they are exited is more valuable to me when evaluating a trader than hearing them go on and on about what they do or how they think they do it.

 

[trickshot]

Ed Seykota View on Short Term Trading
An email question sent to Ed Seykota:

I have a simple question regarding short term trading. You and others have stated that short term trading cannot be as profitable as long term trading since transaction costs eat into profits and magnify losses. It is not because trends do not occur in short time frames as they clearly do. Since markets are fractal in nature, this makes sense. Therefore, if transaction costs could be reduced proportionately such that a reduction in timeframe did not lead to them being a larger part of costs incurred, then short term trading could be just as profitable as long term trading. Is that a correct conclusion to draw?

Seykota’s response:

Check your feelings about wanting to justify your positions by using qualifications and excuses. If pigs had wings, they could fly.

Seykota clarifies later on his site:

Intraday trading is tough since the moves are not as big as for long-term trading and there is no comparable reduction in transaction cost. In general, short-term trading systems succumb to transaction costs and execution friction. You might simulate your system over historical data and notice how sensitive it is to assumptions about where you get your fills. The shorter the term, the smaller the move. So profit potential decreases with trading frequency. Meanwhile, transaction costs stay the same. To compensate for profit roll-off, short-term traders have to be very good guessers. To improve guessing skills, you can practice dealing cards from a standard deck, one at a time. When you become very good at it you might be able to make money with short term trading.

This is what I've been saying for years. Daytrading cannot possibly be more profitable than long term trading without huge volatility (= large intraday range), frictional costs only cease to matter when you can risk 2 pts to make 10+ pts, intraday.

 

[volpri]

Interesting, but I believe the opposite. One example is the long term upward drift in the equity markets--there is no such advantage in the short term.

Not to mention, u can risk smaller size and ride for massive gains if/when u hit it correctly in a trending market.

surf

Totally agree here. So often even when a trader wants to explain what they do, they never quite get it right. But when you are able to look at their trades, it sometimes paints a much different picture. Even given a set or rules, different people will do different things with it. The actual trades that are entered, and where they are exited is more valuable to me when evaluating a trader than hearing them go on and on about what they do or how they think they do it.

I agree.
The entries...exits..SL... are all indicated on most all my charts I post. However, my SL's vary in size depending on the context in which I take the trade. Many times I only enter a hard SL of 1 point. Sometimes 2. In rare occasions 3. And on very rare occasions 4 pts SL in the ES. Most are 1 to 2. If trading NQ then stop losses are different.

 

[bone]

Here's a topic - in my day trading career (90's early 2000's) I've had to reinvent my "edge".... my "setup"... every 3 or 4 years. It seemed like the bid-ask got too crowded and traded out too fast, or slippage made the proposition too vulnerable, exchange order fill priorities fucked me, or my highly correlated intermarket keys became uncorrelated.

I've been trading a swing trading sysytem for the past several years and it has held up so well. IMHO, I've come to believe that modeling and trading in longer time frames just seems to hold up. In some ways I've come to believe that to find a way to insulate yourself from the noise and the circuses can be an edge ??

 

[volpri]

Without looking like an ass may I remind all that 70 years ago there were trends...ranges..channels...trendlines...wedges...Dt...Db...triangles...flags..pennant....spikes...head and shoulders..reversals...etc ad nauseum. In the 80's the same patterns were still there. In the 90's and 2000's they were there. In 2016 they were there. In 2017 they ARE here. 70 years ago trading by handrawn charts and they were there. Now in 2017 computers trade probably at least 70% (and probably more like 80%) of the trading activity. AND the SAME patterns are still there. Human nature and our DNA WILL have to change drastically for trading to change. "How" we actually do our trading will change as technology changes (hand dawn charts vs computer generated) but the chart patterns based on human nature and behavior will always be the same at least for the next several hundred years (if the end didn't doesn't come first). So....learn price action trading via patterns and you will not lose your edge. Learn what happens when the patterns are successful (i.e. the PA results in expected price action) and just as important learn what to do when the patterns fail and how PA will probally act upon failures. Fundamentals will change as demand..supply changes..etc. TA indicators will work and then stop working for a while. However, PA patterns have always been with us and will be for the foreseeable future. So learn them well ...when and how to trade them ...and what to do when they fail. Your edge will continue.

 

[volpri]

This is what I've been saying for years. Daytrading cannot possibly be more profitable than long term trading without huge volatility (= large intraday range), frictional costs only cease to matter when you can risk 2 pts to make 10+ pts, intraday.

Not so.

 

[themickey]

Not so.

As an EOD trader, I believe daytrading for some traders could be more profitable however much more work is required, the level of attention is far greater.
Day trading is unforgiving where distraction is involved.
If you were being paid an hourly rate of return I think EOD may be better, probably unproveable though.