What Really Counts Getting Started

[pinabetal]

There are no rules you need to impose on yourself when trading, but there are general advices that will avoid noobs blowing up first time they try. If you lose 20 times in a row, will that be a catastrophic loss for you? Btw, 1-3% is meant to be from total account size, aka all your money, not just a small trading account ready to be comfortably blown up.

Likewise, rules such as decreasing trading size when "doing bad" are cruches, since it'll decrease profits or increase loss if your trading rules do have an edge after all.

So I agree it's silly to impose such rules without regard to overall trading plan, but they are better than nothing in the beginning.

20 times in a row! I'd quit.

 

[volpri]

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.

No one seems to get it. Transaction costs are peanuts compared to the compounding effect of short-term trading. If you are really good at it.

 

[bone]

No one seems to get it. Transaction costs are peanuts compared to the compounding effect of short-term trading. If you are really good at it.

And that's the catch. Being really good at short term trading. That is a particular skill set not easily mastered these days with a mouse and a price ladder. The bids and offers trade out SO fast and the "noise" makes holding a position tough for most mere mortals.

 

[Visaria]

I feel like I've been here before....discussing all this....this time with a fresh set of newbies.

I'm out.

 

[volpri]

And that's the catch. Being really good at short term trading. That is a particular skill set not easily mastered these days with a mouse and a price ladder. The bids and offers trade out SO fast and the "noise" makes holding a position tough for most mere mortals.

not talking about 1 or 2 tick manual hft scalping. Talking about 1 to 8 points in Es. Don't need price ladder for that.

 

[volpri]

The problem is that you don't know your win rate in advance. In fact, you don't know anything about the future.

Nothing is for certain but past performance can be somewhat indicative of future performance regardless of what the disclaimers say......ROFLMAO....OR backtesting is pigwash..and a waste of time. TA.....a waste of time. Fundamental analysis...a waste of time...ET a waste of time...algo...a waste of time...hft's a waste of time...history a waste of time...trading a waste of time....i suppose you will arise tomm and put your pants on and shoes on and brush your teeth and comb your hair....at least we hope you do because you have done it in the past. Your past win rate across different market conditions over a long period of time can be indicative of your skills and hence your future IN TRADING....LOL If you don't know yours then you may not be trading or trading but not tracking....what you can't know is IF you will be here tomm. Life is short and uncertain but within the ocean of uncertainty there are rituals and patterns and cycles that repeat over and over again and again.

 

[volpri]

Just a side note about independents holding fat accounts: I've had several clients get caught up in the Man Financial and PFG Best shit show. And to say the least it really sucked for them through no fault of their own. I personally got caught up in the Griffin mess in the late '90's but the CBOT took over made me whole and transferred me over to Kottke overnight (which was amazing). I think having a T-Bill in my account helped. But to have to have gone through a long, convoluted, tortuous process to get back to me what was legally mine I can't contemplate.

The really good, high earning independents I've come across the past several years are using multiple modest accounts of (say) $50K each, or they're keeping some amount like $50-75K (pick some number) in an account and if their FCM's Risk Dept. wants more capital you can wire it to them in an hour. Personally, I have just NOT seen big independents keep fat trading accounts with sizable portions of that capital not being utilized. These days guys do a lot of wire transfers, and given recent history FCM's don't have the moral high ground to bitch about it.

Keeping only what you need in your account for your style of trading helps to force one to be disciplined and keeps one constantly be aware of how fast money can slip away. And how fast it can be made. Plus tends to cut down on revenge trading and trading too big.

 

[volpri]

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.

I see it as exactly opposite. It is easier to short-term trade than long term. Plus it is less risky. But i admit...i am abit of a rebel to tradition. I question deeply most pundits advice.

 

[volpri]

Most will trade bigger and with higher frequency with a large account--- when I said "broker" my meaning is the entire market infrastructure--- do you really think the kingdoms of wall street are built solely on commission?

True...true..true..well said!

 

[marketsurfer]

I see it as exactly opposite. It is easier to short-term trade than long term. Plus it is less risky. But i admit...i am abit of a rebel to tradition. I question deeply most pundits advice.

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