Winning or Making Money?

Quote from Spectra:

Hi Mav,

In theory I agree with you 100%. That is why I am prepared to shift, out of necessity to a larger market.

The only thing I can't explain is why this has not happened yet; at least to the last advisor that I went to take a personal mentorship.

This advisor is very well known, has written a book and numerous articles, has at least 300 people in the trading room, and has had the room for I believe about 3 or 4 years now.

When I was at the guru's office and a room call was made, there did not seem to be much slippage going on. And after the mentorship, I remained in the trading room for a few months and not once did any of the guru's customers complain that they were getting bad fills taking the signals.

You can also go to the CBOT website and find a number of articles where other well known traders state their approval of the DOW e-mini. And the volume has increased in that contract since the articles and my mentorship.

What do you take from that? Maybe the 300 room members are really not acting at one time? That might be true. I don't know. Maybe there are more funds using the DOW as a hedge?

Maybe it's the arbs keeping it in line? I can't explain it Mav. Maybe someone else can come up with a reason.

What was the worse fill you ever got Mav? I don't trade during lunch time and right before Bernanke speaks. My worst slip has been 2 pts. That is 10.00 per contract. For me that is still 2.50 better than the normal price one has to pay for the S&P spread.

One of the people who govern the trading of the S&P stated that the spread there is wider in order to accommodate the floor scalpers, that there is a built in slippage for them to make a living. Remember the howls when they went decimal?

Who do you think pays for the price spread on any contract?

So in theory I agree with you though I don't think I am ready to guarantee that we will be unable to trade the YM in the near future because of unacceptable slippage.

Good trading tomorrow.

Alex L. Wasilewski
Co-Founder & Head Trader
Trades That Work
www.puretick.com
More...

Thanks for your honest thoughts, I appreciate that. Perhaps the reason why you haven't seen the slippage is simply because a great majority of the traders in the room cherry pick the trades they take. Which wouldn't be surprising at all.

At any rate, wish you the best of luck in this tough biz.
 
Interesting point Jem,

May I ask you what you consider a real edge to be comprised of?

I may be wrong, but the way i see it, it's about having a system you understand and makes sense, impecable money management and the psychology to not "sabotage yourself" emotionally (aka not shooting yourself in the foot).

What is your view on a "real edge", if you consider that it's making the difference?


How did you get to making money? How were you before?

We (non-illuminated) would really need more opinions here. I think there are lot of people who know the difference. Why don't you share them?

:)
Alex

PS: With all due respect Alex and Mav, stop talking about the damn trading room, will ya? Either you respect the thread, or you don't post anymore... Thanks!
 
Quote from alex.samant:

Maverick, do you have anything to say regarding the topic :) ? I'd love every opinion out there. I think this is the dilemma a trader faces at big turning points in his career.
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I believe you're referring to the adage that making money has little to do with a high win rate... for ex, see turtles with their sub 40% win rates and yet great success etc... So the reality for these guys is that they take losses on 7 out of 10 trades and still come out nicely ahead due to the large wins on the 3 other trades.

This is only my opinion, and I don't expect others to follow me in it, but I think that for anyone looking to make a living out of trading, the above is a crock. If you want to be a money manager who pays the bills from his salary and then gets a performance fee at the end of the year, sure go ahead and win 30% of the time BIG like a turtle and make money after stomaching 7 losses. But you have to be prepared to weather months if not years sometimes of equity drawdowns and sideways performance to get to the breakouts that will make you money.

For everyone else, especially those looking to make money consistently, a la Marty Schwartz, or Mark Cook, or Linda Raschke with short term trading, I believe that a high win rate is an ESSENTIAL prerequisite. Read what they have to say: these 3 traders all admit to having win rates in the 70-80% range. They have developed edges that allow them to pull the trigger time after time with full confidence. They typically don't sit through protracted drawdowns, in fact, Schwartz himself never had more than a 3% drawdown on his way to $20million. And the best of them have excellent reward to risk ratios on their completed trades, typically in the 1.5 or 2:1 range. So they can lose 3 times in a row, and be down small if the 4th is a winner. In other words, they have excellent DRAWDOWN RECOVERY power. That is KEY to successful execution, imo.

This is where I disagree with conventional wisdom and I've changed my views over the years. They say: Don't be focused on win rates, try to get at least a 3:1 on your trades. Sounds great doesn't it? Sounds like the real deal, right? Wrong. It isn't. Simply because it is tremendously hard to CONSISTENTLY achieve a 3:1 reward risk ratio in trading. And then you wonder why people go broke winning 25% of the time, looking for their proverbial 3:1, lol.

What I say is this: there is a reflexive relationship between a trader's win rate, his avg reward risk ratio, trading frequency and his mindset/ability to execute calmly. If any one of those 3 variables is out of whack, it will affect his performance in due time. For ex, for the guy who has a very high win rate but an inverted risk reward, 5% of the time an unexpected series of consecutive losses will throw him off and it will take him longer to dig himself out, leading to mistakes and more drawdown. Mind you, there are some who claim to be able to do that (Whitster on this site comes to mind, but I don't trust what anyone says here without verification), in the name of positive expectancy. Or take for ex the guy with a 50% win rate, but high reward risk of 3:1, even with a 50% win rate, 3% of the time he will see 5 consecutive losers in a row and get discouraged and quit, or change his system etc.

So what to do? I believe that to be a peak performer or to be the BEST or among the BEST, you have to have 3 things going for you: a 70% win rate or higher, a reward risk of 1.5:1, preferably 2:1 net, after commissions and slippage, and ample trading frequency. That to me is the SWEET SPOT of trading which optimizes the trader's mindset/psychology.

Of course, those who don't have a real edge will tell you those numbers aren't achievable. It's up to you to decide. I believe that they are, actually, I KNOW that they are. But you believe whatever you want to believe based on your experience, research. I'm not going to argue about it, don't have time for that.

So to answer your question in short: making money is about optimizing your mindset and execution abilities. And you can only achieve the optimal mindset if you have a real EDGE comprised of 3 things: a high win rate, good reward risk, and enough opportunity.
 
maverick just expressed most of my thoughts.

if you can get a 70% win rate, and even 1 to1 risk reward after commissions and 10 trades a day you could probably rehabilitate 90% of the prison population.

Nothing makes a good trader likes successful trades and I have been making that argument on these boards for years.

A guy named darkhorse wrote some very interesting things on this subject as well a few years back.
 
Quote from alex.samant:


:)
Alex

PS: With all due respect Alex and Mav, stop talking about the damn trading room, will ya? Either you respect the thread, or you don't post anymore... Thanks! [/B]
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Hi Alex.Samant,

Guess the thread was getting convoluted and you did start it so that should be the only topic. I was trying to answer two ideas at once.

In the middle of a previous response I posted:

To address the success as compared to making money issue, I would like to recap what 3 out of the 4 advisors with whom I personally traded advised me and what Lewis Borsellino, one of the most successful and largest independent S&P traders in the world has said. I am recapping from my notes but I will quote so as not to take credit for his words.

“The first commandment in the 10 Commandments of Trading is to trade for success and not for money. When a newbie handles more risk than he's been used to, he begins worrying only about the money. That will impact his trading decisions.”

I will admit that during the first couple of years that I made the transition to short term trading that money was the only barometer I used. Gradually when I was given specific rules and a plan to trade by, then following that plan became the barometer for success. That was a tough transition. Interestingly, after the room became public, it became a heck of a lot easier avoiding emotional trades. People in the room would instantly ask, “What the heck made you do that?” They know my methods. Subscribers would start leaving if I couldn’t follow my own rules.

Hope that helps a bit.

Success tomorrow,

Alex L. Wasilewski
Co-Founder & Head Trader
Trades That Work
www.puretick.com
 
Winning and making money, the OP states are opposites.

True.

One is a form of gaming the other is optimizing.

They come from differing paradigms and the paradigms have little overlap.

One poster spoke of three factors for his trading which is in the realm of gaming. (win rate, reward/risk, many opportunities).. This scope and bounding may be the limits of winning and, of course, it does not enter the arena of making money as we see by it's limitations.

It is really tough to deny the opportunity to make money to one's self. Chosing winning (gaming) automatically eliminates making money (optimizing extraction from the markets)

Making money deals with effectivensss, efficiency and optimization, i. e., being in the market always, being on the right side of the market, and taking the action to achieve this at the right times.

As seen by the six facets put on the table, there is no appreciable overlap.

Everyone approaches the markets as an opportunity. The viewpoint of the person is often affected by his heritage and ethics and somtimes his formal and informal training.

Most often the conventional orthodoxy captures a person since this externality is pervasive and unavoidable.

Balanced portfolios are the definition of avoiding the timing issue of the financial industry. Pain rules as the decision maker in such portfolios. Risk is not a close second but it is where the word "edge" comes from. Edge promulgated the whole mathematics of the industry all the way down to the anomoly search of the quants.

Look at the spectrum of possibilies and see where winning ends and making money begins. The line in the sand defines "separate but equal". But the equal isn't a reality. Only some kinds of performance are "unbelieveable" and they are not gaming ones.

The big money standard, a gaming one, comes out at a level where the averages are not beaten. The averages are what is called standing still in terms of the concept of "worth". Below this level of worth, losing is going on. Above it winning is first seen, then something else happens. In real estate people make money. It is not gambling, it is a case of supplying the demand by systemmatically adding value to a scarce resource.

By looking at the spectrum of trading and seeing where the line is that separates winning and making money you get to see two sets of characterisitics and their respective limitations.

The best spectrum to lay out is "effectiveness" because, effectiveness counts chips at the end of the day.

Go from MA's on three levels, to triples and on to BO trading. Look at the P and L thread to see the spectrum. Chips are garnered and the time in the market is low as a percent.

A PhD who monitored traders as sports types got to a 25% per anuum standard of success. This is above the average's take.

To see the target of effectiveness, you simply measure what is there to be taken and see how that value is met by those who are making money. There is a direct relationship to making money and time in the markets. It is especially connected to the money velocity of price movement in the market.

The pace of the market is determined by activity; activity is directly related to volatility as well. Pace VS volatility shows one's path re: the potential to be effective.

A person can show easily three levels of skill in making money in markets by simply looking at three levels of price movement during any day. Coarse (4 to 10 actions), medium (nominally 20 plus actions) and fine (up to 40 actions).

There is no over lap between these performance ratings and any of the winning gaming performance levels.
 
Thanks for the replies (some other working examples are still welcome...).

I have to point out an example of my own trading that did not win but was making money, that had a very big psychological flaw...

I was using a derivate of the Triple Screen by Dr Elder with which i tried to actually pick absolute tops and bottoms of the second screen.

What i did was look on the 1hour chart to see wether bulls or bears are most probable to take over and then, on the 10 minute chart was trying to pick the top of the day and sell there and cover at the low (if i was bearish).

The win/loss ratio was BAD, about 8 to 9 out of 10 were losers, but i managed to lose a small amount and then when the winner struck, i pretty much nailed the High to Low range (using simple yet effective tools) and get profitable.

The problem with this was that i couldn't stomach 9 losers in a row anymore. I just couldn't do it anymore. So now i have adjusted it to catch smaller swings but more frequent. I don't know the w/l and r/r yet, i will have to see, but i gave this example as it was the spark that made me ask this question on the thread....

Could it be related more with mindset and could mindset be the real EDGE?
 
Quote from alex.samant:

Thanks for the replies (some other working examples are still welcome...).

I have to point out an example of my own trading that did not win but was making money, that had a very big psychological flaw...

I was using a derivate of the Triple Screen by Dr Elder with which i tried to actually pick absolute tops and bottoms of the second screen.

What i did was look on the 1hour chart to see wether bulls or bears are most probable to take over and then, on the 10 minute chart was trying to pick the top of the day and sell there and cover at the low (if i was bearish).

The win/loss ratio was BAD, about 8 to 9 out of 10 were losers, but i managed to lose a small amount and then when the winner struck, i pretty much nailed the High to Low range (using simple yet effective tools) and get profitable.

The problem with this was that i couldn't stomach 9 losers in a row anymore. I just couldn't do it anymore. So now i have adjusted it to catch smaller swings but more frequent. I don't know the w/l and r/r yet, i will have to see, but i gave this example as it was the spark that made me ask this question on the thread....

Could it be related more with mindset and could mindset be the real EDGE?
More...

What you say is related to winning and edges.

It is a place where most people wind up almost without exception.

It may be worth your while to read a book on how markets and trading in markets works. I would recommend Larry Harris's Trading and Exchanges. He speaks of "informed traders" where this expression conveys that a person has knowledge and skills that deal with making money as a trader.

The Dr Elder betting game is interesting but you could also learn about how the markets work and take advantage of knowing what is going on.
 
Sometimes just for kicks or more likely ego I'll countertrend trade a massively lopsided trend after an initial drawdown just to say F#ck You to the world. I may take home alot less money that day but whatever money ain't everything.
 
Quote from Maverick1:

I believe you're referring to the adage that making money has little to do with a high win rate... for ex, see turtles with their sub 40% win rates and yet great success etc... So the reality for these guys is that they take losses on 7 out of 10 trades and still come out nicely ahead due to the large wins on the 3 other trades.

This is only my opinion, and I don't expect others to follow me in it, but I think that for anyone looking to make a living out of trading, the above is a crock. If you want to be a money manager who pays the bills from his salary and then gets a performance fee at the end of the year, sure go ahead and win 30% of the time BIG like a turtle and make money after stomaching 7 losses. But you have to be prepared to weather months if not years sometimes of equity drawdowns and sideways performance to get to the breakouts that will make you money.

For everyone else, especially those looking to make money consistently, a la Marty Schwartz, or Mark Cook, or Linda Raschke with short term trading, I believe that a high win rate is an ESSENTIAL prerequisite. Read what they have to say: these 3 traders all admit to having win rates in the 70-80% range. They have developed edges that allow them to pull the trigger time after time with full confidence. They typically don't sit through protracted drawdowns, in fact, Schwartz himself never had more than a 3% drawdown on his way to $20million. And the best of them have excellent reward to risk ratios on their completed trades, typically in the 1.5 or 2:1 range. So they can lose 3 times in a row, and be down small if the 4th is a winner. In other words, they have excellent DRAWDOWN RECOVERY power. That is KEY to successful execution, imo.

This is where I disagree with conventional wisdom and I've changed my views over the years. They say: Don't be focused on win rates, try to get at least a 3:1 on your trades. Sounds great doesn't it? Sounds like the real deal, right? Wrong. It isn't. Simply because it is tremendously hard to CONSISTENTLY achieve a 3:1 reward risk ratio in trading. And then you wonder why people go broke winning 25% of the time, looking for their proverbial 3:1, lol.

What I say is this: there is a reflexive relationship between a trader's win rate, his avg reward risk ratio, trading frequency and his mindset/ability to execute calmly. If any one of those 3 variables is out of whack, it will affect his performance in due time. For ex, for the guy who has a very high win rate but an inverted risk reward, 5% of the time an unexpected series of consecutive losses will throw him off and it will take him longer to dig himself out, leading to mistakes and more drawdown. Mind you, there are some who claim to be able to do that (Whitster on this site comes to mind, but I don't trust what anyone says here without verification), in the name of positive expectancy. Or take for ex the guy with a 50% win rate, but high reward risk of 3:1, even with a 50% win rate, 3% of the time he will see 5 consecutive losers in a row and get discouraged and quit, or change his system etc.

So what to do? I believe that to be a peak performer or to be the BEST or among the BEST, you have to have 3 things going for you: a 70% win rate or higher, a reward risk of 1.5:1, preferably 2:1 net, after commissions and slippage, and ample trading frequency. That to me is the SWEET SPOT of trading which optimizes the trader's mindset/psychology.

Of course, those who don't have a real edge will tell you those numbers aren't achievable. It's up to you to decide. I believe that they are, actually, I KNOW that they are. But you believe whatever you want to believe based on your experience, research. I'm not going to argue about it, don't have time for that.

So to answer your question in short: making money is about optimizing your mindset and execution abilities. And you can only achieve the optimal mindset if you have a real EDGE comprised of 3 things: a high win rate, good reward risk, and enough opportunity.
More...

Holy guacamole batman!!! Where were you ten years ago when I was all aglow with visions of lear jets?!?

Alas reality sets in and yes, sorry to say folks but this is a real job. Oh well.

But really, really, on the mark.
 
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