Registered User
Joined: 12/18/2008
Posts: 150
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as some of you may know...
this weekend, my brother decided he wants to follow in my and my father's footsteps, start learning how to trade, and become an institutional trader as well. so he's been asking us about what type of strategy he should be using, which we think is best, etc....
so the purpose of this post is basically what we both said to him...
your entire method (strategy and risk management) depends a lot on your personality.. people who are impulsive should trade momentum strategies, people who are regretful should trade reversal strategies, and people who are indecisive should trade trend trading strategies
he then asked about what kind of strategy or method could handle all of the above and whats the hardest part in choosing a strategy to follow?
most people will follow a strategy until it stops working then choose to follow a different strategy. in the end, they end up going in a complete circle..
i think the hardest part is choosing which drawback youre willing to suffer..
i think with every strategy you have to pick 2 pros and missing out on 1
- getting in early
- less whipsaws
- bigger profit
so if you want to get in early and have less whipsaws, youll get smaller profits
if you want to get in early and have bigger profit, youll get more whipsaws
if you want less whipsaws and bigger profit, youll get in late
another interesting thing that i pointed out to him was that it also boils down more to risk management - not just entry/exit
i showed him a printout from various traders i trade with (including mine) and you'd be shocked at the results... here's a quick breakdown of our profits/loss, number of trades, win/loss from thursday...
TRADER A
Profit/Loss: $14,322
Number of Trades: 42
Win %: 97%
Loss %: 3%
TRADER B
Profit/Loss: $9,100
Number of Trades: 18
Win %: 99%
Loss %: 1%
TRADER C
Profit/Loss: $11,421
Number of Trades: 32
Win %: 91%
Loss %: 9%
TRADER D
Profit/Loss: $16,867
Number of Trades: 48
Win %: 28%
Loss %: 72%
its just interesting how trader D was wrong on almost 3/4 of his trades but made more money than everyone else
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Registered User
Joined: 12/5/2008
Posts: 81
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I would take Trader B over Trader D anytime.
JMO
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Registered User
Joined: 9/25/2007
Posts: 1,506
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QUOTE (wse) its just interesting how trader D was wrong on almost 3/4 of his trades but made more money than everyone else
The first thing that I'd want to examine regarding Trader D is risk management ...
As those sort of look like "bet the farm" type results ...
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Registered User
Joined: 6/6/2005
Posts: 1,157
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Thanks for posting this WSE. I was just reading an article about net gains and frequency vs. magnitude. If the goal is to increase equity and trader D is managing risk proportionately and the reason he has only 28% winners is because he's trading a trend following system that is backtested and proven -- then all things being equal I would choose trader D.
I am okay being wrong a lot to catch the right trends as long as my system has a positive expectancy I also don't mind trading different systems on different time frames. For instance, i might trade the trends on daily index charts, but trade counter trend on an intra day basis, giving me the high win rate. That way there's something for all sides of my personality.
Thanks again.
David John Hall
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Registered User
Joined: 2/5/2006
Posts: 1,148
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you forgot trader E
TRADER E
Profit/Loss: -$122,456
Number of Trades: 248
Win %: 2%
Loss %: 98%
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Registered User
Joined: 12/31/2005
Posts: 266
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How does someone make 40 trades in a day, and able to analyze each trade well enough, to know when to exit and enter accurately?
It seems more like a bingo game, rather than technical anaysis.
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Registered User
Joined: 10/23/2007
Posts: 2
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TRADER A
Profit/Loss: $14,322
Number of Trades: 42
Win %: 97%
Loss %: 3%
TRADER B
Profit/Loss: $9,100
Number of Trades: 18
Win %: 99%
Loss %: 1%
TRADER C
Profit/Loss: $11,421
Number of Trades: 32
Win %: 91%
Loss %: 9%
TRADER D
Profit/Loss: $16,867
Number of Trades: 48
Win %: 28%
Loss %: 72%
This is way unrealistic whatever the purpose. First of all any real, and professional trader knows that the losin % of trades is always far greater than the winning %. Only those who manage to keep those loses small and the winning trades big can survive in the market.
To give an example of 4 trader in which 3 out of 4 has greater % of winning trades is just unrealistic.
Much more information is needed to make any clear conclusion, but my initial review seems like a waste of time based on the information given.
To say that Joe got from A to B in 5 min doesn't say anything about how he did it, which path he took, what vehicle he drove, or what type of gear he packed, etc.
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Registered User
Joined: 12/18/2008
Posts: 150
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just so you guys know, im trader A lol...
i agree with what david says about trader D, i think my only problem is that i dont have the mental strength to see 3/4 of my positions lose and then 1/4 win, if i were in that position, i would be worried about losses piling up and id take profits quickly...
for me, i like to see results quickly... id rather make quick small profits and be right 90%+ of the time even if it means 1 loser eat up 2-3 of my wins.. i try to also make it up by selling out only half of my position when my first target is hit then readjusting my stop and choosing a 2nd and 3rd target target.. typically i wont use a trailing stop
trader B trades somewhat similar to me except he only has 1 target... either the target hits or his initial stop hits. for him his initial stop is usually 1.5-2 x his target
trader D is a lot different from me.. david was right about how he trades, he follows a lot of risk management and trend trading... his method is too slow for me and quite difficult to follow... from our conversations, he enters a position size based on his risk, chooses 1 target, then throws in a trailing stop when the target is hit. if it continues to run, he constantly shifts his trailing stop depending on the current movement
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Registered User
Joined: 12/19/2004
Posts: 415
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QUOTE (funnymony) you forgot trader E
TRADER E
Profit/Loss: -$122,456
Number of Trades: 248
Win %: 2%
Loss %: 98%
Hey you have been hacking into my account.
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Registered User
Joined: 7/1/2008
Posts: 889
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you've mentioned a few times that you're an institutional trader. Just curious what kind of firm do you trade for?
My guess is that you;re trading about a million dollars, is that right?
Any more than that and based on your profit that you disclosed you didn't even match the return on the S&P500 that day..
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Registered User
Joined: 10/7/2004
Posts: 264
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QUOTE (wse) just so you guys know, im trader A lol...
i agree with what david says about trader D, i think my only problem is that i dont have the mental strength to see 3/4 of my positions lose and then 1/4 win, if i were in that position, i would be worried about losses piling up and id take profits quickly...
for me, i like to see results quickly... id rather make quick small profits and be right 90%+ of the time even if it means 1 loser eat up 2-3 of my wins.. i try to also make it up by selling out only half of my position when my first target is hit then readjusting my stop and choosing a 2nd and 3rd target target.. typically i wont use a trailing stop
trader B trades somewhat similar to me except he only has 1 target... either the target hits or his initial stop hits. for him his initial stop is usually 1.5-2 x his target
trader D is a lot different from me.. david was right about how he trades, he follows a lot of risk management and trend trading... his method is too slow for me and quite difficult to follow... from our conversations, he enters a position size based on his risk, chooses 1 target, then throws in a trailing stop when the target is hit. if it continues to run, he constantly shifts his trailing stop depending on the current movement
And thus we see the drawback with trend trading. It takes a very different mentality to be "wrong" 75% of the time and stay in the game. I'm with the high percentage setup crowd. However, the best results I have seen (both real trading and testing) have been around 70% winners. I would be interested in the characteristics of a 90% winners system.
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Registered User
Joined: 12/18/2008
Posts: 150
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QUOTE (ben2k9) you've mentioned a few times that you're an institutional trader. Just curious what kind of firm do you trade for?
My guess is that you;re trading about a million dollars, is that right?
Any more than that and based on your profit that you disclosed you didn't even match the return on the S&P500 that day..
its a firm that everyones familiar with but unfortunately i cant disclose the name (also why i cant make specific buy/sell recommendations in forums)... i trade equities, options, currency, and various commodities but most of the time i only have time to trade equities... over the last couple of weeks ive been busy with seminars so ive only really been trading SPY a couple of times throughout the day
usually im trading various ETFs and contracts on AAPL or SPY
also there are different traders... market makers/dealing desks, liquidity traders, alpha traders, beta traders, buying desks, selling desks, proprietary traders, and more... depending on what kind of trader you are, you can be managing anywhere from $300k to $300m
golfman.. very true... i dont know how many people could actually handle something like that lol
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Registered User
Joined: 7/1/2008
Posts: 889
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cool - good luck. this is a good time to be a pro...and to be able to nail it during one of the most difficult markets in history.
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Joined: 2/21/2007
Posts: 797
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WSE: you probably didn't see it, but on another thread, i was wondering how much if at all, FIBS are used for trading.
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Registered User
Joined: 7/1/2008
Posts: 889
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I can tell you that fibs are used a pretty good deal in trading. Of course, the term trading is so very broad. it's like asking if worms are used for fishing bait. yes they are used as bait for certain kinds of fishing. Other types of fishing don't use worms.
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Registered User
Joined: 2/21/2007
Posts: 797
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good point, ben, i wasn't very clear. How about minute, 5 minute, hour trading, day trading, closing out at end of day. I prefer artificle bait, barbless hooks, catch and release.
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Registered User
Joined: 7/1/2008
Posts: 889
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then you should try noodling for catfish :)
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Registered User
Joined: 12/18/2008
Posts: 150
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fibs arent really used by traders.. normally its support/resistance, moving averages, or 1/3 retracement
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Registered User
Joined: 7/1/2008
Posts: 889
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QUOTE (wse) fibs arent really used by traders.. normally its support/resistance, moving averages, or 1/3 retracement
please be specific when you talk about "traders". Are you talking about the day traders at your outfit?
Because to speak on behalf of all traders is just ridiculous.
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Registered User
Joined: 6/6/2005
Posts: 1,157
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I think we're talking about pros here, ben.
Which brings up an interesting topic. Imagine if you had the kind of day job that people tried to emulate or do in their spare time. I'm sure there are some inherent difficulties or differences that would come up. No doubt institutional traders have passed down their methodologies and their way of doing things and they could be different than the way self taught traders do things. Certainly I would imagine they're different from place of employment to place of employment. Just like McDonalds makes different burgers than Burger King. What's the difference? trade secrets. Sure, they both look like burgers. Sure there are some generally accepted principles about the making of a burger...but there is a difference.
I have heard the process of learning to trade described as an alien landing on earth and coming across a chessboard. Without the rules, how long would it take the alien to lean how to play the game correctly? If ever at all. I'm guessing he might just make up an entirely new game all together and, what's even more interesting to me, is that the game (the new game) would probably work just as well for him -- meaning it woud serve the perpose of entertainment, as the standard game of chess works for chess players. Because clearly he doesn't just need to play "chess" with those pieces to get any type of gratification from them.
Now if a chess pro were to enter the room and see the alien playing with the pieces he might say something like "chess players don't uses the king that way". And he would be right. If the pro was very successful my first thought would be either, why not? Or what do you use instead?
Seeing as I don't have access to pros (outside of WSE) and I'm not one myself, whenever I see a pro trading desk in print or online I screen capture that photo and I look at the things they're looking at. After seeing how plain their charts were a couple years back I got rid of all indicators on mine, and that made my trading a lot better.
In fact I've only seen one of those screens with anything more than a moving average on them and that was bollinger bands. That also made me think -- if they're not looking at indicators what are they looking at? And the answer to me seemed to be "price levels" That's why a guy can stand in front of 10 monitors that don't have a single graph on them -- he's looking for a price -- and he'll know when it gets there.
Anyway, just sharing thoughts.
David John Hall
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Joined: 7/1/2008
Posts: 889
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I'm talking about pros too. "Pro" covers everyone from the day trader trading $500k at a tiny trading outfit to the prop trading desk at Citi, Goldman, UBS, ..hedge funds, and everything in between.
I know for a fact that pros at the largest trading desks mentioned above use fibs, because I know some of them. But these guys are not daytrading.
But anyway, DJH - I like your analogy of chess.
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Joined: 12/18/2008
Posts: 150
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i like the chess analogy as well...
when i talk about pro's, im talking about pro day traders and prop traders at companies like jpm, gs, bac, and so on...
these dont relate to one sided buyers/sellers, liquidity traders, alpha traders, beta traders
every trader at these institutions trade a bit differently.. i use/teach the same strategies that pro day traders and prop traders use because theres one disadvantage vs market makers - capital
as a day trader or prop trader, i think its best to trade with momentum.. playing reversals are a lot more difficult bc marketmakers have the funds to push or pull
but going back to talking about fib... most dont use it, probably not because they dont want to but because no one is trained to use it and its also not accessible on professional platforms... the indicators/overlays are very limited
i forget off the top of my head what is available but its mainly... envelopes, price channels, sma, ema, vwma, vwap, rsi, macd, momentum, volume
some platforms have the following (but most dont).. obv, bollinger bands, stochastics, median, cci
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Joined: 2/21/2007
Posts: 797
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DJH: "he's looking for a price"... do you think these guys have price specs. sent to them from the bean counters? looking for just a price seems to be really too simple for us small fry. I've been experimenting with a 2 and 10 day exp. moving avg. for day trading, , I stole from SFO Mag. this month. Still using stochastics and volume to help with scans.
I'm going to do some math on WSE's 4 results. Try to get a better idea of what i'm doing, trades, %'s, etc. He said that he was somewhat impatient, me too. I've actually gone back to a "quantum leap" by connie mack , feb 15, 2008 and have been incorporating some of his ideas. Working Ok for now.
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Joined: 12/18/2008
Posts: 150
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theres a few things we have that we can use against you but there are some rules you can follow too to your advantage
most of us rarely use more than 1/3 to 1/4 of our total capital at one time
ALL of us use the 20 SMA
none of us use level 2 - level 2 is useless, institutions are only required to show where they are attempting to buy/sell, but not how much. also institutions can route through other order routes so its unreliable.
one thing that we have that most people cant do is we can hedge positions without closing them...
for example..
i can be long on 10,000 sh of SPY but short 5,000 sh SPY at the same time and have both positions open. for most people if you were to do that, the short sale would cancel out and youd just be long 5,000 sh. most order routes we have wont let us do this unless we use our own order routes..
another thing we do is we can sit on the bid or ask which youll see on level 2 but actually play the opposite side through someone like arca
another thing we have is called the peg system... we can sit on both the bid/ask and make money off the spread and ecn rebates... on most routes, the commission is roughly 0.0015 per sh and ecn rebates are about 0.002+ per sh. someone simply using the peg system with a lot of capital can make a good $30k a day
market makers have a built in feature where when someone throws in a market order, it hits one exhcange first then attempt to go to another, then youll notice the bid or ask will scatter on all the exchanges - im sure youve noticed when you use market orders, you get filled near or at the top and then price comes back down. we actually have a way to get around it with our own routing systems where if we throw in a market order, it hits every exchange at the same time so avoid the scatter
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Joined: 2/5/2006
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QUOTE (wse) theres a few things we have that we can use against you but there are some rules you can follow too to your advantage
what % profit does a typical intsitutional trader make on his capital in a typical year?
and how bout in 2008?
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Joined: 3/14/2005
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johnlc; the article uses a 2 and 8 day ema!
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Joined: 12/18/2008
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dunno.. it really varies as everyone goes by hard dollar amounts and trades are always based on risk:reward per trade not a % per trade...
but the median paycheck taken home was about $350k
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Registered User
Joined: 2/5/2006
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QUOTE (wse) dunno.. it really varies as everyone goes by hard dollar amounts and trades are always based on risk:reward per trade not a % per trade...
but the median paycheck taken home was about $350k
i think goldman reported trading revenues of 54% if thats any indication.
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Registered User
Joined: 12/31/2005
Posts: 266
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QUOTE (wse) theres a few things we have that we can use against you but there are some rules you can follow too to your advantage
most of us rarely use more than 1/3 to 1/4 of our total capital at one time
ALL of us use the 20 SMA
Intitutional traders use technical analysis?
I thought they traded mostly on insider information.
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