I don't know that floor traders are necessarily becoming extinct specifically because of supercomputer trading algorithms. I would have thought it was more a matter of exchanges going electronic, and thankfully so. The fewer hands between me and the guy ultimately on the other side of my trade, the better for both of us.
As the exchanges go electronic, the trading that floor traders used to do is replaced by computers.
Quote from Gabfly1: You have chosen to play from more of a distance by staying outside of their reach for the most part, so to speak. But in so doing you are increasing the ticks or points at risk on any given trade. It is a reasonable tradeoff. But in the face of increased risk, I prefer to minimize my financial risk per trade and draw comfort from being able to make more of them. That is the tradeoff I have chosen.
Now this is an interesting comment, because I would argue that extremely short duration traders actually take on MORE risk than swing traders like me, not less, as a function of the extreme leverage that is employed.
The theory is that shorter time in the market equates to less risk taken overall. But this theory is challenged by the risk of getting nailed in a repeat "flash crash" event with extremely concentrated exposure going in.
There is also the matter of volatility expansion. Consider the debate of tight stops versus wide stops.
On one level it could be argued that "the wider the stop, the bigger the risk." But this is not necessarily true, because risk is a function of total market exposure, not the stop itself.
To see what I mean, consider that Trader A could have twice as wide a stop on the exact same trade as Trader B, and yet both traders could be sizing their trades so as to represent 50 basis points of planned risk.
Also, the tighter the stop, the greater the chance of surprise volatility expansion resulting in a bigger loss than intended. Again a hypothetical example: Trader A buys a volatile stock (say BIDU) with a $4 stop for a swing trade. Trader B takes the same position on an intraday basis, but sizes his trade off a very tight (for BIDU) 50 cent stop. That same afternoon, while both traders are still in, the Chinese government comes out with a content crackdown announcement that is very bad news for BIDU. Which trader is more likely to see his planned risk assumptions blown out of the water?
Then, too, there are the offsetting characteristics of a balanced long / short book, the ability to adjust the portfolio on a holistic basis to account for different market scenarios and profiles, the ability to dial leverage up or down in terms of initial position sizing across the board, the ability to vary position size dramatically based on situational equity curve and conviction factors, and so on.
Point being, it's not necessarily the case that swing and position trading is more risky. It certainly can be, but nothing is set in stone...
I would argue yes, if only because this method -- combining fundamentals and price action in trading vehicle selection -- has been exceptionally successful as implemented by a wide array of practitioners: Druckenmiller, Sperandeo, Cohen, PTJ, Bacon, Marcus, Kovner, Livermore himself, and others. Those who have crushed the market for staggering absolute dollar sums have done so with the use of both fundamental and technical inputs, melded together in a full blend...
Well, it's hard to argue with you there. You will note, however, that I prefaced my "argument" with playing the devil's advocate. Even so, I limit my own trading to price action. I cannot compete with better minds at their own game, be it in the area of fundamentals and their opportune access and interpretation, or in the area of math and the pricing of options and such. However, I can look at price and create my own game with my own rules, even though it may not be isolated from the above. As the saying goes:
...Well, that's the rub. The Keynesian approach may be perfectly good in theory, but it falls on its face in the real world...
Yes, that is unfortunate. However, the mechanism is there for those who can and wish to operate it properly. On the other hand, laissez-faire doesn't even work in theory, because as Galbraith observed, "Left to themselves, economic forces do not work out for the best except perhaps, for the powerful." I'm inclined to agree with Galbraith that the Invisible Hand is so invisible because, quite often, it's just not there. Bush's record speaks for itself insofar as the Invisible Hand goes. And I trust we at least agree that supply-side trickle-down is just self-serving BS. Even bubbleboy Greenspan admitted that tax cuts don't pay for themselves.
As a general rule, it's good to remember too that the crowd is not always wrong... the crowd is only wrong at major turning points, which by definition are less than frequent. Being contrarian at the wrong time is akin to arguing with a herd of cattle.
Trading (in my humble opinion) thus becomes a curious mix of going with the flow, but also knowing when to selectively fade the flow.
As the exchanges go electronic, the trading that floor traders used to do is replaced by computers.
Now this is an interesting comment, because I would argue that extremely short duration traders actually take on MORE risk than swing traders like me, not less, as a function of the extreme leverage that is employed.
The theory is that shorter time in the market equates to less risk taken overall. But this theory is challenged by the risk of getting nailed in a repeat "flash crash" event with extremely concentrated exposure going in.
There is also the matter of volatility expansion. Consider the debate of tight stops versus wide stops.
On one level it could be argued that "the wider the stop, the bigger the risk." But this is not necessarily true, because risk is a function of total market exposure, not the stop itself.
To see what I mean, consider that Trader A could have twice as wide a stop on the exact same trade as Trader B, and yet both traders could be sizing their trades so as to represent 50 basis points of planned risk.
Also, the tighter the stop, the greater the chance of surprise volatility expansion resulting in a bigger loss than intended. Again a hypothetical example: Trader A buys a volatile stock (say BIDU) with a $4 stop for a swing trade. Trader B takes the same position on an intraday basis, but sizes his trade off a very tight (for BIDU) 50 cent stop. That same afternoon, while both traders are still in, the Chinese government comes out with a content crackdown announcement that is very bad news for BIDU. Which trader is more likely to see his planned risk assumptions blown out of the water?
Then, too, there are the offsetting characteristics of a balanced long / short book, the ability to adjust the portfolio on a holistic basis to account for different market scenarios and profiles, the ability to dial leverage up or down in terms of initial position sizing across the board, the ability to vary position size dramatically based on situational equity curve and conviction factors, and so on.
Point being, it's not necessarily the case that swing and position trading is more risky. It certainly can be, but nothing is set in stone...
Yes, that is unfortunate. However, the mechanism is there for those who can and wish to operate it properly. On the other hand, laissez-faire doesn't even work in theory
I more or less agree... in fact, most of the 'isms' and 'ologies' are too pure for this world it seems. The hazards of trying to pigeonhole a messy and complex reality.
Ever read 'Origin of Wealth' by Beinhocker? He does a good job of pegging where we are headed (or should be headed anyway)... towards a world free of ideological orthodoxy.
p.s. I didn't know you could post youtube clips in here, how did you do that?
