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Lights
Registered: Sep 2003
Posts: 1147 |
04-22-12 10:05 PM
The grail really is to not trade at all most of the time. There are 10 grand slam fat pitch over the plate trades a year. If you only take those, you will have outperformed nearly everyone. Reason why most fund managers underperform their indexes is because they are always involved and too big to move. I recently read an article on trading regarding trader statistics and it showed that profitable traders only really make 10% of their potential over the course of their career because of commission, slippage, and emotional loss fatigue. Imagine a trader who has traded 500 million shares over a decade which is average for a professional prop daytrader. He has paid someone $2.5-$3.0 million in fees.
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logic_man
Registered: Oct 2010
Posts: 1489 |
04-22-12 10:17 PM
Quote from Lights:
The grail really is to not trade at all most of the time. There are 10 grand slam fat pitch over the plate trades a year. If you only take those, you will have outperformed nearly everyone. Reason why most fund managers underperform their indexes is because they are always involved and too big to move. I recently read an article on trading regarding trader statistics and it showed that profitable traders only really make 10% of their potential over the course of their career because of commission, slippage, and emotional loss fatigue. Imagine a trader who has traded 500 million shares over a decade which is average for a professional prop daytrader. He has paid someone $2.5-$3.0 million in fees.
While I wholeheartedly agree that one needs to be selective in taking trades (in my opinion, the kinds of imbalances between the various sides of the market which lead to profitable trades on the timeframe I trade aren't formed in an instant), I have not found a correlation between the amount of time in between trades and the trade outcomes.
If I could identify my 10 best trades in advance, I'd be doing so, but I don't really know of any way to do that consistently. That might just be a failure on my part, but I think it's simply a feature of any trading strategy. Even if your strategy only triggered 10 trades per year, I highly doubt that all 10 would end up winners.
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Lights
Registered: Sep 2003
Posts: 1147 |
04-22-12 11:27 PM
Quote from logic_man:
While I wholeheartedly agree that one needs to be selective in taking trades (in my opinion, the kinds of imbalances between the various sides of the market which lead to profitable trades on the timeframe I trade aren't formed in an instant), I have not found a correlation between the amount of time in between trades and the trade outcomes.
If I could identify my 10 best trades in advance, I'd be doing so, but I don't really know of any way to do that consistently. That might just be a failure on my part, but I think it's simply a feature of any trading strategy. Even if your strategy only triggered 10 trades per year, I highly doubt that all 10 would end up winners.
A trader who has successfully traded long enough can easily identify the fat pitch but they are rare which is why I say 10 winners a year. Most trades that an active trader takes have poor risk/reward and they know it but still participate on a nearly hourly basis because of the fear of not participating in a big move. A trader who can let go of a big move where risk/reward was not favorable will outperform nearly everyone in the long run. Also, many traders bypass an easy trade because they are emotionally destroyed on recent losses from overtrading. Another thing is commission and slippage. Traders give up millions over a decade on over trading.
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Lights
Registered: Sep 2003
Posts: 1147 |
04-22-12 11:47 PM
Quote from logic_man:
While I wholeheartedly agree that one needs to be selective in taking trades (in my opinion, the kinds of imbalances between the various sides of the market which lead to profitable trades on the timeframe I trade aren't formed in an instant), I have not found a correlation between the amount of time in between trades and the trade outcomes.
If I could identify my 10 best trades in advance, I'd be doing so, but I don't really know of any way to do that consistently. That might just be a failure on my part, but I think it's simply a feature of any trading strategy. Even if your strategy only triggered 10 trades per year, I highly doubt that all 10 would end up winners.
There are simple indicators that work 100% of the time. ie Mcllellan Oscillator thresholds on big market corrections. This is one of quite a few that have high probabilities but extremely rare. But if i can find conditions where i only trade with even a 70% chance of winning, I'd outperform my own personal trading history threefold. Oftentimes traders will overtrade and try to frontrun it fearing they will miss out and the trade just goes against them another few days for 20% loss and wiped out on margin or he'll make back an unrealized loss and cover, again overtrading and miss out on the big move cos of emotional trauma.
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logic_man
Registered: Oct 2010
Posts: 1489 |
04-22-12 11:47 PM
Quote from Lights:
A trader who has successfully traded long enough can easily identify the fat pitch but they are rare which is why I say 10 winners a year. Most trades that an active trader takes have poor risk/reward and they know it but still participate on a nearly hourly basis because of the fear of not participating in a big move. A trader who can let go of a big move where risk/reward was not favorable will outperform nearly everyone in the long run. Also, many traders bypass an easy trade because they are emotionally destroyed on recent losses from overtrading. Another thing is commission and slippage. Traders give up millions over a decade on over trading.
I think we might end up having to agree to disagree here. I simply don't think the market works in such a way that anyone could identify 10 "fat pitch" opportunities and hit home runs on all 10. Simply trading less doesn't eliminate all uncertainty from trading strategy.
What would help convince me is if you could point to one or two well-known traders who have actually accomplished this.
7 out of 10 I can believe. 10 out of 10, consistently, doesn't seem realistic.
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silk
Registered: Oct 2001
Posts: 512 |
04-22-12 11:49 PM
I'm fear i couldn't identify the slam dunk trades if i wasn't making at least some smaller trades which allows my mind to feel out the market. Perhaps for people like me, an alternate Holy Grail would be to maximize buying power to the 10 slam dunk trades while minimizing buying power for the more crappy trades. Not sure if I wasn't hitting some buttons, i would be able to just sit back and not trade for 5 weeks and then go all in when i finally saw the golden setup. My mind might be stuck on day time TV or Sports or something if i went that long without trading.
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