A bucket of cold water for newbies...

Discussion in 'Psychology' started by lilduckling, Jun 27, 2008.

  1. Some come here.... see all that is posted and began to have illusions of wealth or at least a confy living trading stocks.Just keep this in mind:

    The vast majoritty of money managers vastly underperform the S&P. A few elite are consistant in 10% av return year per year.Do you have $200,000.00 in your trading account?? and are you gifted like the money managers (who have degrees and been doing this for years)... then maybe you too can average 10% returns.if so then congrads.... you can earn $20k a year.... $17k after you give Uncle Sam his cut._
    _THats less than what you can earn working in Wal-mart or Burger King.Get the picture???Making a living solely on this is extremely difficult...EXTREMELY!Becoming rich at it......... well.....i'll just say its not impossible and leave it at that.

    so that 10K or 20k you have in your account.... and the hopes of becoming wealthy with that "seed" money is ...well..... its just not good odds.sorry but some one has to keep it real
  2. Brandonf

    Brandonf ET Sponsor

    I agree with some of what you say and disagree with other parts of it. The primary point that newbies vastly over-estimate the easyness of making a fortune in the market. My cousin recently asked me if he could give $10,000 to his wife, have me send her a PM on Yahoo Messanger on what to by and sell, and that if by doing that they could make a few hundred grad. Not likely. I can remember that when I started trading I was very certain with in a year, certainly two, id have fancy cars and a few nice houses, plus not have to work all that hard to do it.

    Where I disagree with you is first in the need for a degree. I dropped out of college 11 credits short of a degree, in History. I had started making money and enjoyed what I was doing greatly so I left. No real regrets except that it did for some time make raising capital more difficult, but even that is a past, not a current issue. Once you have an established track record, reputation and a solid organization in place your fine. If you want to trade only for yourself the need for a degree absolutly does not exsist. Secondly, while its true that most fund managers do not beat the index each year, to say that it can't be done isnt true. Most fund managers are firstly strapped into the corporate world and afraid to rock the cradle. That means they all end up buying the same stocks, listening to the same analysts etc...group think. Secondly for them they operate under a ton of rules that have a huge impact on the potential for superior returns, and very very few can overcome this, even if they would otherwise have a very obvious and natural talent for the business.
  3. I actually agree that the all the fancy degrees won't help one become a better trader. I have three. Maybe through the degrees you have the foundation for analytical thinking, which always helps. But part of it is learned by actually doing it, failing, and then doing it again. No quick bucks definitely. But for now, it's a good supplement to income, and it helps. I'm positive over time, the money will increase as the knowledge increases!

  4. :confused: :confused: :confused: :confused: is what I have to say about that. Anyone who spends more than 10 minutes reading posts on ET about new traders hears nothing but how difficult it is. I dont recall ever seeing one post that gave me any kind of "illusions of wealth" EVER. In fact, a lot of the time when new traders post about even wanting to maybe one day become a trader at least a few ET'ers will say simply "DONT DO IT". This is not exclusive to ET, most books are the same way. Don't get me wrong I think its necessary to weed out people who think its just some way to get rich quick. I do agree with the basic premise of your post: that trading is insanely hard, i just dont think yet ANOTHER bucket of cold water is needed. I'm already about to catch fucking hypothermia.
  5. Oh god, your analysis is so grossly misrepresenting how the business of trading functions.

  6. May I ask your basis for this conclusion?
  7. Funny thing is, most people starting a business selling hotdogs from a cart in the street with $10,000 starting capital rarely think they will be rich within a year. Some people starting trading with $10,000 do think they will own the world within a year. Weird.
  8. http://www.elitetrader.com/vb/showthread.php?s=&postid=1906262&highlight=percentage#post1906262

    The way I see it is as that the daytraders make their living off of the natural inefficiencies that come when large orders are entered, especially fearfully or greedily. The orders come from all the various institutions that are trying to chase after a 25% (or 15%, or 10) annual return on vast sums of money.

    A good daytrader can consistently profit on a monthly basis by getting in front of institutional orders and profiting off of natural intraday inefficiency. With a $10,000 deposit he can make several hundred thousand dollar in one year - a return of perhaps 2000%. However, that percentage is meaningless because the daytrader can only take so much size, and the more size he takes the more he becomes crippled and prey for other daytraders and market makers. A daytrader who makes $500,000 in a year is a superstar.

    Let's say you have a way to fully and without error program precisely the strategy that a trader uses to make $500,000 per year. Because that trader only can monitor limited information and thus can't trade all the setups, let's assume there is $3,000,000 in that strategy if it's traded by a computer.
    The strategy only utilizes $500,000 BP, but just to be cautious you use $1,000,000 with a $100,000 deposit, thus your return will be 3000%.

    Someone with $100,000,000 to manage can do better putting his money in the bank than he can with a daytrading system that makes 3% per year.

    You can bet your ass whatever $3,000,000 that is left on the table is being fought for by hundreds - perhaps thousands - of daytraders and investment banks, hedgefunds, market makers, market manipulators, and all the other various participants.

    For anyone trying to make a living off of fees on asset management, it is not worth it to try to make $3,000,000. They must instead try to make $30,000,000 on $200,000,000 for a hedgefund, or manage $1,000,000,000 for a mutual fund. Because the positions required to achieve such returns are so large, it makes it very difficult to freely get in and out of a position in response to short term market action - something daytraders can do - so as long as thousands of institutions are fighting to make $20,000,000 or $300,000,000 on huge sums of capital, we daytraders can fight for our $150,000 - and if we keep $10,000 up at our firm, we can call it a 1500% return, even though whoever is making 15% on 100,000,000 laughs at Joe Daytrader's huge % return number.

    Conclusion: percentage return comparisons of daytraders vs. asset managers are completely useless because of the way the markets work.
  9. Cheese


    There is nothing intrinsically wrong with imagining that you're going to become rich or successful and of course you imagine having it within the next 5 minutes. First the pictures in your mind are your encouragement; next is part 2 - sustaining your ambition and working at it.

    Your education. Well I was cynical; I wanted a university degree as a label. I majored in economics which interested me above all other subjects. If you don't have that degree your gold is never going to glisten as much as someone who does have a degree. A degree is the common currency of self esteem and the unwritten esteem you enter upon in joining the community of degree holders. Its being the washed amongst the otherwise unwashed.

    Trading is something else; trading unfortunately is where newbies mostly will stumble or fail; fail outright or eventually for some learning to scrape along in some sort of a so called 'trading for a living' channel.

    But can you make a fortune trading the markets? Sure you can. Can you build a gigantic pile of cash making shitloads of money daily? Sure you can.

    Usually it won't be you.

  10. well said
    #10     Jun 28, 2008