A Little Thesis

Discussion in 'Trading' started by ig0r, Nov 20, 2003.

  1. ig0r


    I did a little thinking today and I would like an oppinion...
    Futures are a zero sum game, and popular belief (and I guess a little fact too) states that over 90% of traders lose money in the futures market, that means that at max 10% of traders are the ones making big bucks consistently, most of these are heavy weight institutional traders, am I wrong? Now, in general, when you are learning to trade futures, you are consistently told to try to catch the big moves and stay away from the chop, the big moves is where all the money will be made, we are told. Since futures trading is zero sum, and most people lose their money in the chop, we come to the conclusion that the upper 10% are making their money here, since someone must be taking the money that is lost. It can also be said that the money that those in the 90% do make would be in catching the occasional trade/breakout (of course, not riding the whole thing, cutting profits short, but it's still making money). I am now assuming that that top 10% make the majority of their money in the chop, and actually take an initial small loss during a breakout/trend. They do not try to catch the breakouts and beginnings of trends as many preach must be done, instead they always trade the market as if it was always chopping. When the market does breakout or into a trend, the top 10% lose a little money to the other 90%, as soon as the 90% take their small profit off the table, however, I believe this is where the top 10% covers their losses and re-enters in the direction of the trend. Is there some major loophole in my reasoning? If not, is there any way to use this knowledge to our advantage? Just throwing something out for discussion
  2. The pit locals and the market makers take the biggest slice during the chop.
  3. ig0r


    So why not try to follow in their foot steps? :)
  4. ... although I have no desire to be a pit trader or market maker myself.
  5. MarkB


    And tossing into that discussion ring... pivot points can help you see what the floor folks are aiming for. Work with them for awhile, just observe, and you can get an idea of the S/R factors which play a role with the locals. IMHO.

  6. ig0r


    Yes but in modern day trading there is much more volatility, floor traders aren't just picking off points around the pivots, they're obviously doing something more effective
  7. because the big firms can not trade short term without it triggering tax charges. Also large institution can not dump large amounts of liquidity into the system without it having a catastrophic effect in the underlining instrument.

    Example: a buy order for 5000 contracts of Live Cattle futures.
    Result: Lock Limit UP!

    Example: a buy order for 30000 contracts of Cocoa futures.
    Result: 100 point move!

    Example: a sell order for 20000 ES futures.
    Result: at least a 10point move in 10 seconds!

    I think you get the point. During brief periods of choppy market conditions mixed with low volatility one has to watch there step very closely as to when programs kick in and all heck breaks lose.

    just a thought.

    p.s. Bank of America made over $$$500 million trading in FOREX long term trend following last year!
  8. Siwash


    I'm a rookie,so take it for what it's worth..But what if the top 10% aren't making "huge money'' maybe the top 1-2% are but what if the top 10% are just profitable...not losing money..I think you you may have been saying the same thing ...just my 2c
  9. ig0r


    I guess I may have worded my thoughts incorrectly. I don't mean large institutions, but rather the pit traders (as TheStudent) pointed out. Someone must be taking profits during the chop because the money isn't dissappearing :)

  10. that makes more sense. but don't forget all the little guys like us who day trade and provide alot of liquidity as a whole.
    #10     Nov 20, 2003