Should you "churn and burn" (whatever that is, but it sounds somewhat negative to me) or should you you swing? Hmm, should you drive a V8 or should you go for a four cylinder? Should you go skiing or to the Carribean? Heavy metal or classical? To paraphrase Alice in Wonderland, "Which way should I walk?" "That depends on where you want to go." "It doesn't mater where I go." "Then it doesn't matter which way you walk." Pretty simple really. You have to decide what's right for YOU. In trading I would say that comes down to choosing a methodology that fits in with your personality/character. Don't like being in the "heat of the action" all day? Does the thought of sitting in front of a computer all day turn you off? No?Then maybe scalping isn't for you. Will you be able to sleep at night while holding multi day swings? Will you be able to "sit tight" while waiting for your objective or stop to be hit? Yes? Great, this style may just suit you fine. It's probably not area talked about often in trading circles, but I think it should be. Just what are your objectives in trading? What is it that you desire to achieve? The clearer you can be with your answer, the greater your chances of actually achieving your objectives. Are your objectives a bit "wishy washy"? Your trading results probably will be too. If someone wants to risk 10% (or 2% or 25%) of their account on a trade, it doesn't bother me at all. The only reason I got involved in this thread is because it addresses some really fundamental aspects of trading and, for the benefit of newer traders, I wanted to point out the implications of increasing holding time AND position size at the same time. Daniel
Churn and burn, as in heavy duty scalping, which I'm just gonna say is probably the most difficult way to earn a living trading and also with severely limited upside, but, apart from that, I really gotta say that I totally agree with your post, sure makes a lotta sense, that's really what people gotta work out for themselves, and they shouldn't listen when somebody, anybody makes a claim, particularly when that somebody has a vested interest in promoting a certain style, that their way is the way to go, only you yourself can come up with that answer. Good luck
Daniel, Go back to my EARLIER post. Did you even read it?! I think Rtharp was the one that gave the example of 25% stop. I said 8-10% was more than enough even for longer term horizon! You just dont' read and just go shoving ahead and write whatever you feel. And wasn't I the one that gave the example that institutions ONLY risk really 1-2% of their entire portfolio??? Like a $1B fund risk 1% which is $10M and even if that stock goes to 0 overnite then it's still only a loss of 1%??? geez. go read the post before going something outrageous. You just gave a ridiculous example on a small acct size. I did say it's relative to acct size. This stuff is pretty standard knowledge. trader99
Sure, I understand what you mean. But you can't say holding weeks or months is NOT trading. Then all the guys in Market Wizards are NOT traders but investors. So, for you, the ONLY traders are those who scalp intraday. I have NOTHING against scalping. In fact, I do that all the time especially since markets haven't had any really strong trendy days. But to me, holding several weeks or months(i DIDN'T say year or years) is still trading. Soros did that. Bacon(hedge fund manager) did that. Kovner. Lipschitz. Sekyota. Basically all the Market Wizards held on for at least a few weeks to months depending on their view. And I would say all of them are traders. We are NOT talking about Warren Buffet holding for several decades here! haha. If you move in and out more than a few times a year you are still an intermediate term trader. trader99
I think the way to make big money (millions) is longer term trading, swing trading for 3-15 days . But you need the right market conditions and the appropriate account size to do it.
Trader99, I've read all your posts on this thread, and even though English isn't my first language, I think my grasp of it is solid enough to recognize a flawed concept of risk management. You suggest that a 8pt stop on a $100 stock is sufficient. Right? Ok, good, I agree. Then you ask why wouldn't a prop firm let someone put on 1000-5000 shares with 8-10% stops? Well, if that 8-10% stop is $8-10 dollars on a $100 stock, it means $8000 - $50,000 stock is being risked, doesn't it? If you don't understand how I get these figures, please ask, and I'll explain it. Now, let's say you take 1000 shares and set an 8 point stop. That means you are risking $8000. What sort of a risk is this in percentage terms for YOUR account? Well I don't know your account size, but let's say it's $100,000. Then you are taking an 8% risk. If that's fine with you, take the trade. Where it gets ugly is if you take 5000 shares, with a $10 stop. Then you are risking $50,000 on one trade, or 50% of a $100,000 account. Remember when I said to you, "man, that must be a decent sized account you've got there..."? The reason I said that is because if you are gonna risk $50,000 on one trade, you'd need at least a $500,000 account - and even then the risk is 10% on one trade. Does any of this make sense? If I'm wrong, please explain to me where.... You also asked, why wouldn't a prop firm let you take 1000-5000 shares for a few weeks? Well, there's no reason they shouldn't, IF your account size is big enough...or if your stop is small enough. "What I was trying to say was that even in a relatively medium term horizon of few weeks/months, one can put on relatively decent size and with good risk mgmt be out OK" If my example is what you call "good risk mgmt" - good luck brother, you are gonna need it. "This stuff is pretty standard knowledge". I'll tell you what is pretty standard knowledge: If you increase your trading horizon - eg, intraday to multi day - you increase your stop. As you increase your stop, you decrease your share size. BUT, if you wanna keep the same share size as you increase your stop, fine. As long as you understand that you have just taken on greater risk, go for it. Daniel Daniel
Daniel, OK. Look, I think we agree from a theoretical standpoint, but differ because of the examples we give from a practical standpoint. Let me illustrate. I suppose you assumed that the average prop trader's acct is only $100K. But I was assuming that by the time the trader is allow to trade that size 5000 and that MANY positions, his trading acct size or trading power is most likely increased proportionately to maybe $1m to $3M. Hopefully, to $3M because that would put the risk bet to 1.67% of total acct(that is in your example of a 10% move on a $100 stock with 5000 shares = $50K/$3M = 1.67%). For a $1M acct, it's still way too high about 5% bet! So, I'm not sure what we are arguing here, because from a theoretical point we are saying the same thing. I vehemently believe in tight risk mgmt in RELATIVE to total acct size. That's why I said institutions usually don't make more than 1-2% bets. But I think your point, and you keep coming back to it, is more grounded in the real world prop trading acct size of $100K. And if that's the case then it's all beginning to become CLEAR to me now. *LIGHT BUBLB* moment. aha! Now, I understand why Hitman said it's so difficult for the prop traders at Worldco(and I would presume elsewhere as well on average. of course, you always have the exceptional few) to make even low 6 sigures earnings. And it's because besides the #1 reason of lack of skills/experience(for newbies), it's because they(and I) are vastly undercapitalized in some sense. So, that's why prop firms have such tight stops and thus in effect forcing all traders to scalp. Because if you think about my example of the 8-10% stops on $3M acct, then the lost is still only 1.67% which is reasonable. And the upside is that you can get 10-15-20pts move on 5000shares(that is if you don't get stop out, but since you know your risk is already 1.67%) which translate to easily anywhere from $50K-$100K on a decent move. Like IBM from Jan 2002 at 126 to recent price around 88. That's like a 40pts move and assume you only get 50% of that move that's still 20pts on 5000shares = $100K with only risking 1.67% on a $3M acct. Now, it's all beginning to make sense! Yeah, if you have $100K acct, HELL YEAH you better get out way way before $1 stop even if you are going to trade intraday or even overnite. That's EXCESSIVE risk relative to your acct. size. ephiphany. a moment of enlightment about the difficulties of intraday prop trading just occurred... wow. trader99
One should determine your risk first before determining how many shares to purchase. Difference between entry and initial stop equals risk. If one had a 100k account and you were willing to risk 2% for swing type trades of 3-5 days, then your risk would be 2k. Now, if you initial risk is 2.5 points and the stock is 40.00 dollars, and your commission is 25. dollars, then you can only purchase 780 shares to stay within your risk parameters. You would purchase 780 shares for a total outlay of 31,225 to get into the trade including commissions. If you stop loss is hit, then you are out for 29,225 after commissions and you have hit your target of 2% risk. The reason i bring this up, is that there has been some discussion over 1000-5000 shares, in which I am not pointing any fingers, but the number of shares purchased should always be determined by your over all risk parameters (meaning what percentage are you willing to risk on any given trade of your entire portfolio) then figure the difference between you initial stop and your entry price. That is defining your risk and then only should you determine the number of shares you are willing to purchase. There are some who say you should only purchase 2k worth of stock to fit your risk parameters, just incase the stock went to zero, but it could be awfully hard to increase your port trading so small. Sean
Come on guys....let's not mis read my comments about trading vs. investing. If someone wants to hold a large number of shares for a longer time frame, that is fine...and since they are not trading much, they should stick to retail (pay $8 a month in commissions)...vs. going through the hassle to trade at this level. Would it really matter to these people if they paid 72.50 or 72.70 on a stock they plan on holding for 3 months?? Of course not. Do they care about market access, lower costs, use of intra day capital,? Of course not... I am agreeing with some of you...go for it, do it retail, make money....there are many ways to get ahead in this business, we just take the route we have been involved in for decades..... If we want to "risk" a $mil or more for a few months in a certain stock, we can do that ourselves (believe me have ...) we wouldn't need a trader to do that for us.... Just "keeping the peace" ...
Okay Trader99! I'm glad we've found some common ground! Given that this was the original thrust of this thread, ie, mkaing a living out of trading, I was assuming that the account sizes we were discussing were more in the realms of "beginning trader" type size - about $0 to $100k (just an assumption on my part about the typical starting size). If you've got 3million in your account and all you want to do is carve out a decent living, (75k - 100k IS a pretty decent living isn't it?) why bother trading? Just plonk your cash in a CD and you've got the closest thing to risk-free $150k per year you can get (assuming 5% per annum). If, however, you haven't got the 3 mil already, but instead have, say, $25 and you wanna be making $100k per year, you're gonna have to take some risks. Let's say this is the objective. (making $100k in a year.) If we break it down, it's $2000/week and $400 per day (or thereabouts). Is this "realistic"? Well, if we look at the kind of moves stocks make day in day out, the potential is certainly there - even without the huge leverage of a prop firm. Whether or not someone can capitalise on those opportunities depends on their skill as a trader. (My personal take on this - NOT EASY) Note: if you DO make $100k in a year, or, in other words, grow your account from $25k to $125k, that is a 500% return per annum. It should be obvious that there is a definite upside limit to how much you can grow your account using the same strategy (scalping, for example). Trader99 just to go back to your example of setting an 8pt stop on a $100 stock and swing it for a couple of weeks. If you only bought 100 shares, the risk would be $800 - or 3.2% of a $25k account, probably still too big. You could buy 100 of a $50 stock with a 4 point stop, in which case the risk would be 1.6% - not too bad. The only thing is with a trading style such as that, the opportunities to trade (a VERY important factor) are going to occur far less than with a day trading style. Daniel