Maybe not the hardest, but one of the hardest if you're not automated. Assuming you laid the proper foundation (research, plan development, testing, practice), there are emotional battles to overcome, then finally the constant focus required to ensure you're the casino and not the gambler. Once you master all that, it's fairly stress-free :eek: Eric, I thought you'd be "retired" by now
Just stumbled across this thread today. As with a lot of traders, 2011 was a disappointing year for me. With the exception of August, there were relatively few trading opportunities for me. I reduced the amount of capital in my account, as the cash was not needed for buying power most of the year. By year end, my total profits were slightly lower than 2010, and my worst profit level since 2006. I think my percent return was roughly 30%. I had one negative month in 2011 (July, -0.3%). My largest drawdown during the year was perhaps 2%. My best month was August, with a profit of 14% (almost half of my year's gains). It was a slow volume year, with 738k transactions (7.5 transactions per minute versus prior 8+ year average of 8.5). By comparison, 2011 total year end profits were about 8% of the profits in my best trading year (2008). Also, my 2011 results were slightly LESS than my single best DAY of 2008. That said, it was still a decent year, producing an income that will generate little sympathy from your average working person. I don't know if 2012 will be an improvement over 2011. The month of January has started pretty slow. The real question will be whether we get a volatility spike at some point during the year, as we have during the past two years (May 2010 Flash Crash and Aug 2011 Debt Limit and credit downgrade). It seems quite possible that we will see such a spike due to a collapse in Europe (Greek default, EU restructuring, etc). That said, volatility originating in Europe is not nearly as profitable as volatility originating in the U.S., as European volatility tend to lead to large U.S. gaps, and much lesser intraday action as U.S. originated volatility. Overall, I suspect that 2012 will be another 'bad' year up until we get something crashing in Europe, and then the question will be how long does the instability last? The longer and more devastating the instability, the better the trading results should be (yeah, sounds bad to profit from instability, but that's true for most of us => I like to think that I am paid to help provide stability and liquidity in the financial markets => No instability means no need for me, and little profit). NoDoji: While I haven't really 'retired', I can tell you that I haven't been working 'full-time' since the middle of 2009. The markets just haven't been active enough to keep me in front of the computer. On a positive note, my golf game has never been better and I've done more traveling in the past 18 months than at any other time in my life! Anyway, to summarize, 2011 was a disappointing but still 'nicely profitable' year. Nothing spectacular like 2007-2009, though. I suspect that as we continue to see mediocre trading conditions, we'll have fewer and fewer traders remain in the business (both individual, as well as hedge fund and bank traders). Certainly, the banks and hedge funds have been cutting staff relentlessly in the past year. If and when good trading conditions do return, there will be fewer competitors to fight against and hopefully more trading opportunities for each of us that are still in the business. Best of luck to everyone in 2012!
Wow Eric, congrats on a good year, not spectacular like a few years back but still a good, even a great year. Heck, 30% is nothing to sneeze at given the size of your account and the minimal drawdown. A 2% drawdown is very low. If you loosen your parameters to allow, say, 5% drawdown, would your return be at least double?
I'm sure the return would be greater if I loosened the risk tolerance. However, my trading doesn't have a dial that says "2% drawdown". With a nightmarish trade, I could potentially have maybe even a 10% drawdown now. It's not likely (and I do 500k+ trades per year now and it's never happened), but it's imaginable. If I were to loosen risk tolerances, then it's possible that I could see a much worse nightmarish scenario (maybe even a 50%+ drawdown?). The odds might be less than 0.1% over the course of a year's trading, but why risk it? Once your have accumulated sufficient trading profits to enable you to be comfortable for the rest of your life, you tend to tighten up your risk tolerances to protect it as your #1 priority. That's where I'm at now, in defense mode. I hope that wonderful trading markets return at some point in the coming years, but I won't push my luck trying to 'force' higher returns at the expense of increased risk. Although beyond the scope of your question, I'll provide a little more insight into my risk control. I've got my trading configured so that I'll never have a position at any time, under any conditions, that exceed 10% of my trading capital. Therefore, I can have a long position that goes to zero, or a short position that doubled, and still not exceed a 10% drawdown. That said, it's extremely rare that I have a position that size (probably hasn't happened in the last 1-2 years). I was say that a very 'large' position for me is currently no more than 4% of my trading capital. Note that this is not my stop loss risk point, but this is the dollar value of the entire position itself. Also, I don't want to ever be too 'large' in any trade in regards to the liquidity of that particular stock. As a result, I look at the average daily volume of every stock I trade, and arbitrarily set a maximum position size of 1.5-2.0% of that average daily volume as another contraint. For example, if the stock trades 400k shares per day, then my maximum position size cannot exceed 4000 to 6000 shares. The goal here is to not get so large in a stock that my exit would move the stock unnecessarily against me. Anyway, those are some of the things that I use to control risk and minimize drawdowns.
do you typically trade low volume stocks ? what would you say your max share total of all your open positions are at a given time ? ( trying to get a idea of total exposure share size long/short combined )
I don't like to trade low volume stocks (anything under 150-250k shares per day). My total open exposure varies quite a bit during the day, and also based upon how active the market might be (obviously, the higher the VIX the better). In recent months, I might max out with total combined share size of 60k to 100k shares during the peak exposure of the day. Back in 2008, I would max out at levels of 500k to 1M total shares.
Eric, if you dont mind sharing got a few questions (one of the prev posters has these questions also): 1. do you trade prop or a retail account? (if retail - i bet you use PM) 2. who is your broker and what software you use for this level of trading 3. for your automation what software do you use? 4. what kind of commisions do you pay? thanks! -gariki
Actually, it is the other way around, losing is the hardest thing to do, it fatigues you, makes you think in depressing ways. But once you get pretty good at day trading, losses are a quick frustration, then waiting for the next signal. I think the mental stress is waiting for the next signal during lunch as they come slower and smaller profits. But I have always enjoyed much more the back testing of ideas than the trading, that is just end result of the hard work to make the method. Consistent profitable traders take the hard trades, the ones where your brain is screaming "DON'T". After awhile the brain is just numb. I am just a monkey pushing buttons.
I have traded retail for the past 5-6 years. Very recently (this past August), I converted to a portfolio margined account, which is a wonderful improvement over daytrading margin. I used Genesis Securities until this past March, when they closed their broker dealer business. At that point, I shifted over to Wang Securities, which was essentially the successor firm that took over the Genesis BD business. My trading is all customized, nothing off-the-shelf (i.e. proprietary platform that I built and is not available publically). My commissions are quite low, but not as low as some might have. They are low enough that they aren't a particularly large factor in my P&L.