From my experience working with MANY trtaders, you are very wrong! Here is a question for you. You might have posted it somewhere and I missed it, but anyhow, how much money have you paid in commissions last year and how much money have you made? Remeber that evey gross dollar you take out of the market comes from someone elses pocket. The question is how much of that money do you keep in your pocket? My definition of a good active trader (over 20 round trip trades a month) is someone who is profitable and has earnings to commission ratio greater than 5. But that's my definition. Why? Because I know of 2-Mil-a-year traders who blew out in their first down year because their ratio was less than one to one! I've mentioned before that reading your journal was like looking in the mirror 15 years ago. Although you are taking the turn into the business world now with management etc., which I never did. Anyhow, as I told you on the phone, most of the GREAT traders I know are out of the market completely at least 1/4 of the year. There are only a few that achieve longevity in this business with one to one ratio. There are plenty who achieve it with ratios greater than 5. This is some food for thought, but if you have common sense and can do some simple math, you will see why a down year will wipe a trader like this out. I've seen it happen many times. Good Trading PS: I was glad to see you pull out of the slump May the force be with you.
This I can not agree with, at least based on what I have seen at my firm. I personally believe traders with a profit to commission ratio of 1 to 1 (what I did last year) is typically playing it safer than those going for 5 to 1 because you sacrifice a lot of commissions with churning which is part of the defense. It generally leans toward a more scalping oriented game, and in general, smaller up days and smaller down days. People who go for bigger moves (required for higher p/c ratio) need to have wider stops and tend to have bigger swings, and higher volatility in their account. I have also noticed that a lower profit to commission ratio strategy tend to outperform trend traders in choppy markets. It is always easier to go for smaller moves than bigger ones, and if you talk about the ability to survive a tough market I have to put my money on people who go for quarter's than people who go for multiple points. Keep in mind you said it yourself that you are for the most part an intraday trader with occassional overnights, hence you do not count as a true swing trader when it comes to stats. If two traders of equivalent level with 100K a piece, I personally believe it is very difficult for the swing trader to beat the day trader, at equivalent experience/skill level, simply because the day trader tends to be more active and 100K is typically sufficient, not to mention the fact that a day trader can go harcore on margin without changing the risk equation too much if he is looking for quarter's and halve's. Increase that stake to two million, and the day trader will be fighting an uphill battle, as it becomes very difficult for him to trade his entire account at once and with the gap moves that only swing trader's can benefit from, a good swing trader will truly shine by then. This is also very similar to a typical day trader's learning curve, as I have observed many new traders at my firm. In the beginner level, the trader who goes for quarter's will lose a lot less than a trader who goes for point(s) before turning profitable. A trader who rely on quality shots will lose a lot more simply because while both the quarter guy and the point guy will make a lot of mistakes, the quarter guy's mistakes are a lot less costly as they are probably 5-10 cents stops. The quantity of the shots a scalper takes greatly speeds up the learning process and reduces risk. You learn more when you take more shots, which is why I have noticed that the success rate for quarter guy's is quite a bit higher than point guy's. Once both become profitable however, which will usually take the point guy longer than the quarter guy, it gets really interesting. The point guy will have bigger up day's, on a good trending day the quarter guy has very little hope to beat the point guy, but on a tough day the quarter guy usually wins. In late game, the point guy will wipe the floor with the quarter guy, as by then both will probably shoot a high percentage, and you will be hard pressed to catch someone with quarter scalps when he takes say just one big move out of the market a day with a big position. The point guy will have a longer holding period and will be able to swing more size given the same liquidity. So in my view, as beginners, a trader that goes for quarters destroys a trader that goes for point(s), at intermediate level it is a wash, at advanced level a trade that goes for point(s) will smack down the quarter guy. However, the survivability of a trader that goes for quarters (even in toughest market conditions those are easy to find) balances things out. And I stays with my opinion that a new trader should try to get quarter's before they try to pull point's. In the end it is what you put in your own pocket that matters, I make 74K a year I don't care if it took an extra 76K in commissions to do it. It doesn't mean I don't need to improve my efficiency, but for me there is absolutely nothing wrong with paying commissions. Some of the most successful traders at my firm averages somewhere between 5-10 cents per share traded. Yes, they are the poster childs of the firm as every firm love big size scalpers, but if you talk about consistency and minimizing risk there is just no better strategy than a top scalper, even if in the end it may be the least profitable strategy of them all at equivalent size/skill. As for sitting out 1/4 of the year, that's an luxury that those of us in first year or two of our careers don't have.
No No No. The one with the 5 to 1 is simply more selective than the one with one to one! That is what I was referring to. True, I do a lot of intraday trading and am very active, but the big money I make is on swing trades. But then again I belong in the second category and most of the successful traders I was referring to were also in the second category. But even so, take the book the Stock Trader for instance. Check out how much I made on the swing trades in week 5 compared to what I made on the intraday trades the entire time (and this was on a 50K account). Here is another questiuon for you? If you end up losing $10,000 this year before commissions and you generate the same commissions you did last year, will you survive? Think about it, your loss is only 1/15 of your previous year's gross profits, yet you would blow out. If you make 500K gross and pay 250K in commissions. Can you pay the same commissions next year and lose 10K gross and stay in biz? Depending on how much you saved from the 250K after taxes and living expenses. I've seen it happen Hitman. I've been on the block over 15 years. I'm sure that in 15 years your song will be very similar to mine
Cash is a position! Go back to the book the Stock Trader. I only traded 16 out of the 20 trading days (in other words I sat out 1/5 of the time). A flat day beats a losing day anytime! This luxury that you think you do not have is what your broker wants you to believe. You will only be able to enter the next level of trading once you realize and are able to say, "Things don't look right - I'm not going to trade today!" This is the greatest tip I can give you. Don't I wish someone gave me this tip 15 years ago Wishing you great success Tony
Keep in mind however, by the time you actually wrote the book you were extremely skilled by then. Not to mention in that very market environment big swing moves were plentiful, as well as gaps. You forgot the fact that I find it literally impossible to be down before commissions, IF and ONLY IF I am looking for quarters and play suffocate defense. I was positive before commissions FROM DAY ONE (or at least WEEK ONE, I don't remember). Hence I reserve the opinion that one should learn to score quarters before they try to take points. It will speed up the learning curve (more shots = more learning opportunities in tape/L2/whatnot) and you will dig a much smaller hole starting out. I can tell you that last two days I had this TOTAL CONVICTION that home builders will tank hard, and I had two bullets on DHI/PHM on Thursday before they tanked one point a piece, I somehow lost money in them. Today I had LEN and I traded 8000 shares roundtrip to make $430 (granted I was down $150 in it in the morning but still with that much volume $600 is a joke as the stock had all the liquidity in the world for me to score big in it). It is inefficient, but I know that even if the stock chopped today I would have still lost very little in it. Yes, eventually I will have to be much more selective, but being selective requires a LOT of confidence. Hopefully one day, I will only be taking shots that I have that kind of confidence about. But confidence and conviction spells doom for traders who haven't truly established themselve (a new trader may as well be a contranian indicator), and why not learn to play a suffocating D knowing that as long as you are in the game you will always have a chance to improve your offense? It takes great confidence and skill to be able to take a couple of trades a day. When you are new you will be wrong and even if you are profitable you are extremely vulnerable to losing streaks, and when your only income comes from trading, it is a lot of pressure. Having 8K to play with as a kid 20 years ago was no joke. I can even argue about the fact that with that relative's call you got your newbie cushion for free, although I can't complain because I got my own with that 99 bull run. I wouldn't call it a silver spoon but that another luxury that a lot of people don't have. We will see where I am in 15 years. Make or break I will put up a good fight.
Had someone gave you this piece of advice, I don't know if you would have made it if it was your only source of income. I mean, what if you go through an entire year and end up flat early in your career? You got bills to pay and bam, game over, gotta find a real job. Right now, while I don't expect to make multiple K's on any given day, I do expect (whether I can actually do it is another story) to make something regardless of what the market does because I am willing to take any crumbs off the table. In a year or two, once I have established myself financially, I can afford to take days off, because by then I will have confidence in my shots and I know I am meant to be a trader. At this time, if I take 3 shots in the morning and miss them all I still want a chance to get back in the game, same day, hence I stick to a quantity over quality approach to REDUCE THE VOLATILITY AND RISK. If I develop anywhere near your skill level, I would most definitely use large, concentrated shots, but now "spray and pray" is the name of my game until I find something that works for me on a longer time frame. In order to be selective like you are, you have to be able to take big shots and hit them, for my skill level that's too much pressure to basically put my entire day's fate in say 2-3 stocks.
Yes it does! But believe me once you get there it is as easy as you want it to be. This is the higher level of trading. When you will look at your trading screen and say, "hmmm I would have made this trade and fallen in the trap a year ago, but you won't get me now" you are on your way there. And then you become selective and your bets are BIG when it counts. Your bets are big when you recognize this once in a year opportunity and you squeeze it for all its worth. And then you see it. You see the next bar on the chart you see the next print on the ticker before they take place. And all you do is say thank you, I'm so blessed, this is so wonderful, this what I've been waiting for and you make more money than you can dream of. And then you lose the touch - and this will be the defining moment/day/week/year of your career. The slump of all slumps, the scariest nightmare of them all - win over that and you are on the way to become a career trader. Staying in the Zone as a bachelor was a piece of cake for me. I could do nothing wrong! Getting back into the zone after getting married and having a child was the greatest challenge I have ever faced. I found my way back. And I am not planing on losing my edge ever again. Because after 15 years I know my weakness, and I know what's truly important to me. And I also know that the market will be there next week and so will I Hitman, I sincerely wish you the best and the same goes for everyone on this board. I guess when I was searching for my way back into the zone I found it through Elite Trader Chatroom and trough Day Traders USA and through writing my books and now I am here trying to give some of it back, trying to help others have the same dream come true. Have a great weekened Tony