Dr. Steenbarger, Do you read your own blog? I'm sure you do. Is your research part of the 'publish or perish' mentality or do you plan on using it to better your own trading? You weblog is full of "anticipating market movement". Perhaps a PsyD would have served your trading better. Respectfully, uptik2000
Absolutely correct! That is what made my trip to the successful trading group so eye-opening, and that is what led me to write the initial post: They were trading *very* differently from me (and from most traders I know), and they were much more successful! Because of that, I am rethinking aspects of my research and my Weblog. My original post was intended as a piece of reporting: to document what I observed among traders who were very, very successful. I did not intend in that post to either elevate my own trading or diminish that of others. I must say, however, that seeing first hand how very successful traders think about markets left me with more than a little humility about my own work. Brett
Did this group of professional traders work in banks? Sounds like they looked for arbitrage opportunities (could be in a statistical sense between instruments, not necessarily strict arbitrage) rather than outright directional. My peripheral knowledge of trading desks at banks/dealers suggests this is true amongst them - very little shoot from the hip. Either P/L comes from making a market or knowing a lot about instruments & trading them in a related way (eg buying something illiquid and hedging with something liquid - the illiquid product is more mispriced, thus providing the edge). PS - I've enjoyed your articles. Unlike some of the more, shall we say, "vehement" members of ET, I don't consider for a second that I shouldn't listen to you just because haven't made $ billions in the markets. The markets are a difficult challenge, period. Please keep up the good work.
You sound like you have no clue yourself. There are too many pikers on this board who are quick to dish out sarcasm and insults when they feel their trading ego is threatened , especially the person who started this thread and in his thread title and opening line completely distorted what the article said (lied). The underlying of this behavior is obvious and revealing and I am sure the doc is having a good chuckle.
YES OF COURSE, HOME BASED TRADERS AS AMATEURS!!! Check the definition of "professional", if you disagree. I find no slight in someone pointing out the fact that I am not as fully tooled as someone who regularly wins/losses millions in the market in a single day.
I would have to agree with all of the key points in Dr. Steenbarger's article. What do we as average traders sitting in front of a computer screen have over prop firms, hedge funds and large brokerage houses? 1. Maybe we have years of experience from watching the markets, and we are good at identifying patterns and reacting to news. As individuals, maybe we can anticipate moves on individual equities by looking at chart formations, seeing support and resistance, and watching the time and sales with a close eye to look for breakouts. 2.Maybe we're more advanced and we trade a stock in relation to its underlying index. Or maybe we trade an ETF in relation to its index, because we have software that says the ETF is undervalued or overbought. Arbitrage trades have a high success ratio, but as individual traders, I don't see how it's possible without the sophisticated software, and in most cases, these trades are done entirely through automation and are done very quickly. 3.Maybe we are independent traders that stay away from the big caps and trade the low floaters, using hype from the message boards and using company news.(Risky, but do able, it's a hard to define strategy that many people do. I frequent a few boards, and it is amazing to see the same guys on there around the clock, at midnight and on the weekends on sunday morning, it never stops, they are arguing about how company X is such a POS, or how the stock offering is going to dilute the shares and the company is going to drop X amount of percent come monday mooring. I say risky because often these stocks only trade 500k shares/day or less and the stock is less than $5, and can have large bid/ask spreads) 4.When trading futures, having the squawk box and the broadcaster in your headset is a great advantage, and this takes time to learn how to use. Being able to watch the pit and the floor traders in real time is even better, just like last week when Maria dropped the Dow 50pts in less than 8min off her inside news.(that was exciting) (just a side note, wouldn't you love to work at CNBC, being able to know what the reporter was going to say, before the rest of the world reacted to it, just like the Maria incident, or earnings reports, or having a CEO come on air un-announced, remember NVAX last fall. Also, what about the news that Reuters and the major news networks spit out. Don't you think someone capitalized on the information before it was typed and coded into html for everyone else to read?) Jim Cramer talked about in his book "confessions of a street addict" about how he ran his hedge fund. The key things he had that we as average traders most likely don't have are: 1. A wife that was an expert trader(ok, maybe we're experts too) 2. "Friends with benefits". Cramer's hedge generated a ton of commission, and this made his brokers happy, and in return he would get to hear what others were buying. (Note, Cramer would make many phone calls (100+/day) to other firms and brokerages to see what others were buying. (Don't you think it would be nice to know what Goldman, Smith and Morgan were buying?) 3. Cramer knew CEO's personally. They would come to him, wanting his backing. (I haven't had to many CEO's ask me for backing yet, have you?) 4.Cramer had a lot of money he could move, which in turn, could move the markets. 5.Cramer had connections into Goldman and knew what the analysts were thinking and what the broker was promoting as the "buy list". 6.Cramer was the news, and still is. By this I mean, people react to what he says, just like they would from an article by barron's or the WSJ. I like to play poker, and I find that trading is very similar, in the aspects of knowing what hands or trade setups to take. Also knowing your opponents or what the other market participants are doing is a great advantage. Knowing what the chart looks like is one thing, knowing where others are placing there bets on that chart is another. As the average trader, we can use experience to make a guess on a high probability trade and then cut it loose if it goes the wrong way, while on the other hand we can profit by letting that trade run. Overall, I believe networking of information is one of the biggest factors that separates the Pros from the Smo's. However, I believe amateurs can still be profitable and make good money trading when they acquire the experience through hard work and learning proper money management. There are several websites online that house communities of traders that network with each other. Trading on the same side as these guys is normally a smart move. Trading with the help of hype and news, while also using friends trading in the same direction, is a way the small amateurs can increase their P/L. These guys may not be able to move the big caps, but they can definetly move small caps. Also, this community relies on hype in the way of message boards and websites. Dr. Steenbarger, I enjoy your Web-Blog and the amount of effort you put into your analysis of the markets and the psychological help you give traders. John