I believe I was negative on Don a while back because of some of the tactics he used. However, I gotta admit that I found this Trading After Dark video very informative, honest, and useful. Good job Don. http://www.youtube.com/watch?v=r_XRet7J7wY&feature=player_embedded Now, the question is what do you guys think about this trading method? His stop management is somewhat similar to what I do.. at least one of trading styles. I have several. But, I will always use a catastrophic stop which can result in large losses. He's correct in that even such a stop is going to hurt the net return. However, it does reduce the maximal risk per trade. The downside to using large stops or no stops are following: 1. Hard to get leverage for maximal return or even meaningful return 2. Take unlimited risk if you don't have a hedge of some sort. 3. If you do use a large catastrophic stop then you don't have the unlimited risk and you get most of the benefits of not getting stopped but you will have some occasional big hits. 4. Obviously, he's trading a huge account and to make meaningful return with a more modest account using these techniques seems to be more of a stretch. In terms of near extremes, I like always knowing okay this is where I'm getting out. I don't ever want to be in a place of hurt, in a world of hurt that can happen for those who don't have stops. His strategy would seem to have a equity curve similar to naked put selling. He would profit almost every single day except possibly the one day out of the year that could blow out this account. Think about 1987 or even today if he was sized large. I get the impression he's trading far more skilled then Hoffman and he's not averaging down mindlessly. And, I certainly agree what he says about the catching the tails because I caught those tells really well. And it was extremely volatile. But, I'd like to some opinions. I know that some are using max size with very tight stops. This method is based on the premise of minimum time in market and highest probability trade. But, also, your cost of doing business is higher and probability of being stopped out seems to be likely random. This kinda goes back about the usage of market vs limit order too. Market order is favor if you know the immediate the direction of the market. Limit is favor if you know the maximum extent of the range. With limit orders often if you try to get that perfect fill you're only going to get it on the losers. So, that's part of why I wonder how these guys with tight stops are trading. For me I think it would be terribly frustrating and counter productive. However, I'm willing to look at all the styles and thinking about the relationship among the MAE and drawdown. Again, the problem with such a style seems to be churn, lack leverage for meaningful return, and possibility of extreme tail risk. Benefit would be the possibility of very consistent returns.
It's hard to say exactly how his style works w/o talking to those that have purchased his course. The youtube videos are interesting, but what is the ultimate goal of those videos? To educate or show you a p/l of $5k+ and then you email/pick up the phone. I don't recall if we've seen anyone on ET post a review of his course which is kind of surprising.
I haven't watched the video and probably won't take time to, but that's simply because I'm busy. Don's educational stuff speaks for itself. As for the topic of stops... it all depends. If someone has a large enough account and small enough capital exposed to open trades where a flash-crash or catastrophic event won't vaporize the account, so be it. But by Don's own admission (in his youtube video report) he nearly got vaporized in the flash crash of 5/05/2010. What prevents such an event or worse happening again? The 9/11/01 tragedy plunged emini markets in the globex and they remained closed for several days... over the weekend, too. Who would like to have been long 20 or 40 contracts that morning while the ES was rallying strong premarket, and get stuck in a position for the next week where world markets plunged and ES eventually opened up more than -100 points in the hole? That guy with TTM who blew out -$300k in the TF tried using size to "manage risk" in his own fashion, too. Not saying Don's and that guy's approach are the same, but they have similar philosophy: avoid getting stopped at all costs. Well, eventually the cost of not taking stops is indeed a very steep price to pay. Meanwhile, anyone who knows how to trade the direction of a market can, does and will use stop orders as an effective part of their approach. Bottom line? Most independent futures traders out there do not have seven-figure accounts to back up 20-lot positions in the ES. By default, all of those traders with zero exception had better be using stops on their trades, or their trading career will likely end inside the next inevitable black swan event.
I do not think Hoffman did what Don does. Hoffman used a trick (martingale) to produce a claim and sale his course. I've built a lot of trading strategies and very rarely do stops improve the equity return. I think people do not understand the purpose of the stop. The stop is not meant to improve performance or decrease drawdown. The stop is meant to decrease the size of the largest loss. In this way, it should be understood that stops should decrease return because they decrease risk, in the same way that buying insurance does. I've blogged about this extensively, see links @ end. There is a close relationship between the MAE and drawdown of a system. For maximal scaling, one must decrease both of these variables. I feel that vertical spreads/options do a much better job of managing risk then stops because stops tend to get one out at worst price. However, this is counter balanced in that one pays a higher premium for trading those instruments and that if one is skilled in using the stops then they can avoid the premium cost at the max risk cost. Yes, I agree wholly that most traders don't have 7 figure accounts and thus we will need to use different methods. I'm still thinking the ideal combination might be to trade without stops and then hold puts. I don't know. I can use stops pretty effectively to manage my risk in the futures market (on sim). I use the vertical spreads and typically I do better with stops. The main thing the stop does is I don't have to worry about losing everything. That's what I'm trying to say is I've seen traders who don't use stops and they end up in a really bad way. The key principle is that one must manage their MAE: they must manage risk to trade. Now, it is true, also, that the usage of stops is somewhat implied because most traders are over leveraged. If you use a catastrophic stop then you may take a big hit rarely whereas if you were to use options/spreads then you give up edge with every trade (spread out the cost). It is like selling insurance on your system but nobody will cover your system because nobody believes in it. The problem is because nobody believes the system, you have to pay a market price for insurance that is higher then it should be. This is what I'm trying to say: I'd rather pay an insurance then take a large stop hit. But, I haven't found/determined if I can buy the insurance at a fair price. I also, think, that some of these ideas within "near extremes" could be effective, if one has an edge which I do not believe that Hoffman does. I mean that some concepts that don't work: averaging down to infinity might work within certain limits. Main point is, I agree those who don't manage risk will be likely to blow out because markets are non stationary and non normal. This is, also, a problem with Don's liquidity providing is often the market will just make a mad dash/run to the next level. There is no chance to sell out a losing position in those cases without taking a loss. http://themarketpredictor.com/Details/2010/6/13/Why Stops Are So Bad http://themarketpredictor.com/Details/2010/6/13/When Stops Make Sense http://themarketpredictor.com/Details/2010/6/13/Other Ways To Manage Risk http://themarketpredictor.com/Details/2010/10/9/Understanding MAE
Intraday traders who turn five, ten or twenty rounds between the bells cannot mitigate risk thru long options. The premium costs paid on option trades would negate potential profits in futures. Taking smaller stops and larger profits results in blended profits the same way spread tactics, hedged tactics or any other tactics would. Mostly it is a mental = emotional issue about not getting stopped out for frequent small losses and/or actual lack of knowledge on how to trade directionally with the market's own bias.
Miller says a lot without really saying anything. He's all marketing jelly overly expensive bullshit. In my opinion, if you're looking for a cheap or basically free top notch trading education and are willing to put the work in. Al brooks.
This video shows exactly how he is trading. Clearly he was a floor trader and adapted the foot shuffling style to the screen. ES has enough range and liquidity with depth on both side and he has capital to scale when wants to. He is very flexible (while analytical, he is also intuitive) person responding fluidly (with several strategies in his toolbox) in response to market action, managing his position with size rather then stops. He is thinking of areas of buying and selling rather then exact spots. This is a method used by people who are comfortable with the ebb and flow of the market and basically always buying and selling. When you engage the market with such frequency and you happen to have some aptitude you will become very confident and you move in and out of the market with ease. I have only seen a few early Hoffman videos but it seems from them that Hoffman is picking precise points based on his support resistance lines and TA. If the market violates his points or missed taking a trade he has to wait for the next exact spot and moment to make a trade. That is very stressful. If you happen to be a foot lose trader like Miller you do not have to agonize about the market because you benefit from an ever seesawing movement and having been through countless similar situations - because the market is repetitive - you know how to handle the next one. There is a lot to learn from this guy, he has the right combination of attributes to be a great trader. Can this style be taught? Positively. Can it be mastered? Yes, but only by people who have most of the attributes this kind of trading requires. Cheers, 222bc
That's correct In the video you'll see that after a profit over 9K made with 10/15 lots he remains long with 5 contracts losing half profit A complete nonsense
Seems like he is a "stream of consciousness" trader. Not knocking it, if he's got a good feel for the market -- some traders have a talent for it. All he really discussed in the video was his desire to catch the "air" above an oversold market. No real methodology or "rules" per se were mentioned. Orders placed on the DOM with no real rhyme or reason. A lot of ridicule of tight stops too. I suspect his down days must be stellar, but who knows. I'm skeptical.