I scalped for a prop firm in Chicago for a couple years and did poorly and I've since discovered systems trading and I'm trying to find something that suits my personality. I find trend following to be extremely tough because the drawdowns are big and the win rate for each individual trade is low. I believe my style is more suited towards waiting for very short-term, extremely high percentage opportunities and taking profits where the risk-reward is somewhere in the realm of 2-1. I know a lot of people advocate a higher ratio but obviously your success rate on each trade is lower in that scenario, and psychologically I just have a tough time dealing with that. I'm definitely only interested in intraday trading and occasionally holding winning positions overnight but generally from the studies I've done, I think 1-2 hours is my average holding time. Anyway, I'd really like to talk to some other traders with a similar mentality, but I also have a question: let's say I do find a short term strategy that gets me in around 3 times a day and the win ratio is 50%. The odds of me being wrong even 5 times in a row is only 1/32, so I would think with 90 trades in a month, I would basically never have a losing month. Compare this with longer term strategies where you can have losing YEARS. My question is, other than time constraints and paying higher commissions, why would anyone choose not to trade shorter term??? Aren't I correct in my assumptions here?? By the way, if anyone would like to discuss systems trading with me, please feel free.
I was trading at a scalping prop. firm in Chicago, a few years back. One suggestion is to get over the psychological part where you want to find a system that fits you. Market doesn't care about what you feel or think. I maybe a bit mean... but... I'm not sure when you were trading prop. but since 4-5 years ago, scalping has been very tough and I'm sure you're aware that alot of the firms moved towards different trading like option Market Making/stat arb (CTC, Optiver, Kingstree, etc. etc.), rebate, or trading other products like EUREX. Maybe you joined the prop. firm when the markets were not friendly towards scalping... Computers and systems are very stupid, it's not wrong to say that the capabilities of the systems you develop are within the capabilities of the developer (you). But my point is, if you couldn't trade intraday in a prop., it's hard to imagine you making money within the same timeframe. I maybe wrong... but it's somewhat of a reality of it. Anyways, I would be keeping an open eye towards trading styles. Of course, if you are trading to keep yourself psychologically happy then go for it. If making money is the priority, then you know what to do. Seriously, you should get your priorities straightened out.
I do not trade full-time but I am finding individual equity trades take more time to research than I have available. I found index/etf trading (and some options) to be more up my way of trading. I do analyze market volume and direction. I found it much easier for me on a dau tradign basis. Index does bring some good liquity fro me and are harder to manipulate, unless you are an institutional trader. I just started a blog about my paper trading the SSO ultra etf. PM me for the blog link if you want to subscribe to my blog. I am following a SSO exposure of 10,000 shares .... we'llsee how it goes ...
No offense, but part of what you're saying makes no sense. Finding a style that suits me about is all about appealing to my psyche, that is the whole point. There's a valid reason for that, so I'm not going to "forget about it" like you say. The fact that the market doesn't care what I think is just an irrelevant cliche. I lost at scalping because I traded with emotion, and now I just put on trades with a target and stop already set, so as long as I sit and do nothing, I'm not using emotion anymore. You are right in saying that trading intraday is probably going to be harder for someone that already failed at a different form of intraday trading, but I also know that there's no way I could psychologically deal with the fact that I could have a losing year, so short term is the only answer in my opinion.
I trade whatever time frame I fall into where I have a competitive edge given my trading system. Discretionary daytrading can be mentally and emotionally draining. Personally I like to have a system where I'm not tapping tickers every second of the day. This way I can do research on other strategies. With respect to the title, I wouldn't say that shorter term strategies have lower drawdowns altogether. If you hold huge positions of stocks and the next morning your overnight trade gaps down BSC style, then you could have a huge drawdown. I would say that drawdowns are shorter lived than longer term strategies and that your equity curve should be smoother. Let's not forget the case where you put too many zeroes for shares to buy and the all of sudden your moving a market and your P and L is all over the place (with options the same situation is even funner). All in all, if you can do dd and recognize upcoming price shocks and other risks before you pull the trigger than you're better off. Just treat this as if it were another business and come up with a business plan and things won't be as complicated as they are for seat of the pants traders. As far as emotions getting in the way... worry first about finding an edge (statistically more significant profits than random trades) and then worry about the emotions. Most traders fail because they don't have an edge, but the whole Tharp movement tells you otherwise. Its sort of like picking up a golf club for the first time and blaiming your psyche for being a bad player.
No problem. You're entitled to your opinion as with what I wrote. 1. Your system will fade at one point. It will stop working as with anyone's trading models. At any point, you will start seeing losses due to the market changing. How will you deal with that? Emotionally it's not going to be easy, you have a choice of cutting that system, tweaking, and I am sure you will try to make it profitable again. But what does not work, will not work... in the systematic trading world. One key to overcoming this is diversifying products and trading styles, and timeframe. But you refuse to do it... so I guess this suggestion doesn't suite you...
Yeah I've been trading forex so the gaps are more or less inconsequential as long as I'm not trading during news releases. The fact that my equity curve is smoother is really the whole point of my post, I guess it's just really tough for me to see why anyone wouldn't choose to have lower drawdowns, even over larger returns. To me, if I could have a choice between a 30% return or 80% return over the next 5 years, but the drawdowns were 5% compared to 50% or something, I'd obviously go with the 30% return because I'd be much more confident in the system and I could just boost my size. I've talked to a couple traders who rarely even have losing days, but god knows what they are doing other than scalping. Some people have a knack for scalping but I admittedly do not.
Oh I refuse to diversify, ok thanks, I wasn't aware of that. I guess diversifying systems doesn't count.
You can have 100 systems trading but if they trade the same causality, you'll have 100 systems fading once the edge is gone. Profitable tendency in any market is very limited. Even more, most of them are not exposable to retail traders. A part of systematic trading is about dealing with limitations and overcoming it. I don't agree with the fact that you are limiting your trading choices, where in reality, you don't have much choice with market offered opportunity.
"Don't shorter term strategies have lower drawdowns?" Seems like a perfect hypothesis to be studied via backtesting. Why ask random strangers for their opinions when you can get the computerized backtester to hand you facts and data?