It is a process: 1) First you do all the research in the world when you first start out. 2) Then you trade small size and make money. 3) Then you get confident and start trading bigger size and you make and lose money. But you are still doing ok, just not makin any real money. 4) Then you really get confident and think you have overcomed your demons and trade real size. You are now in grave danger regardless of your skill. Now there are bullets wizzing by your head from all directions. 5) Then you blow out because in the markets when you do enough size to make a real living, there is always a bullet lurking with your name on it, no matter your skill. When you have gone through this process and know when to run before the bullet hits you, your education is complete. But you have no money to stay in the game. 6) Now you have the right to talk about facing real demons. #4 coupled with #5 is the key to all trading. The realization that you are always walking on a high wire with no net when doing size is 90% of what dictates strategies. nitro
this sounds like a man of experience and wisdom. without size, trading is simply churning--regardless of ability--you WILL lose in the end--ability only enables one to last longer where either you get big, win, then change into money manager, or quit, churn yourself to poverty, or blow up. one must take significant risk to win in this game, but you can also lose. hopefully you come back soon, nitro! surfer
I don't agree. I mean, yes, if you are aiming to make 8 figures annually, you will probably start to hit size issues when using techniques and time frames typical of individual do-it-at-home traders. But to say one needs to "risk everything" in order to take something that works "small" up to levels that one can live off of is simply wrong. Risk levels do not necessarily need to increase to "do-or-die" altitudes in order to achieve very good numbers -- in fact, as your account gets larger, your proportional level of risk should get smaller and smaller as you trade fewer contracts per dollar. It really comes down to how "good" your edge is; the better it is, the more proft per dollar risked you can achieve. If you need a 7-figure account, or 300:1 leverage in order to pay the rent with what you are doing, well then frankly you need to find a better method, at least for DIY trading. But with present-day liquidity and 9,000 other hedge funds to profit off if, if you have something that works (and works well), you can take 5 figures to 7 in a surprisingly short amount of time without walking a high wire. Ambition and risk do not need to go hand in hand -- you might just have to work a bit harder before you settle upon your holy grail.
good points, but remember i am talking about the long haul. eventually, everyone loses in this game, unless you go big in risk then quit or change when ahead. think of the top traders-- tudor jones etal--- they ALL took BIG risks at some point in their careers, then ( the survivors) mostly morph into fund managers, blow up or both. And there are very very few top traders like jones--maybe 25 in the world---so it can be done, just exceedingly rare. sure. if you are happy making a meager living, and you have an edge--you'll last untill your edge evaporates. eventually the vig will get you and or your edge will evaporate unless you go big and take outsized risks. just my opinion from what i have observed and experienced over the years. i am 100% convinced that BIG RISK IS PRERESQUITE TO BIG PROFITS for the independent trader--otherwise you just churn make money/lose money while the market machine eats your soul by the vig. i would like to be proven wrong. surf
To clarify, big size does not necessarily = great risk. No, you ask? How? 1) Hedge the trade instantly. But since you are doing size and executed the initial trade at edge, you have "locked" in a decent profit. This is what market makers do. This is not predictive trading though. The repetition of these trades/hedges many times a day in the course of a year returns huge profits with very little risk. 2) Exit if the trade does not go your way "immediately". Notice this is not the same thing as a stop loss mentality. By the time a typical stop loss is hit, you waited too long. This realization coupled with the realization that predictive trading is a losers game, _is_ the holy grail of profitable predictive trading. Notice that I don't mean that predictive trading is a losing game in a mathematical sense, only that in order to win in predictive trading, you have to realize that you start out assuming all your trades are losers. Only the market can turn it into a winner, but from your perspective, it starts out a loser the instant you put it on. Only market makers trades start out as winners from the get go. They pay millions of dollars for that privilege. 3) Or, if it looks like you have a winner, you may press and add size to the trade, but always keeping rule two in mind. This is why trading is so hard, it requires constant decision making on exits, which in turn is honed by the experience of watching the tape. One last comment, because rule two comes close to saying that there is no real edge in any entry, except the decision to leave the trade on or take it off very "soon" thereafter. That is almost what I am saying!!!! In fact, if you master this rule, then just about any decent entry rule (assuming a proper timeframe with edge coupled with a tradeable instrument), like pullbacks, MA breakouts, Opening Only, etc, work!!! The real artistry is in the decision to exit. The entry can be mechanical. nitro
A problem would be defining what "big risk/profit" means -- for example, does trading 1 currency contract per 20K in the account qualify as "risky"? How about 10K? What about tripling one's usual size through pyramiding in order to capture an intraday trend -- if one sets the stop immediately to even on the whole position after he enters his last add? Etc. But all that aside, what about looking at this issue from the exact opposite vantage point? That is: a trader's risk becomes relatively smaller as his skill becomes relatively greater? I think this can apply not only to one's trading career in general, but "fractally" right down to the individual trade. The greater one's ability to accurately time and catch the turns in a market, the closer in price and time one can place a meaningful stop. The "ideal" trader would always buy the bottom tick and sell the top one; hence, his "risk" could be just a single tick stop for each trade. Contrast this with the trader who needs to constantly "average in" his position, taking greater and greater risks as the position falls against him. This is the second time I'm gonna quote the following in the past week or so, but it's such a great one that all of us diy'ers should, perhaps MUST believe in it: "It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance." Granted, the trader who authored this quote blew out more than his trading account by the end of his lifetime -- that irony does not escape me. But relatively speaking, I don't think it's impossible for an individual to earn many fortunes over before the market eventually catches up with him. Yes, he will have to trade size, but it can be commensurate with the growing size of his account without putting all at risk at any one moment. Practically speaking, I do agree that an individual does need to "press his luck", in more ways than one, in order to eventually succeed. But I think the "big risk" of that nature applies more towards the beginning of one's trading career, rather than being concurrent with the culmination of success. That includes actually blowing out, perhaps more than a few times (raises hand), as one is learning his craft. It also includes that one "lucky" breakthrough trade that really shows the individual trader what is actually possible in this game -- which most likely occurs with a trader wildly overleveraging his account at its infancy. But once a certain level of confidence is achieved in this game, which includes being able to properly differentiate between skill and luck, I really think that the absolute "risk" involved with one's trading at that point would be at the lowest level of his career thus far. So in one sense, I would have to take the exact opposite stance as yours: that a prerequisite to success would be the realization that one need never have to walk that high wire ever again, in order to succeed. That's just been my own experience.
If you extend the logic of the above, you'll see that "ideally" there is no difference in exit and entry -- just bookeeping. The artistry is equal. In practice, in one's mind, it never quite gets that close. But I think it helps to try to bring one's actions as close to that ideal as possible. Over and over I see on these boards people getting halfway with this, but never daring to go all the way.
"It's not that we don't know what to do, we can't do what we know" That quote up there has been the problem in my trading. I know the trade is going in my direction at least a point, but can I hold? No... Why? FEAR, FEAR, & more FEAR... Constant fear about losing. Take for example friday: Ice is breaking the low of the day, the market is breaking down and I say to myself, "hey, I got a good short here." Then my demon says, "No, you're up $500 on a friday afternoon, don't risk it." I listen to the cowardly demon and watch ice fall 4 points. Yes, 4 damn points! Then I bought it at the low and made 35 cents... As Lescor once said somewhere, "the day you stop worrying about money, is the day you will make the big money." Fear is my demon.