My auto trading system generate hundreds of trades a day, but...

Discussion in 'Automated Trading' started by tzlf, Mar 24, 2007.

  1. man


    spike, you nailed it IMHO.
    #11     Mar 26, 2007
  2. onelot


    That's a pretty bizzare reason. Here's just one example:

    No, it's not all about the profit ratio. There's winrate and frequency that are equally important pieces. Cost per trade is commissions plus slippage. Unless you're doing more volume than the scalper (lower comissos), your CPT will most likely be more. I don't agree with your successul statment, it has everything to do with being successful, why do it if that wasn't the point?

    He's talking about automating... doesn't look like he's going to be banging on his keys all day. So, stress really shouldn't be an argument on either side of the coin here.

    He didn't say time defines risk, he says it limits it. He's right. In your example, you have to compare apples to apples. You can't include directional or market exposure as an argument against time exposure, that's cheating. Assuming both have equal directional/market exposure (a fair comparison), the strategy that will be in the market less time is inherently less risky.

    Yes, but he will most likely have a smoother equity curve. Look, I like trend following too, but I don't think it's superior to scalping, nor do I feel scalping superior to TF. They're different, they have different characteristics. Ultimately, I believe scalping is less risky, but I think TF allows for fatter tails. Ideally, you do both.
    #12     Mar 26, 2007
  3. Thanks, onelot. I was really hoping someone would rebuttal a few of these points to save me the typing:)

    spike500; It is true that you cannot put 1 billion of assets in an account and scalp. No market can absorb that amount of liquidity on an instantaneous basis. The price of the market would be affected drastically because of the liquidity mismatch. This is obvious. But you got to compare apples to applies as onelot says. If you give $1B to a swing trader, trend trader, or whatever you want to call it, he can't instantaneously invest it. He has to scale into a position not to drastically affect the market price.

    Furthermore, the fact that he can keep taking more assets and investing them is not really an advantage from an investor's point of view. The more money the trend trader manages, the more control he loses because it becomes more and more difficult to get out of a position quickly. You lose control and trading is all about control. I want to have full control. I cannot go to sleep at night knowing that I have a large open position in my books. Even if I'm SuperTrader it doesn't matter. If the market gaps due to some sudden market-moving event, you'll be screwed and your stop loss won't be triggered where you had set it. That's a fact. Big positions are not advantageous at all.

    Yeah, but scalpers won't take the large losses that trend traders are more exposed to either. Small profits, but much better risk control and lower drawdowns. I care about that. Because a tightrope walker for hire has survived all his life walking across the two tallest buildings in New York City, doesn't mean that he won't eventually fall and die. To me, no amount of compensation in the world is worth taking that risk. Whether the tightrope walker trusts his ability to perform his job or not is irrelevant. He's still taking that risk.
    #13     Mar 26, 2007
  4. Take the list of registered CTA’s. Tell me how many of them are scalpers?
    Soros, John Henry, Warren Buffett, Ron Dennis and all the turtles are NO scalpers.
    Of course you can find a successful one. But the large majority are not scalpers.

    With profit ratio I meant the TOTAL profit of all trades against the TOTAL cost of all trades.
    Example: 24000 trades with a small commission and the slippage will cost you more than 500 trades with a bigger commission and the same slippage. Commission has to be 50 times lower in scalping to have the same total commission cost. This will not be the case. Cost per trade is irrelevant, unless you compare also the profit per trade. Profit per trade for scalpers will be only a fraction of profit per trade of trendfollowers. ( my average this month is approx 5.95 points net per trade in the ES, scalpers talk about ticks. There are approx 24 ticks in 5.95 points).

    You cannot compare apples with apples because the two kind of systems are completely different. So don’t conclude automatically that both systems are equally good in defining the direction of the market. Scalpers very often go against the trend.

    In the article Tradebot’s Cummins said: When all the gains are added up, you might have a $50,000 day.

    Well, I know a trader who makes that amount on his own. So no staff of 24 persons, only 2-3 trades a day, 1 computer and 2 screens. And only 200 ES contracts are traded. So no mega business, but the profit of the mega business is reached as he made over 12 million dollars last year. He has never been down 30%. That’s what I call trading, that’s what I admire.
    BTW: if Cummmins talks about 50k a day it probably means that this amount is one of the best days they ever had.
    #14     Mar 26, 2007
  5. mujoh


    Although I would consider myself as a scalper (scalping for 5-10 Ticks in ER2, 4-8 Ticks in ES) I must agree that I would rather prefer to trade a system with only a few trades but a good net profit per trade (like Spike’s system). It not only costs you less commission it is also more comfortable to trade…at least for me.

    But if you are honest the problem why many people prefer/need to scalp (like myself) is as follows: They can only predict the short term market direction with a good probability. Sometimes taking a couple of ticks profit works fine and you get the most of this move before it reverses. But sometimes you are leaving a lot of money on the table when you exit too early. So if everybody would know how far the market moves (or in which trend strength the market actually is) nobody would leave the trend earlier than necessary.

    That’s also the reason why many scalpers I know are doing a lot of research to squeeze more money out of a trade to improve the profit per cost ratio. I also belong to this group to turn myself into a more trend following trader…but only the future will tell if it finally works for me or not….
    #15     Mar 26, 2007
  6. onelot


    Glad you conceded that point (partially anyway). If you look, you can find more than one. Except, they're not called scalpers, it's called high frequency finance, which has been around for roughly a decade now. The guys you mentioned are the old guard, not taking anything away from them, but there are more modern funds and strategies that manage billions that take their money on very tiny timeframes with very little risk... it's not just Soros/Buffet style trading out there anymore. Never heard of Stevie Cohen and SAC? There's more than a few more (DE Shaw, Renassaince, etc).

    Totally agree, so why exactly are you arguing with danger then? Like I said, two different methods, two different sets of characteristics. One is inherently less risky, the other has fatter tails. They both can bring in mega-bucks. There's really not much to argue about.

    Your basic point is that traders who can bring in a higher profit per trade are "better". I used to believe that on some level, but now I know better. I realizied what it's really all about is trading multiple non-correlated strategies... not being married to a single method or style. In that frame of mind, these types of threads stop being sources of off-topic religious wars, and more a potential for opportunity. To each his own though.
    #16     Mar 26, 2007
  7. spike500, Soros, Henry, and Buffett couldn't scalp even if they wanted to. They cannot swiftly get in and out of a position with all the money they have under management. It's impossible.

    Liquidity is definitely an issue for scalping, but you are exposed to the market less time. Less time in the market = less exposure risk. Some people don't mind being exposed to market risk. They feel confident when they're in a position. I don't. To me, the safest time in trading is when you're OUT of a trade. This is a matter of preference.

    Direction is relative to the trend in question. What should "the trend" mean anyway? All of this is relative. What's a long time for the mayfly is obviously a microsecond for the giant tortoise.

    What is "the trend" anyway and which is the "right" trend. You again incorrectly assume that the right trend is the one that you use. All of this is relative.

    None of the scalpers I work with have been down 30% either. In fact, 30% is an astronomically high figure for me. A scalper that's down 30% really sucks. If trading with the "right trend" means having to digest a 30% loss, then I want no part of it.

    May the bravest man hold on to positions the longest. I'll pass.
    #17     Mar 27, 2007
  8. virgin


  9. man


    nevertheless, it has been my experience that higher
    sharpe ratios are easier obtainable with higher freq..
    #19     Mar 27, 2007
  10. TraDaToR


    Although i'm an automated swing trader, I would say that , all things equal, if I had the technical skills to create such a program, I would prefer to make 50 K per day in a TradeBot like type of trading than to drop 200 lots of ES. Your friend is relying on one system( if I understand ), and TradeBot is providing liquidity on NASDAQ wherever it lacks,like a coin collector.

    But if you consider the initial system presented on this thread, of course it's highly unlikely that he would ever make gains. There's really few profitable scalping systems using market orders. If you're paying the b/a spread at each trade, you really have to be in a jedi mind.

    #20     Mar 27, 2007