Senior/Sucessful traders, what do you reccomend for a Newbie?

Discussion in 'Professional Trading' started by tycoonman, Apr 24, 2010.

  1. bone

    bone

    After a PM, I'm going to list what I refer to as some useful texts with an important forwarding acknowledgement.

    First off, let me get this out of the way: The 'Holy Grail' is that there is no 'Holy Grail'. Thanks for stating the obvious? But there is some important subtext here: One can reasonably assume that at least a few human beings through the ages wasted/spent their lives searching for the Holy Grail. But the Holy Grail was and is a fantastical and mythical legend that is so powerful it has coined a phrase - could be proven, I'm not saying it doesn't exist per se, but my sense of risk/reward says don't stop my own personal life and go out and look for it. If somebody else finds it, well then, I'll watch the Nat Geo Special in HD. With a Sam Adams in one hand and the remote in other.

    Second point: Simpler is almost always better. Trading attracts Geeks, and Geeks like to create science fair projects that like large boats over 25 feet in length, are a giant sucking hole which to throw money into. Back in my twenties I was an engineer who was recruited to trade the emerging commercial power and fuels markets. Only I was at a Mid-Western utility with deep pockets and Enron was my bitch. When I left that gig to start trading proprietary, David Ellis (DE Trading and ITG in Glenview) was my first backer, and I became his first big size spread trader. DTB and the Liffe electronic markets had just started up and I made my mark quickly. Now, a bit more about Dave: if Dave threw his wallet at me it would kill me. And Dave was superb at trading corrections and retracements. That was it - that was his strategy. He did it for 200 big S&P contracts on the floor in the late 80's and early 90's, and he did it for stupid size on the screen in the Dax and the Bund. But too many people on ET couldn't possible believe that it could be that simple, and they would insist that they add their own creative embellishments to make it much better. I mean, what about Kurtosis and all that other valuable stuff they talk about on the Wilmott Forums? P.S.: Dave could buy 400 Quants outright. At least.

    OK, rant over. Mark Whistler's "Trading Pairs" is a great primer to get some meaningful direction on using statistical concepts in the marketplace. It is a very elementary but entirely functional guide to using an Excel Spreadsheet for statistical analysis. There are some great toolboxes out there like Statistica and S-Plus; I am particularly fond of Zivot and Wang's Second Edition of "Modeling Financial Time Series with S-Plus". Don't get caught up in the minutae and the semantics - the idea is to know the statistical characteristics of the instruments you are trading. I have a penchant for short and sweet, and have traded plenty of OTC energy products up until 2009. I highly recommend "Modeling and Forecasting Electricity Loads and Prices - A Statistical Approach" by Rafal Weron. I used it for financially-cleared PJM-W heat rate options spreads. In terms of good vignettes about tradecraft, it's hard to beat "Charlie D." by William Falloon - but good luck finding one. I do like "Pit Bull" by Marty Schwartz in terms of how he thinks and prepares for the market, but find his approach using flat price directional risk and 'an axe to grind' a bit too 'risk of ruin' for my taste.
     
    #31     May 4, 2010
  2. I would love to see a scientific study of the correlation of number of posts on ET and profitability. My hypothesis is that the more the posts, the lesser the profitability. I got into a minor flame war where someone was saying it should be easy for a day trader to make 20% a quarter, and I called bullshit. Easy to make 20%, then these same guys telling me that I don't know what the hell I'm talking about. LOL
     
    #32     May 4, 2010
  3. Bone, Thank you so much for referencing all that great text. I will start with trading pairs and work my way down the list. Im still reading high-powered trading for dummies lol. However, I will likely be using the services provided by you on your site once I have acquainted myself with the market, and feel comfortable. Having said that, what is your opinion on when I should be ready to use your expertise to help me become the trader I aspire to be? Is there a knowledge floor or ceiling you prefer your new clients to have?
     
    #33     May 4, 2010
  4. bone

    bone

    Tycoonman:

    Honestly, in a twisted way, the less you think you 'know' the better.

    I will turn away every person who contacts me and proclaims that he is close to ruin, and that I am his last hope. I also like to gauge what kind of 'baggage' the prospect is carrying in terms of impulsive behavior and self-destructive habits. The fact of the matter is that I only want to keep a certain number of clients at any point in time, because I still want to trade for two or three days per week and screw around on my own terms for the rest of the week. Every one of my clients shares independent emails and the frequent telephone call with at least a couple of my current clients before that prospect commits to a contract - and that works both ways; there have been times when I have been warned that a prospect might be more trouble than I would appreciate.

    I like prospects who are in a position not to "force" trades, but like to organize themselves and the trade setup before committing capital. It is very important to have a strategy and a sound methodology to approaching the market, and that enough preparation has been made so that the actual trade entry is really kind of an afterthought. It is so important to be confident about your risk/reward skew. After a few months, the focus shifts to building a portfolio of many different spread combinations across several different market spaces, and position management and sizing plans. We work alot on execution platforms and custom scanners where we rank our market instruments according to strength of bias. I want my traders to "react to" the market and not get caught in a crappy position because of some impulsive reaction to a nebulous chart study. I want my clients to 'cherry pick' for probability.

    Some of my clients have secured prop trading positions, and I will do everything I can to help assist them in those efforts.

    So, be very organized and methodical, and don't repeat mistakes. That makes a good client for me, and a successful trader in terms of a lasting career choice.
     
    #34     May 4, 2010
  5. My first and only mentor told me - "this is the hardest job you will ever have" - believe it.

    Start by focusing on one thing only - like trading only one stock when a few conditions are met , like technical indicators, price, volume.
    And expect your trading career to begin today and still be beginning in 2 years.
    Oh yeah, don't be one of those folks in this room who say things like "i just started trading and i took a 10 point stop loss on 1000 shares. What do I do now?" - don't be that person - trade very small and tight at first.
     
    #35     May 6, 2010
  6. While this is not bad advice, I take a different approach. I attribute what success I have had to a combination of many things - the things that I think make a difference.

    STOCK SELECTION - I use quantified factors to find stocks that give me more of an edge than just trading the indices.
    MARKET TIMING - I use some simple but basic market timing strategies. They aren't great and I would never trade them outright but they help me avoid the worst of the bear market and they help me balance my allocation to longs and shorts.
    ENTRY AND EXIT RULES - I have a couple very simple rules. They give me an edge and I follow them religiously.
    RISK CONTROL - This is key. You have to have a strategy to control your risk across your portfolio. I focus on position size and diversification of stocks and strategies.
    FOCUS ON COSTS/SLIPPAGE - I have more than one account because some brokers have better features and some have better commissions and I take advantage of both. YTD commissions are over 8% of my profits.
    TESTING - I have tested my strategies on thousands of trades, so I have the confidence to know for a fact the odds are in my favor. There is no opinion, no guessing.
    IGNORE WHAT DOESN'T MATTER - There is so much information and an incredible amount of mis-information. It takes some time to weed thru all the fluff and garbage to understand what really helps and what doesn't. I would never pay more than the cost of a book for trading information because there is more than enough excellent information in this space. Sure there are some courses, consultants, mentors, etc. that may be worth a high price, but knowing that ahead of time is virtually impossible and I think the odds are very much against you. Save your money for your trading.

    I don't think I am particularly great in any of these areas, but the combination gives me a very clear edge.
     
    #36     May 6, 2010
  7. I have found that the best way to learn is through experience. Mock portfolios, etc, are BS. If you aren't using real money, there is no risk, and hence you make different decisions.

    Books help you with the basics, but there is so much going on in the world, in order to be successful, you have to keep up in news, watch how news effects prices, and continue to gauge where the market is, and where it is headed.
     
    #37     May 6, 2010
  8. Mine would be more on the attitude..
    Patience and Determination..
    Learn as much, have the right attitude and lastly be skilled through practice :)
     
    #38     May 21, 2010
  9. yablo5150

    yablo5150

    Agreed with below----open a demo or small account. You can read dozens of books and waste a tremendous amount of time, or get a good understanding with Trading for a Living by Elder which is packed full of important goodies or Master Swing Trader by Farley(dry as hell-great for insomnia) which offers a lot based on Fibonacci levels and multiple confirmation areas around support and resistance levels. You'll need fib levels on your platform for this one---try FiboChart or fibmaster if your broker doesn't offer grids.
     
    #39     Jun 4, 2010
  10. I'd agree with that, open a SMALL account and risk very little on each trade, that way you can put the theory that you read in the textbooks into practice. Find out what actually works in the heat of battle, what doesn't and what suits you best.

    Once you've worked out a suitable method, be consistent with it, at least until you've earned the experience to add more discretion.

    When you start, you should be trading to develop your skills, don't worry about the money that will come later, provided you can survive long enough to gain some skill & knowledge.

    And don't get fooled into thinking it's easy, it only takes a mouse click and a lucky guess to get a winning trade. To win consistently takes experience, knowledge & skill.
     
    #40     Jun 5, 2010