TLDR: Skilled futures trader with history of discipline issues resolves issues and finally succeeds over the long run. Trades stocks, then options, then futures. Finds out about systems and automation, trades automated systems, joines Trading Tribe and works on issues with help from other traders, trades futures again with systems and unconventional discretionary techniques. Makes money quickly on many occasions and loses quickly too- mostly because of behavioral and psychological reasons that still need work. Get’s back into Tribe and decides on right livelihood. Hello ET, I am a long time member and infrequent poster. I have decided to share my story and document my process as I re-engage with markets, trading and other traders. I have limited time so I may not post often or reply much. I think sharing my experiences and story including with the many ups and downs in what amounts to a very long process will help me understand my relationship with trading and may help others too. Personal Background: [Placeholder - I may add this in later.] How I came to trading: When and graduated in 1997. I moved to NYC and started a web development company that serviced startups and arts related businesses. I basically had a desk in a SoHo storefront leased by myself and two other arts/advertising related guys that used computers for 3d animation and web related work. Around the same time, my 90 year old grandmother was an engaged and very successful investor. She had worked as a secretary in the 6o’s and 70’s and was able to teach herself about the stock market. She was very in tune with the current trends, was a good stock picker and would hold for decades in some cases. One day while I was visiting her at her home in Brooklyn, she casually presented a certificate of stock in a tax free bond fund. It had my name on it. I had no idea what it really was or how markets worked but I new it was valuable by the look in her eye. She told me to look it up in the paper and that I was old enough to manage it myself. There was no ceremony, just the idea that grandma was letting me in on a secret and giving me a head start. I was very grateful, curious and intrigued. That was the beginning of a long relationship with markets, sanctioned by non other than my grandmother, quite possibly the person I trusted most. I spend the next 6 months reading everything I could find. I would spend hours at the business libraries and lurking at various Barnes and Noble locations throughout the city. Trading books were expensive (the good ones). I developed a mental map of where the different books could be found since each store and library had very different inventory. I made the rounds and read everything. After a long book fueled “dip your toe” survey of how it all worked I decided that I would become a day trader. Yep… It seemed obvious. Direct market access. No extended risk, daily opportunity. Fast paced (interesting/captivating). Most of all I was obsessed with the idea that I would be wealthy once I got good at it. I spent a few more months researching brokers and saving money and settled on a retail direct access firm out of Washington State that was named after the owner/founder’s initials. The owner was accessible on the phone, seemed legit, offered direct access, level 2 and most importantly a RealTick front end (I don’t remember the reason is was very important to me). They cleared through Penson and had a good reputation. I had managed to save up just under 20K and since Reg T did not include the Pattern Day trading Rule until a few years later, it would be enough to day trade with 2x buying power that was offered at the time. Note: I didn't go prop because I did not want to work on site and at the time remote trading was only offered to vetted traders that had been successful on site at the firms I was aware of. After funding the account I setup my workstation. I was already a tech guy with a good internet connection and a multi-monitor graphics workstation that was significantly more powerful than what most trading pros probably had. The computer was total overkill. The point being I felt that I was on equal footing with my competitors and all of the hype about SOES and direct access from the industry supported that idea. On to SIM. I wanted to get used to my setup. It made sense that I should know my platform, master hot-keys and get everything to the point that navigation and execution would be second nature. I spent the first few days in SIM just watching, taking notes, adjusting charts, time and sales etc. It was a wild time. There was a universe of stocks to choose from and so I watched the things I knew about (tech) or that were discussed in IBD. Once I learned about level 2 I finally understood the basic mechanics of how a market was made: bids and offers of different sizes are made. When someone is willing to cross the spread, bids get hit, offers get lifted and trades get reported. Spreads were between 1/16 and 1/25 on the stocks I watched and seemed to do a lot of transacting back and forth. I decided that I’d test out scalping in SIM. For the next 4 weeks, I placed simulated bids and offers using the ISLD ECN. I seemed very accurate considering I was even able to route to the ECN even in SIM! It would take time but more often than not, my orders would fill and I would flip out to the other side of the spread with 2 size and repeat the process. Every once in awhile, I would get swept and take a quick loss and start again. I felt exhilarated and disciplined (not my strong suit at the time). My simulated P/L was about $1000/day and it seemed plausible. I’d read about traders making much more. I believed the SIM fills and took the plunge. I started live trading on a Monday. I don’t remember the exact date but I remember the feelings: I am so awake I feel like I am high on a strong and clean stimulant. 100% of my focus is on the screens, my hands grip the mouse and are contorted over the hot-key combination like a big cat stalking prey. The day session begins, the platform signals DING DING DING and I wait. I have practiced trading the open. I wait for the range to set up and initial order flow to die down. 20 or 30 minutes pass and things seem to be in the familiar pattern of some trades at the bid, some trades at the offer - mellow range bound… I feel a bit disoriented. I have lost track of time and feel a little hungry and distracted. My head feels light and I notice my posture and snap out of it. I straighten up a bit and place my first trade for 1000 shares, at the bid. Trades go off at the bid. Nothing. No fill. Some trades go off on the offer. More trades at the bid. Nothing. Back to the offer. Again, lots of trades at the bid. Still no fill for me. Bid -- offer -- bid. Time seems really slow. Palms are sweating. I feel like I have not taken a breath in an hour. I’m noticing that I feel my stomach hurts like I’m hungry. It’s hollow and hot. My body is tight and hunched forward. My eyes are burning. I can hear the hum of my big CRT screens. I’m feeling spaced out again. Suddenly I hear “DO DING!” I have a partial fill of 200 shares. I remember thinking: “Hmmm, not as expected. I didn’t get partial fills in SIM how do I do this?” I fumble and set up an order to offer 200 shares at the inside offer. I reassure myself that I’m thinking on my feet and that I still need to practice more anyway. Just as I am about to click submit I hear “DING DONG!” I have been filled on the balance of my order for 1000 shares and now my fill price has become the offer. Shit. It doesn’t last long either. I have been swept and the stock is ticking lower. It takes me a minute of attempting to offer at lower and lower levels, canceling the higher offers because I have limited buying power… It’s not a smooth, stress free process. The time and sales and level 2 seem faster than I am used to and I feel like I can’t keep up. I feel clumsy as I click around chasing the market down. I finally hit the bid and sell with a $500 loss. Shit. What a crappy first trade. Still, I feel the feeling of exhilaration, passing fear and survival. It’s the most intense feeling I have ever had doing something legal. I assess my trade briefly, tell myself that I handled it well and that it happens. I still have complete faith in my method and all of the practice I had done on SIM. ----- Fast Forward -- >> It takes two weeks of slow bleeding and over $3500 in losses to learn that the SIM fills are fantasy and that my thoroughly practiced “method” ONLY WORKS IN SIM. Back to the drawing board. Next up: Hunting for a method and a philosophical guide. Market Wizards, Reminiscences and Candlesticks.
No kidding! I was an inexperienced kid in 1997 and got all kinds of assurances that the simulated fills were accurate... Until fairly recently there were also not many backtesting tools available to a retail trader that did a good job simulating limit orders.
In all my backtesting i double the spread and commision to try and a get a realistic idea of real results and even then i dont think thats halfway near " real " . for this very reason i really think anything with an expectancy below 0.1 is a fail , not that its a real edge anyway tbh , My baseline minimum expectancy is likely at the level of manys goal expectancy .. crap in crap out , set the bar high and accept nothing else , meet the bar then set it higher , never be completely satisfied ...
It is very likely that we did pass each other in halls or walkways.I still remember how in business library on Madison Ave was the only place i was able to locate out of print L.B. Raschke book and copied it in full. There were 3 Bloomberg Terminals there and many more participants to sign up for. Library was also good for printing charts,I would go to the main one with two Lions,because i could have printer right next to me.Then i would sit in the big hall at the back somewhere and read and analyze charts and make notes,every other day was open till 8PM. I spend every evening in Barnes and Noble on the North side of Union Square,read every book about trading.To break a routine on weekends i chose the one on Upper West Side on B'way,Tower Records with it's big yellow sign was across the street.First books about mechanical trading systems i could find there. Although i don't live in US any more i have very fond memories of time well spend.The main library was my favorite place to sit down and study,forget that time existed.
I remember wanting to own a copy of Perry Kaufman's Trading Systems and Methods that was essentially behind the help desk at the UWS Barnes & Noble. I stayed across the street at a friend's parents place for a couple weeks in '97 and my change of pace was to make my way down town to the Borders (I think it was Borders) at 1 WTC . They also had a ton of more technical stuff... After all the reading I started to (informally) collect books and always loved the quirky titles and packaging of the stuff Ed Dobson of Trader's Press published too.
TLDR: Overestimating/underestimating fills, commissions, slippage can result in trading results that don't match the back test or system generated trades. For me, it works better to penalize a system backtest with high assumed costs and if it still looks good, try it in real life. ^ I agree with this kind of approach. It's not going to make as pretty an equity curve on the backtest but you might be pleasantly surprised if you run it. Slippage and commission are a huge contributor to the end P/L of any method that uses market orders. It's a major consideration when I design an approach or system... It comes down to choosing whether to risk missing or partial fills with limit orders or getting guaranteed fills and slippage with market orders. The only way I have ever been able to really "know" what I might get in real life is to trade it... In fact, I had a gentleman's bet with a well known trend follower that believed that intraday system trading (apart from HFT) was not possible to do profitably for even one month because of slippage and costs. As part of our trading research group (that was as much about giving/receiving feedback and working on personal issues as it was about system development), I ran a test on a basic intraday system that fades prior day price behavior and goes with today's trend on a hand full of markets/timeframes . I found that in my backtest with between $50-$100 commission/slippage per contract costs look pretty rough but when I implemented in live trading for a month on a small account (as part of the a bet to prove a point) executions handily beat the backtest. Maybe someone can benefit from this information. I'm attaching a copy of the research including the system. I DO NOT TRADE THIS AND RECOMMEND AGAINST TRADING IT. IT WAS AN EXPERIMENT. WYSIWYG.
The main reason i read books in bookstores or library was my thinking that if i buy all these books,this will stop me from evolving.Literally this was my strong opinion,because i came up short again and again that i will go back to them and look for answers in these books and go around in circles.This is what i was looking for,non stop creative process,fail and refine and fail and refine,search and search,evolution. Even that book i copied every single page written by LB Raschke i soon gave to someone i chatted with about trading.It was excellent book and full of charts and explanations and so on.And sometime later i was moaning to myself why I gave it away LOL best regards
Posts are way too long! Bullet points will suffice. Short & Simple. You will know you are "there" when you can hit the delete button and erase all of your pdf crap forever. Try and sell your paper books, or give them away for free. The only few worth keeping are the boring ones, such as relative Financial Risk Management ones!
Well, this statement is obvious If the deep pockets can not buy it, then rest assured in can not be bought! Conclusion: ! Intraday'systems'that'test'pro]itably'can'be'designed'around'speci]ic'markets'and'their'recent' tendencies.'Applying'multiple'variants'of'the'system'with'small'position'sizes'may'yield'pro]itable' results'in'live'trading.''