Read the Schwager Stock Market Wizards book and they mention that only 5% of his trades make virtually all of his profits. His typical trader is right about 50-55% of the time.. and his top trader averages 63% win/loss.. The bottom line is that most of the time they just churn but once in a while they nail these huge trades that make their year. I think thats what professional trading is all about. You have to keep losses small .. and take gains whenever you can.. and whenever everything lines up and the market is going your way.. you have to step on the gas. Looking at SAC's results are absolutely amazing. They averaged over 90% (before fees) a year for almost a decade with just a few negative months less than 5%. Put this into context of starting out with $25mil a decade ago and now swelling over $2bil... they are in the top of the all time trading record books. I know there a lot of rumors out there of getting privy information from inside analysts and unethical insider trading.. but regardless I think there was a lot to learn from the interview in Schwagger's book. --MIKE
I have been studying that concept for some time now, but have been unable to implement it in my own trading. My trading, and I do consider myself a successful professional trader, is just the opposite. That is, I make money nearly every day, and once in a while get tagged with a large loser(about every 18 months). Ideally, I'd like to blend the strategies, that is have a constant revenue stream coming in to finance the losing trades and provide a modest income until such time that the large winning trade comes along. My research has found that there are several trades like that in a given year. My plan is to get onboard with the trend, and add to the winner as it moves in my favor. Good trading to you! Mike
Ken Grant (who used to be the risk manager at SAC and has worked at 2 other large funds in addition to helping the CME come up with their SPAN margin calc method) in his book "Trading Risk" says that he has reviewed countless portfolios of successful traders and invariably 90% of the gains come from 10% of the trades -- which makes it imperative that you spend your time managing and minimizing the losses of the 90% sub-par trades. I found that quite enlightening. -- damn, my name's Mike too
he might be taking bigger best now, maybe the info he used to be getting is not as good. look at his wtsla and bbi bets lately
The oldest adage in the biz is " small wins, small losses , large wins". That is a traders mantra. Never take large losses, simply don't let it happen.
Are you sure he was involved in those stocks recently? If so, where are you getting this information?
Actually, do you know what price he got in at on the WTSLA trade? He's holding converts and I'm not sure where they are trading. Doubt he's arbing them at this price, so he's probably just betting on the upside. Also you have to figure that it's one of a few plays he's doing. Certainly the stock has bounced from its lows and as long as the common stays afloat he makes money. Even if common goes under, do you know if/how the converts are secured? I know nothing about the BBI trade.
It's rather amazing.... the *only* thing a trader can really control is the size of the loss. Yet, not "avoiding large losses" is what eventually brings most traders down.
I think he got in around November where the stock was around $1.50, I remember there was an article in the Wall Street Journal back then about how SAC was going to restructure the company and rescue it from bankruptcy.