What would YOU do?

Discussion in 'Professional Trading' started by elcap73, Jan 12, 2006.

  1. elcap73


    I’ve spent extensive time reading through the archives here, and it was productive. In many of the journals, traders made a set of mistakes that mirrored my own experience. It was uncanny really. Not only did I find the development of these traders instructive, but also the advice given by a several of the ETers. This is a good resource.

    Now I seek your input, as I ponder my future.


    Early 30s, male. Engineer from a top 10 school, top 5% GRE score, blah blah blah. Best skill is probably the ability to learn large volumes of new material quickly as well as to teach myself from texts. I learn best through visual/spatial means. Myers Briggs INTJ. “Career” spent doing engineering for govt and private sector. A “career” which is at a dead end and that I hate with a passion. (read the engineers in trading thread sometime, I was nodding in agreement with all the ex-engineers about lack of autonomy, dead-end career path, lack of job security, salary plateau, etc).

    Although I’ve been successful in most things in life, the “career” field has not been one of them. Not as paradoxical as it sounds, I assure you. I am intensely independent, work best for myself and find the office drama , bureaucracy, and inefficiencies to be maddening. No problem with working my ass off, but not for meaningless exercises in paper shuffling masquerading as a career ( ex-govt workers know what I’m talking about here). What I am looking for is to build a skill set that will give me independence for the rest of my life.

    Let me be clear. By “independence for the rest of my life” I don’t mean to hit the motherload trading and retire to Florida.I mean to gain a skill that insulates me from the economic cycle with respect to career and earning a living.

    Personally, I am very frugal. Drive an older car, have inexpensive outdoor sports hobbies, no debt, few bills. Basically I live on about 12k per year pretty comfortably. Unencumbered so to speak. I am not in this game to shoot the moon. I have no desire except to build a skillset that will allow me to use my capital to leverage a cash flow, like any business. I examined the failure rates of many types of businesses, looked briefly into franchising, various start-up ideas. And what it came down to was: Knowledge of and the ability to intelligently participate in the financial markets will serve you and your family for the rest of your life. The financial markets don't go out of style, or have their neighborhood get run down. They are the most autonomous and flexible career paths possible.

    Trading and market experience:

    About two years of intraday and swing trading. Primarily focused on swing trading sector proxy ETFs and indices ETFs as well as single equities. I’ve been profitable after the intial 6 month period where I made the typical newbie errors....no money mangement plan, no written trading plan, too much risk, overtrading, too much leverage, etc. Probably the worst thing that happened to me was scoring big early. I doubled a 15k account in about 2.5 months....and within another 2 months was down 7k net. I reduced size and velocity and set out to grind my way back to even,. which I did after another 6 months.

    I’ve put about 50-60 hours per week into reading, researching, and trading small size for the past year and a half (on top of my regular 40/wk job). I read everything from bios of succesful traders to TA books to ET threads, macro analysis pieces, an occasional poker or blackjack books, newspapers, blah blah blah. I devour information.

    Over the last couple of months, I’ve been looking at everything I could find on money mangement, risk to ruin analysis, Kelly forumula as related to potential drawdown. I’ve given up my need to be “right” with respect to market direction. This was difficult because I really enjoy reading and thinking about the macro level econ stuff. Once I let go of my need to predict, I began to dive into some conventional gambling theory...how do I treat this as a business similar to playing professional poker?....positive expectancy, bankroll sizing (position sizing), strict adherence to rules/probabilities, etc. My focus has moved from calling the sectors/direction to not caring which way it moves as long as it moves and knowing my criteria of what consitutes a “move” that I can get aboard with sufficient +EV.

    Current situation:

    I am debt free, and have no family to support. I will have saved two years of living expenses plus an additional 35k to fund my account and have another 40k or so in IRA (the IRA will never figure into any of this, except as a long term psychological cushion). My current job will end in about one year (project oriented and the project is nearing completion).

    I use a little fundamental analysis to select a watch list of sectors and names within them, try to have a understanding of the correlation the sectors should likely have....say Gold:Oil or Bonds:Gold, Oil:USD or something...whatever is leading the global conciousness at the time and likely to react strongly in sympathy or negatively, to attempt to catch a reaction move in one half of the pair. But my set ups rarely come from these reactions as I haven’t been trading it as much as observing, comparing etc. My trades are usually triggered off reasonably simple technicals. I have some set ups, in different time frames, that I believe have a +EV. I monitor market internals - A/D, Highs/Lows, McClellan and try to be cognizant of the greater frameworks a particular trade is working within.

    I have adopted a money management plan that uses a combo of conventional Kelly, risk to ruin/drawdown probabillity, and the turtles position sizing scheme using ATR to set stops then sizing. This puts me typically around 1/5 th or 1/6th Kelly per position with specific stops adjusted to volatility and size adjusted to maintain desired risk profile . I adopt a form of the turtle market correlation weightings, where say you can have only so many positions open in correlated vs semi correlated/non correlated/ etc markets or sectors at one time.

    I prefer to focus on a few specific names for intraday that I can really learn the behavior of, and trading sector ETFs to avoid huge news or earnings gaps (since I often hold positions overnight). At some point, I may move to futures, but for now with the small size dictated by my $-mgmt rules, ETFs are fine for my purposes. Also put on an occasional Forex pair, but more for asset protetion than trading per se. This typically would involve finding negatively correlated interest bearing pairs, and using them as offsetting hedges while collecting the interest differential.

    Intraday trading I typically am watching sector performance, the futures prem, and 3 min/ 5 min/ go out to 60 min sometimes charts with usually one oscillator (RSI, Stochs, Wms%, etc) and one set of relational averages (MACD/PPO, etc) or set of two or three ema’s. Each night I monitor my watch list’s stocks and ETFs on daily charts. And I’ll look for impending action in sectors to add them to my watch. My set ups vary, but the basics are a typical trend following system and a breakout system. These systems are bastardizations/combinations of other systems I’ve seen or read about. Entries are signaled, exits vary and I’m currently working on a sort of flow chart for exits to quantify my exit scheme. I want to combine time in market, trailing based on %, and trend/channel line stops into my exit scheme. I do not intend to fully automate this “flow chart” of the exit criteria (would be very difficult to automate) but insist on writining the criteria out this way to define heirarchy and to put it into visual form that will serve me best (I learn and process visual/spatial information best).

    I’ve never really had a trading mentor, watched others trade live, etc. I think I’m at the point where a mentor would help me put it all together and give an overall framework view of how the pro sees it in real time, what they monitor and the general scheme they use...stat arb, scalper, etc.

    Bottom Line:

    At the end of the year, I am out of work. I want to make my living in the market. If you were in my place, what would you do?

    I have no desire to go the standard Pro/Arcade “flip commissions for us and give us 5k for no training” route/road to ruin. Additionally, I do not desire being a broker/ salesman, nor a "rebate" trader. Clearly, my desires may be writing a bigger check than my reality can provide. We shall see.

    What would you do? Find a mentor? How? I don’t have any possibilities in my rolodex nor any connections to finance or trading circles. What kind of realistic options do I have here?
  2. I would quit my job and start trading full time tommorrow.
  3. LOTS of screen time!
  4. ozzy


    You seem pretty smart. You'll figure it out. Just give yourself an adequate amount of time and resources.
  5. nkhoi

    nkhoi Moderator

  6. Elcap-ital;

    1] Parts of your personality is like mine;
    visual learner, like charts graphs, like own business.

    2} Take some pressure OFF yourself & plan on trading full time perhaps regardless if 35 k is enough , or not enough.With 2 years expenses ,an additional saved 35 k may or may not be enough

    3]don't think a mentor would make or break it for you;
    I figure there are traders that post on elite skilled as any mentor,
    which is a discretionary call on my part admittedly.

    4]Wisdom is profitable to direct, its been a bull market, like a bull moose mostly, last 3 years;
    an engineer acquaintance said if you're an engineer read that again.

    4.4] I like polar bear trends also , but have to trade them differently because my hit % is different from bull moose trends.

    4.7]You don't have to pay a mentor to find out things change when you do it with full time pressure; a full time bear guide in Alaska said he would rather face a mad bear than a bear market:D
  7. I have no opinion worth much, but I must say:

    this is one of the best questions/posts I've ever read here! If your work is as thorough as your question, then the market should treat you well.

    best wishes
  8. elcap73


    Thanks for the input (and links) thus far.

    Murray, I actually live in Alaska. Do I know you from somewhere? Are you living here in the 49th?

    I wonder if my profitability would be higher just playing 4 tables of $2/$4 Hold Em for 8hrs per night and skipping trading all together.

    I look forward to more thoughts from ETers on my situation.
  9. CONR


    I have to agree. I think you should go fo it.

    I sold my business 10 mo. ago and have been reading alot including here on ET which has been extremely helpful. I plan on starting to trade fulltime soon. The thought of going to work for some putz makes me sick.

    Good luck.
  10. skepticaltrader

    skepticaltrader Guest

    One of the best posts I've ever read.

    Your situation sounds just like my mine. I also work as an engineer with no future, dead-end career path, lack of job security, salary plateau, etc.

    The first thing you need to do is get out of engineering as soon as you can. I don't mean to quit your job right now, but you need to break free of that as soon as you have enough money to trade profitably.

    You only live once in this world, so my advice would be to do what you love and the money will follow. Follow your passion and that sounds like working for yourself as a full time trader.

    Best of luck!!!
    #10     Jan 13, 2006