I really think its a bad idea for experienced traders to say "it isnt hard to beat the market". You give the new guys the impression that getting to the point where you can beat the market isnt that hard. I strongly disagree. Im quite certain that 99/100 of my personal friends could never beat the market no matter how hard they tried. Some people simply dont have the skill set, the patience, the IQ, or whatever it takes to beat the market. I have a guaranteed way to beat the market for people who are clueless. Buy a leveraged index fund Hope there is never a 50% drawdown before you have enough padding to get blown out ;-)
OK. How about this?: After you've developed the skills necessary to beat the market, it really isn't that hard to do so, given a sufficiently long time frame. The vast majority of traders/investors will fail to complete the development process. Yes?
I do not trade OPM and I trade under NFA rule 208 part 1 in the reporting questionaire. Warren Buffet is severely restricted in his efforts, largely because of externalities. With such limitations he is unable to trade at an optimum level daily using an amount of capital that individual traders use. I see that you passed on the Q's I suggested. Don't worry about it; it is probably better to keep you cards close and not make any public mistakes. To make 30% a year a person has to make 2.5% a month. That is about 1 point a month on one ES contract. To make 30% a quarter on an ES contract the monthly requirement to compound is 10% which is 200 dollars a month on 1 contract. That is 4 points a month or 1 point a week. Daily it loks like about the smallest amount that can be made and still be making money. That is 1 tick. I know you believe it is not possible. So I figure that you are not doing as well. ET is dvided into two groups those making money and those not. You either average a tick a day or you are losing money. a tick a month is possible to say you make money. A tick a quarter is possible to say you ae making money. A tick a year is possible to say you are making money. 30% a year represents the 1 tick a day type winnings. I read your posts on PF..... lol.... you didn't know PF and you said what others were doing was unbelievable too. You have painted yourself into acorner.... Because contracts are like postage stamp curves it is not easy to compound ticks and such. But at some point a person does get enough together to trade a lot of contracts. 50 is a nice number that works on ES during any time of the day.
I come at it another way. On average the market really does not move much in a given year. Sure we have +30% years sprinkled in but overall the market has many flat or negative years. It really is not a high bar to have to hurdle over if you have been trading for some time and know what you are doing. Afterall how many years has the market averaged between -10% and 10% a year? Quite a few. So if you have an active trading plan and good risk management skills then you can certainly do better than 10% a year which is where the market averages out anyway. Also, the sad thing is that funds who are down 8% consider themsleves beating the market when the market is down 9%. Money lost is money lost. There are plenty of traders who make money in a down market due to shorting or trading futures or options where market direction is of no concern, only movement. So for the experienced trader, beating the market is trading above average which many good ones can do easily. Troucning the market and making consistent triple digit returns or above 50% every year is truly more difficult.
I'll agree to that. Learning to handle the market and the time it takes is usually quite aggravating. So, why do we try? I guess it's the *hope* of making big money... the great majority give up in frustration or go bust from a few big mistakes before they get it figured out.
There is a drill that I recommend to people. In my opinion it applies to all kinds of trading. It is simple and it changes how a person monitors the markets. It is the wash drill. If I am mentoring a beginner, often that person's print looks like 50% of his trades are wash trades. Does this mean he is doing poor entries? No, it doesn't. What is it showing? It shows half of his trades were such that he took profits at the right time and continued to stay on the right side of the market and made money on a trade and positioned himself to continue to make money. The half that show wash prints, just illustrate they he got back on the right side of the market after doing a rior trade that,while it took profits, it did not get him on the right side of the trade subsequently. What is the normal version of the description above called? The normal thing is for a person to take an action and hold as it goes against him. This is "hope" trading. A more severe verion of his is the drawdown trading where stops are hit, once, or maybe twice... or maybe three times in a row...or maybe five ties in arow... or maybe ...six times in a row....or maybe as you say 7 times in a row. The drill to do washes instead of getting stopped out or doing whipsaw trading is a drill tht allows the person to see that as time passes, he is often sitting on his entry or near it (above and below) and he has the opportunity to extinguish the situation without worsening his capital standing. Most people just read this and dismiss it. That's cool. What is the reason? That is important to consider for a moment. Most people go into markets on set ups that happen just once in a while. Often the set up is not neutral biased, meaning it is only used either long or short but not both. Further, pople do not have "exitset ups" but only entry set ups. This is where a lot of "hope" trading comes from. The entry set up has a lot of possible endings, some of which are called: losses, whipsaw; drawdown; and blow out. Notice that the entry set up does not have an exit labelled next entry set up. What would it be like to understand that a wash exit is also a next entry set up. That is not possible for people who have a small list of entry set ups, all of which, occur only occasionally. So for most people a wash exit is not preferred over a loss, a drawdown , a stop out, or a blow out. It denies them the opportunity to do hope and if it is used as an entry (a reversal trade is used to wash) it is not part of the existing list. Obviously, when I mentor I am instructing the person to stay in the makret to make money and if the action he takes doen't make money he washes as an action that is double the contracts needed to wash so it is a reversal. That means he is always looking at the markets as a market he is in and it is his one and only job to always be on the right side of the market. Most traders do not think about being on the right side of the market very much. they are sidelined looking to get in the maret and the rest of the time, when in the market, they are "hoping" with a target not in view and a stop in place to be hit. most means 90% of traders who are traders that are only temporary traders. Doing wash trades prior to having losing trades for any reason in the hope category is a good beginning. Making a wash trade a reversal trade is not a bad idea either since this reversal can be washed too if necessary. To facilitate all of this there is a leading indicator of price. I can tell you that it becomes an indicator that is believed like no other once a person starts taking money out of the market by being in the market. those consecutive failures are stating that the person does not know how to stay on the right side of the market. I know it is always chalkd up to being disciplined where discipline is defined as ollowing something that does not reflect an understanding of the market. How can discipline outweigh market understanding? The answer is that it is important to 90% of the traders who all become temporary at some point. Drills train. Training gives understanding. Understanding produces skills. Skills make money. Learning failure works the identical same way. 7 conscutive failures teach failure. Repeated failure creates biochemicals and instictive reactions. Misunderstandings result. Capital is depleted. the trader leaves trading forever. Lesson: do not do failure.
Jack I understand where you are coming from vis-a-vis wash trades, and it is somewhat akin to the Phantom of the Pits philosophy of exiting if you are not making a profit, not when you are making a loss... Your strategy can work well on shorter timeframes, but I am a position trader where minor aberrations in stock price to the wrong side of my entry should not and do not necessitate a wash... I will only exit when when price has reached a point where the position play has had its rationale negated... in other words, my stops are relatively far away from my entry... If I were entering on a swing trade basis of trade duration in the days (and no more) then, indeed, your wash trade methodology would be of great merit to my bottomline... I understand from Spydertrader's journal that this shorter trade duration is precisely what your methodology encompasses, in which case I share your enthusiasm for the wash trade approach in certain contexts i.e. shorter trading horizon and higher inventory turnover methods...
We will never "beat the market" - and besides, it's much easier to just go along with the people who have been making money for decades/centuries. Extracting money, while trading on the same side as the Specialist (openings, etc.) is a good example, IMO. I respect Mr. Hershey and his eloquent and detailed explanations, but to me trading doesn't need to be that complicated. We know what happens with too much analysis, but to be fair, I've seen what happens when not enough effort has been put into a trading plan. Trading is simple, it's the psychology that gets traders at times, again IMO. Don