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Do educated traders make it harder to make a profit
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Do educated traders make it harder to make a profit

  #11 (permalink)
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Cloudy View Post
Your'e right I heard that too. Unfortunately I think the report was just reporting an event saturation in the number of HFT firms , new, startup, or otherwise competing with each other. The ones that are left have taken over and caused a lot of the illiquid behavior of many of the markets we see today. It's not just HFT, it's also general algo driven markets as well. "Tradeworks", the small HFT featured in CNBC where the guy "cooperated" with the CFTC and talked to the reporters seems like small fry compared to the big money which refuses to talk to the news about their HFT operations and investments.

Same here, I've had to change my trading style yet again, when my old setups stopped working well enough. The 6E has also changed. It feels very illquid and has become much harder to trade. It doesn't move much except with sudden algo spurts and then most of it is fakeouts and bad PA behavior. Anyone else notice that?




A little more about BPA. I had read through Al's original book and attempted trading his method with limited success. It's very very hard to do it like Al does from what I've gathered. Almost no-one has reported being successful even on his own bpa forum site. The few that do claim they use it "a different way". But slogging through 7 hours on the 5 min ES, all that work just to sometimes make 2 to 4 ES points total? (that's only 8 ticks) after the losers? and commissions? In the book Al says it takes 90% accuracy in order to scalp the ES successful in a session. So 9 out of 10 trades. So hard to achieve that. And the material from Al's site leaves a lot to be desired in terms of trade management examples of entries. For example in his book, he could have pointed out trade entries and stops marked in a bunch of sample session charts, even if he doesn't do so himself in his trading room which I had attended for a total of three months. In general the bpa patterns do seem to play out as expected for the most part - when the price action is clean, but it's awfully ugly looking in today's climate. Plus there's the "always in long" vs. "always in short" discretion caveat which invalidates a lot of the setups in the book which is only mentioned at first in the live trading room and not in the original book! So in general, imo, most who attempt BPA trading will do so in their own way and style , so it won't be exact trading by the masses who use BPA in trading.

In the trading course he has multiple videos where he shows entries (with stop losses as well) and exits. That really helped when looking at the books, because I referenced entries based on the videos to the charts in the books and was able understand the setups better.

But I completely agree, trading is so personal that you have to create your own method whether you take something like BPA or create an Automated system.

But taking the 2-4 pts out of the ES a day isn't bad. The biggest thing I think people have to learn is when to quit, take your profit and walk. If you could do that daily and then scale up to 5-10 contracts a trade that is a fantastic living. One thing I see a lot is people believe they have to take every trade/setup, be in the market all day. I don't subscribe to that, have your time you work in and be done. Also have a goal and if you hit it, be done and move to the next day.

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  #12 (permalink)
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tturner86 View Post
No, because the biggest market movers are not retail traders, it is institutional traders like Goldman Sachs, etc. Most of those are trading at a level that we will not reach. (High Frequency, Automated, or sheer skill). (If you listen to what Al's talks about most it is understanding what the market movers are doing and trying to be on their side when the market moves.)

Also you need to be honest trading is a minus sum game. I may take your $10 but we both paid the broker and house to be in the game.

Well said, I totally agree with this. More of a "minus-sum" game rather than a "zero-sum" of retail vs. retail when it's more retail vs. big money and just trying to get any inefficiencies from the big money moves rather than being eaten by the big whales/sharks, while there still is a "market".

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  #13 (permalink)
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The short answer to the original question is, no. Remember, one of the most famous lessons/book is called: When Genius Failed... A bunch of Nobel laureates managed to lose it all, and you don't get more educated than that...

Also, the 95% failure rate in this industry doesn't mention education level, for a good reason. Smart people lose money in trading/investment just as much as less educated ones. I could actually make the case for the opposite argument, the less preconception there is between your ears, the more successful you can get...

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  #14 (permalink)
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I' would like to quote something from the revised edition of "The Intelligent Investor", a book from Benjamin Graham.

I think it helps in this context although not a 100% direct reply to the original question and initial intent:

[...] And back in the spring of 1720, Sir Isaac Newton owned shares in the South Sea Company, the hottest stock in England. Sensing that the market was getting out of hand, the great physicist muttered that he "could calculate the motions of the heavenly bodies, but not the madness of the people".

Newton dumped his South Sea shares, pocketing a 100% profit totaling £7,000. But just months later, swept up in the wild enthusiasm of the market, Newton jumped back in at a much higher price - and lost £20,000 (or more than $3 million in today's money).
For the rest of his life, he forbade anyone to speak the words "South Sea" in his presence.

Sir Isaac Newton was one of the most intelligent people who ever lived, as most of us would define intelligence. But, in Graham's terms, Newton was far from an intelligent investor. By letting the roar of the crowd override his own judgement, the world's greatest scientist acted like a fool.

In short, if you've failed at investing so far, it's not because you are stupid. It's because, like Sir Isaac Newton, you haven't developed the emotional discipline that successful investing requires.

Being an intelligent investor is more a matter of character than brain [...]

Successful people will do what unsuccessful people won't or can't do!
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  #15 (permalink)
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Not if stupid people keep breeding


Last edited by Itchymoku; February 25th, 2014 at 12:05 AM.
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  #16 (permalink)
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I tried to hold back from taking part in this argument, but...


Cloudy View Post
imo, retail trading is really so small now it's like being minnows in a sea of giant killer whales and sharks and the big whales. 70% of the markets is now driven by HTF or algo trading and big money. It's not zero-sum of retailer vs. retailer if it ever was. it's more like trying to latch on to the rythym of the big whales (big money moves) while not picked off by the killer sharks (HTF frontrunning and quick algos).

While I don't identify my market activities as "quick algos" or "invasive", I suppose you are referring to electronic traders, which includes me.

My servers are on a completely separate network from your computer, or even your FCM's. How is frontrunning possible if I can't see any of your network traffic?


Cloudy View Post
Tradeworks", the small HFT featured in CNBC where the guy "cooperated" with the CFTC and talked to the reporters seems like small fry compared to the big money which refuses to talk to the news about their HFT/algo operations, and most importantly the scale of it.

I believe that money and politics shouldn't mix. We simply prefer not to talk to news agencies because we don't like getting involved in politics.


Pedro40 View Post
The short answer to the original question is, no. Remember, one of the most famous lessons/book is called: When Genius Failed... A bunch of Nobel laureates managed to lose it all, and you don't get more educated than that...

Most people take away the wrong lesson from the downfall of LTCM: they conclude that intelligence either does not matter or even worse, caused the entire ordeal. This is false, and I want to say that the correct lesson to take away from LTCM is that you need to be really intelligent to even have a chance to succeed in this business. The problem is that very few people central to the events actually came to public with the facts, so most people read the journalistic version of it by Lowenstein. Lowenstein, unfortunately, is a reporter, not a fund manager. I haven't read Lowenstein's book, but I want to point out a few things that probably aren't on his book or any other news source.

1. There's a piece of magic that no one could've accomplished without the intellectual firepower behind LTCM: When LTCM collapsed, only 6 investors lost more than $2 million, only 12 investors lost at money at all, and the remaining 82 investors, earned an average of >19% since launch. The founders managed to absorb nearly all of the losses.

2. The main reason for LTCM's collapse was Russia's default on $3B of bonds. This sounds like an everyday occurrence on hindsight, but to give you an idea of how ridiculous and unusual it was: Firstly, the bond was ruble-denominated, not dollar-denominated, so they could have printed more ruble to make the payment rather than default. Secondly, Russia had defaulted on the very first coupon payment - Goldman had only brought the bond to market 3 months earlier.

3. Since @Fadi mentioned something to do with emotions... There's another weird version of the story that LTCM's partners became emotional and began taking over-leveraged positions when they started losing money. No, LTCM's NAV took an instant 75% loss from spillover of Russia's default, so their leverage instantly quadrupled. LTCM was never 'overleveraged' in proper sense of the word. Their leverage ratio had gone up simply because their equity went down, but it makes no sense to call this 'overleverage' because it was nobody's decision to increase the leverage ratio. Make this very clear. If you call this 'overleverage', then you can simply attribute every bankrupt business's failure to 'overleverage', because a business is technically infinitely leveraged when it has zero equity. Another example. Let's ignore margin calls here. Suppose you bought and held 1 contract of the E-mini S&P 500 futures today for a notional of $92,175 against margin on a $6,150 account. Your leverage is 15. Let's say some market event comes in, the S&P 500 loses 6% of its value over an hour, and you take a trading loss of $5530.50. Your new leverage is 140. Is the cause of your losses overleverage? No.

You could say that a daytrader armed with his "R/R multiples" and high school education would've done a better job by liquidating with stop losses, but it's untrue - this is something people find it difficult to comprehend unless they have helped to run a multi-billion portfolio - LTCM had $1.2 trillion in off-balance sheet contractuals spread across 7,600 positions between 55 counterparties at that point. You need serious intellectual capacity, technological backend, and friends who went to school with you at Harvard or Wharton, to close out something of this scale. They had the first two. Unfortunately, Corzine was in a meeting the whole time while their portfolio went from 100% to 25%.

Lastly, to go back on topic. I've said this before, the top 20 performing managers have one thing in common - they are incredibly well-educated. From https://futures.io/traders-hideout/23792-who-makes-more-money-scalpers-point-traders-11.html#post328253:


artemiso View Post
Narula Columbia Business School
Kuhn Harvard College
Hintze Harvard Business School
Chen Columbia University
Cooperman Columbia Business School
Odey Oxford University
Hanover University of Chicago
Tepper Carnegie Mellon
Loeb Berkeley/Columbia
Weingord SUNY
Dewan/Coleman Princeton/Williams College
Sandler Wisconsin
Rosenstein Wharton
Halvorsen Stanford
Feinberg Princeton
Griffiths Harvard College
Lippmann University of Pennsylvania
Yeary University of Chicago
Zimmerman Amherst College


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  #17 (permalink)
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artemiso View Post
I tried to hold back from taking part in this argument, but...



While I don't identify my market activities as "quick algos" or "invasive", I suppose you are referring to electronic traders, which includes me.

My servers are on a completely separate network from your computer, or even your FCM's. How is frontrunning possible if I can't see any of your network traffic?

Well, I wasn't referring to you in particular Artemiso , as I was remarking in general to the OP question about what I believe how the markets are run now. If my term on "killer sharks/whales" was offensive I apologize. I should have just said smaller scale aggressive /entities/OTF parties or something.

I'm not saying you in particular are frontrunning my own particular trades even as the orders eventually all make it to the exchanges; I find it hard to believe frontrunning doesn't exist and has increased in the last few years. Maybe your systems don't frontrun. I frankly didn't have you in mind as I posted.

Schneiderman Targets HFT Front Running - Business Insider
HFT?s Unfair Trading Advantage / Front Running | The Big Picture
http://www.zerohedge.com/news/2013-05-01/grand-theft-market-high-frequency-frontrunning-cme-edition


Anyways, we can both make our voices heard. (or my own small trading voice) futures.io (formerly BMT) is a free-speech forum to some extent. And let the markets sort out the competitive actual trading. Anyways, I have always appreciated your informative posts from your advanced and experienced side of electronic trading even though I can't claim to understand it all. Peace.


Last edited by Cloudy; February 25th, 2014 at 06:59 AM.
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  #18 (permalink)
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I appreciate your response, no apologies needed.

Firstly, I have heard of a few frontrunning strategies at low latency trading firms but as far as I understand, these compose the rare exception, not the norm. However, none of these actual frontrunning strategies (if what I hear is true) are the ones openly known in public. Those that you've mentioned don't come across me as frontrunning and are merely false accusations.

Regarding 1 and 2: It's impossible to get rid of the lag between the exchange-specific feeds and the consolidated feeds, both because of the physical nature (the geographic distance between exchange data centers) and by the theoretical nature (if they are reported simultaneously, then you have a set of data points that have Lebesgue measure zero). It's how the feeds are supposed to behave and will never be fixed. So this is not an exploit.

Regarding 3: Schneiderman only makes an unsubstantiated claim regarding, saying we have "access to market-moving information just a tiny bit ahead of everyone else". That's untrue. From how I view it, I'm receiving market-moving information exactly when I'm supposed to receive it! It's just that many are behind me because they choose not to receive that information... For instance, you can get the data described in your second link simply by spending $30,650 per month and spending about 1 year of time writing a few software applications (it takes maybe 3 months of man-hours each). In my opinion, everyone should do this. I'm not holding anyone at gunpoint preventing them from doing it.

I make a profit each time I travel from New York to San Francisco, and it's enough to offset my costs of taking a round-trip flight from NY to SF.

Do I need to spend a significant amount of my time and money to generate this profit? Yes.

Is air travel absolutely necessary for me to make that money? Yes.

Is air travel giving me a latency advantage and facilitating me from making that money? Yes.

Is air travel illegal? Or am I making that money illegally? No.

Those who complain about a technological advantage that takes remarkable amount of time and money to build are like telling me air travel is illegal and that I am only allowed to walk from New York to San Francisco for any business that generates profit.

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  #19 (permalink)
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Another example: Unlike many of you who watched The Hobbit when it was released, I had to wait until it was out on Netflix. Are you watching The Hobbit illegally? No, you watched it at a movie theater. Should movie theaters be banned from selling The Hobbit tickets at a higher price than Netflix charges? No, that's how their business is run! I'm not upset that you spent extra time and money to catch the premiere at a movie theater...

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  #20 (permalink)
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Hey Man..


@artemiso

You switched coasts. Congratulations. Wondering if you are still extending Monday night or if it is very early Tuesday...posting before 4 a.m.?

I'd love to debate this with you. Not about winning points, being right or wrong, simply about the level of discourse. I can't do it though because while I am sitting/standing here I must eek out a living for my family...lol.

I'd have answered the initial question, No, it's the dumb ones. Actually it is not even the winning traders that make it harder to make a profit. That said, nicely constructed and well reasoned arguments are exciting and interesting for me...makes me something, but I'm not sure what.

For the guys that want to master the art, this is an interesting resource.

https://yourlogicalfallacyis.com/

Dan

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