@Yuri57

moving target, indeed!

you know what @Fat Tails would say...

"Besser gut shlafen, als gut essen."

@Yuri57

as bacon would say (robert, not kevin), the grind is taken. as a short-term trader, you get "satisfaction" on a more predictable basis, but you pay a price (risk premium) for the comfort of a higher frequency of gains; that is smaller profits, and higher friction. this kind of trading, was "pit appropriate" because of the advantages afforded the floor trader, i.e., reduced commissions(with a yearly cap), a real edge ( buy/sell-it-on-the-bid/offer), knowledge of the order flow, auditory and visual cues, etc. it was a very un-level playing field that was tilted in favor of the local and was tailored to scalping - high frequency, low expectation. because of these advantages local traders owned the grind.

change venues to the screen, and all the advantages that a pit trader enjoyed on the floor are gone. he immediately becomes an uninformed trader, who gives up the edge, pays higher transaction costs, has to deal with execution slippage, and loses all the visual and auditory feedback he enjoyed in the pit. he goes form making the market, to reacting to the market. in effect, the hfts, have supplanted the local trader/market maker, and inextricably tilted the playing field to their advantage. now they own the grind.

this is question of of market structure, but lets consider price distribution. the majority of trading days are range or mean-reversion days. if we use es as a proxy, only 14% of trading days are trend days. there are big implications here in both psychology and p&l. trends tend to be outliers- low probability trades - frequency is low, expectation is high. the trader now goes from paying a premium, to receiving one. therefore, the big money is in the outliers, because of the way profit opportunities are naturally distributed by the market — not evenly, but in concentrated bursts for limited periods of time.

of course, the best approach would be to integrate your trading styles, using a mean-reversion strategy on range bound markets( while avoiding the chop), and a trend following strategy on trend days. but even in this scenario, probably 80-90% of your profits, will come from 10-20% of your trades, and those are the fat tail trend days.

for all the reasons i mentioned above, it is infinitely more difficult to trade size electronically than in the pit. you have to realize, that a floor trader that would accommodate a large order, usually received a substantial edge, which could be anywhere from a tic to 4or5 tics below-the-bid or above-the-offer, and in addition he usually had large resting orders to lean on.

this post should be mandatory for anyone that wants to understand and compete in the game today. More wisdom here than in a lifetime of holy grail indies...with all the secret settings...lol

+1. A terrific post by @tigertrader . But where does that leave an unconverted scalper like myself?

I would have to argue that one can make a good living as a mean reversion trader... BECAUSE of many more opportunities... though lesser gains per trade.

+1. A terrific post by @tigertrader . But where does that leave an unconverted scalper like myself?

I would have to argue that one can make a good living as a mean reversion trader... BECAUSE of many more opportunities... though lesser gains per trade.

@Yuri57

as bacon would say (robert, not kevin), the grind is taken. as a short-term trader, you get "satisfaction" on a more predictable basis, but you pay a price (risk premium) for the comfort of a higher frequency of gains; that is smaller profits, and higher friction. this kind of trading, was "pit appropriate" because of the advantages afforded the floor trader, i.e., reduced commissions(with a yearly cap), a real edge ( buy/sell-it-on-the-bid/offer), knowledge of the order flow, auditory and visual cues, etc. it was a very un-level playing field that was tilted in favor of the local and was tailored to scalping - high frequency, low expectation. because of these advantages local traders owned the grind.

change venues to the screen, and all the advantages that a pit trader enjoyed on the floor are gone. he immediately becomes an uninformed trader, who gives up the edge, pays higher transaction costs, has to deal with execution slippage, and loses all the visual and auditory feedback he enjoyed in the pit. he goes form making the market, to reacting to the market. in effect, the hfts, have supplanted the local trader/market maker, and inextricably tilted the playing field to their advantage. now they own the grind.

this is question of of market structure, but lets consider price distribution. the majority of trading days are range or mean-reversion days. if we use es as a proxy, only 14% of trading days are trend days. there are big implications here in both psychology and p&l. trends tend to be outliers- low probability trades - frequency is low, expectation is high. the trader now goes from paying a premium, to receiving one. therefore, the big money is in the outliers, because of the way profit opportunities are naturally distributed by the market — not evenly, but in concentrated bursts for limited periods of time.

of course, the best approach would be to integrate your trading styles, using a mean-reversion strategy on range bound markets( while avoiding the chop), and a trend following strategy on trend days. but even in this scenario, probably 80-90% of your profits, will come from 10-20% of your trades, and those are the fat tail trend days.

for all the reasons i mentioned above, it is infinitely more difficult to trade size electronically than in the pit. you have to realize, that a floor trader that would accommodate a large order, usually received a substantial edge, which could be anywhere from a tic to 4or5 tics below-the-bid or above-the-offer, and in addition he usually had large resting orders to lean on.

the optimal approach would be integrate both approaches, whether you trade a single instrument , or you take more of a portfolio approach, and trade multiple instruments simultaneously

in either case you, you take advantage of a trend day, by levering up and trading the trend-to-the-end

Thanks.
I was down there with you most of the time. from 1979, on. The real computer revolution started
with the introduction of options.

It's been a ride for me, too. I started running to the Gold pit... back at 444 W Jackson.
Soon after that I was on both exchanges. When I go down there I feel like
I am seeing the old South Works.

But not all of us were "floored"!

I am starting over, too!