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OK- this question is for my wife.

  #41 (permalink)
 
Silver Dragon's Avatar
 Silver Dragon 
Cincinnati Ohio
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Cogito ergo sum View Post
I agree that position sizing and portfolio risk management are required for trading success. However, to trade frequently, as retail, is generally not a winning proposition. This is validated by academia and practitioners cross-asset. The transaction costs (commissions, exchange fees, bid-ask spread, etc) have a significant adverse effect on PnL over time.

People that tell you otherwise probably are recipients of commissions and/or rebates based on your trading activity.

I don’t think commissions have as big of impact as they used to. Currently TOS has zero commissions on almost everything. You are more or less paying for market fees which are relatively small and part of doing business. If your getting eaten up by bid/ask then your strategy is not robust enough and you shouldn’t be using it. At a minimum 1 to 2 ticks slippage should be added to any strategy to confirm viability.

What I was actually referring to when I say trade small and often is relative to your account size and what you are trading.

Most traders make the mistake of trading instruments where the notional value is to big for their account size. A single ES contract for example currently has a notional value of $172,000. Yesterdays move of 60 points equals a $3,000 intra day move. Someone trading ES who is new with $2,000 account is likely to be wiped out within a matter of days or hours. I would argue trading the ES Mini which has notional value of $17,000 with a $2,000 account will still end in disaster but at a slower pace. The move yesterday would have been $300 which is 15% of a $2,000 account.

On the other hand, if you were to trade instruments where the intra day moves are a fraction of your account size and the overall hold time is days/weeks vs minutes/hours then you are likely to survive long enough to learn how to make money. Think of a $50 dollar average loss which is 2.5% of the total account size. This would allow you to trade more frequently, hold more positions and potentially increase your odds of capturing more winning trades. Your not going to get rich quick but you can consistently make money. Its also easier to replace the money you lose and keep the dream alive in the event a losing streak happens.

Robert

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  #42 (permalink)
 
Cogito ergo sum's Avatar
 Cogito ergo sum 
Amsterdam
 
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Silver Dragon View Post
I don’t think commissions have as big of impact as they used to. Currently TOS has zero commissions on almost everything. You are more or less paying for market fees which are relatively small and part of doing business. If your getting eaten up by bid/ask then your strategy is not robust enough and you shouldn’t be using it. At a minimum 1 to 2 ticks slippage should be added to any strategy to confirm viability.

What I was actually referring to when I say trade small and often is relative to your account size and what you are trading.

If I understand your post correctly, we both agree on position sizing. However, have a different perspective on option trading costs. Perhaps it is a matter of definitions. How would you define “often”?

I agree with you that trading costs are less than they used to be. However, they still have a significant adverse impact on PnL over time. This can be modeled fairly easily.

Most brokers haven’t waved commissions on option orders and the bid-ask spread is wider than a few ticks for the majority of contracts.

Unless retail traders are able to identify significant mispricings consistently, I find it improbable that they are able to run higher frequency strategies profitably over a significant time period.

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  #43 (permalink)
 OneEye 
The Netherlands
 
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Bionan View Post

I keep telling her that 1 year to develop profitable automated strategies is not a particularly long time, but she feels the process is taking too long, and she feels I should be more productive and profitable by now. She is ready to see results.

So for you systems day traders, or those of you who know systems day traders, how long has it taken from starting with an idea to live trading trading a strategy with reasonable expectancy?

Rick


Hi Bionan

Here is my 2 cents.

I’m an IT professional, I worked in the financial industry and I have been building trading systems for more than 25 years.

To answer your question directly: I doubt that somebody can build a profitable system in 1 year.

From professionals in financial asset management I understand that everybody wants to automate their trading but the actual application is in most cases limited to order execution and risk measurements. There are exceptions of course of individuals or companies that have succeeded.

Building a system can take from 3 months to 3 years to 30 years to infinity.

I think you have to re-frame your question. You should ask your wife what her real concern is. Is she trying to protect you against failure? Does she feel you spending too much time on trading while reducing family time? Does she think are are gambling?

The idea to quit a good paying job for manual or automated trading is in my opinion unwise if you haven’t been profitable for at least 1 year.
Since you have not been profitable but also not lost a lot of money I’d suggest to view trading (automated or not) as an interesting hobby until you are profitable.

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  #44 (permalink)
walter739
Caracas
 
Posts: 23 since Sep 2020
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Hello Bionan,

I identify with your post, I've been trying to create a profitable strategy for a year. I am a newbie, I have only been learning for 4 years. 3 years practicing swing trading mixed with intraday, Those years were positive, but the moment I thought I had mastered it, the blow came and in two months of mismanagement of risk and hazing I lost what I won. From there, I understood the hard way that I don't manage my emotions well, and I started trying to automate.

I have learned a lot but I feel that I am far from having a profitable strategy. I read a lot that people with a lot of experience and years in the market say that it is very difficult and only few achieve it, I would like us to be on that list that achieve it, but I am also thinking how many years of my life to dedicate to this to try to achieve it , the reward would be ideal but I have to seriously evaluate it because if in these 4 years that I have been dedicated to my knowledge that they are automotive, it would probably have a better profitability.

In this March decline, I placed part of my account in etf for the long term, this opportunity for the long term came and I was not going to miss it.

I have kept my account stable, that gives me confidence that I am not going so badly, and I am passionate about this world, for now I will keep trying to find something that gives me enough to stay and continue studying, best wishes , I hope you continue in your effort, I think that everyone including your wife must understand that it is very difficult to know how long it may take us to find the profitable strategy, so I read some it takes months and other years, I think we must put a limit on the number of years to try our best and after that time leave it as a hobby. I have not set a limit of years yet, but I am already beginning to think about it. Just thinking about it makes me sad because I don't want to leave this world but I think there has to be a limit unless you are already retired and have money to live comfortably, that is not my case.

Sorry for my english, gogle translate

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  #45 (permalink)
 Bionan 
Palm Harbor, Florida/USA
 
Experience: Intermediate
Platform: NinjaTrader, SharkIndicat
Broker: Interactive Brokers, NinjaTrader Brokerage, TD Ameritrade
Trading: ES
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Cogito ergo sum View Post
If I understand your post correctly, we both agree on position sizing. However, have a different perspective on option trading costs. Perhaps it is a matter of definitions. How would you define “often”?

I agree with you that trading costs are less than they used to be. However, they still have a significant adverse impact on PnL over time. This can be modeled fairly easily.

Most brokers haven’t waved commissions on option orders and the bid-ask spread is wider than a few ticks for the majority of contracts.

Unless retail traders are able to identify significant mispricings consistently, I find it improbable that they are able to run higher frequency strategies profitably over a significant time period.

This one of the biggest concerns I have with trading options vs. futures. Liquid futures contracts have low spreads and no premiums. With options, the premiums vary with volatility, so, unlike futures, I could be right about the direction of a move, but pay a high premium for a put or call, and still lose money. As I said in my earlier reply to one of your posts, there is a lot more going on with options than with futures. I believe it requires a whole different learning curve to trade options taking the Greeks into account.

Rick

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  #46 (permalink)
 Bionan 
Palm Harbor, Florida/USA
 
Experience: Intermediate
Platform: NinjaTrader, SharkIndicat
Broker: Interactive Brokers, NinjaTrader Brokerage, TD Ameritrade
Trading: ES
Posts: 76 since Dec 2019
Thanks Given: 78
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OneEye View Post
Hi Bionan

Here is my 2 cents.

I’m an IT professional, I worked in the financial industry and I have been building trading systems for more than 25 years.

To answer your question directly: I doubt that somebody can build a profitable system in 1 year.

From professionals in financial asset management I understand that everybody wants to automate their trading but the actual application is in most cases limited to order execution and risk measurements. There are exceptions of course of individuals or companies that have succeeded.

Building a system can take from 3 months to 3 years to 30 years to infinity.

I think you have to re-frame your question. You should ask your wife what her real concern is. Is she trying to protect you against failure? Does she feel you spending too much time on trading while reducing family time? Does she think are are gambling?

The idea to quit a good paying job for manual or automated trading is in my opinion unwise if you haven’t been profitable for at least 1 year.
Since you have not been profitable but also not lost a lot of money I’d suggest to view trading (automated or not) as an interesting hobby until you are profitable.

Thank you. This is a very insightful answer. I will speak with her about these things. We have been together from the start, so she is completely aware of my history.

I will say that avoiding big losses is not due to not trading. It is from the fact that very early on I learned that preservation of capital was probably more important than mediocre gains. I think in percentages and probabilities. Usually, if I perceive that the odds of profit have deteriorated, any gain is likely not worth the risk. I have closed out positions just before some big profits, but hasn't everyone?

I was trading futures as a young man back when there were no mini contracts. Everything was full-size. I couldn't afford to trade the S&P full size contract, so I traded the NYSE composite. I had to call a broker to make my trades, because direct access electronic trading wasn't yet in existence for most. I was running the MACD indicator from a Commodore 64 computer soon after Gerald Appel developed it. One day I was short the NYSE when my broker called and said we were at support. I could take the small profit, or risk a rally against my position in the hope of a breakdown after the support failed to hold. I elected to take the smaller profit. I'll never forget that over the next few days I would have made enough on my short position to buy a new car. But I never really regretted the decision. We always make decisions based on the knowledge we have at the time. It doesn't do any good to second guess your decisions, other than to learn from them.

I will also say I have had a big jump ahead in algorithm development from the use of software I use for programming. I know I can't produce the kind of programs you could, but I also believe I can produce algorithms which would have taken me years of study to be able to develop.

Thanks-
Rick

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  #47 (permalink)
 Bionan 
Palm Harbor, Florida/USA
 
Experience: Intermediate
Platform: NinjaTrader, SharkIndicat
Broker: Interactive Brokers, NinjaTrader Brokerage, TD Ameritrade
Trading: ES
Posts: 76 since Dec 2019
Thanks Given: 78
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walter739 View Post
Hello Bionan,

I identify with your post, I've been trying to create a profitable strategy for a year. I am a newbie, I have only been learning for 4 years. 3 years practicing swing trading mixed with intraday, Those years were positive, but the moment I thought I had mastered it, the blow came and in two months of mismanagement of risk and hazing I lost what I won. From there, I understood the hard way that I don't manage my emotions well, and I started trying to automate.

I have learned a lot but I feel that I am far from having a profitable strategy. I read a lot that people with a lot of experience and years in the market say that it is very difficult and only few achieve it, I would like us to be on that list that achieve it, but I am also thinking how many years of my life to dedicate to this to try to achieve it , the reward would be ideal but I have to seriously evaluate it because if in these 4 years that I have been dedicated to my knowledge that they are automotive, it would probably have a better profitability.

In this March decline, I placed part of my account in etf for the long term, this opportunity for the long term came and I was not going to miss it.

I have kept my account stable, that gives me confidence that I am not going so badly, and I am passionate about this world, for now I will keep trying to find something that gives me enough to stay and continue studying, best wishes , I hope you continue in your effort, I think that everyone including your wife must understand that it is very difficult to know how long it may take us to find the profitable strategy, so I read some it takes months and other years, I think we must put a limit on the number of years to try our best and after that time leave it as a hobby. I have not set a limit of years yet, but I am already beginning to think about it. Just thinking about it makes me sad because I don't want to leave this world but I think there has to be a limit unless you are already retired and have money to live comfortably, that is not my case.

Sorry for my english, gogle translate

If it is any consolation, I have never set a time limit. I have just had periods of time where I took a break. I have set dollar limits, and I have never hit them because I recognized that I could hit them and stopped before that point. As I said earlier, it is more important to preserve capital. At least then you have something to risk next time around. You don't have to give up. See it as pausing to refocus and build your knowledge. Then go at it again. I have been doing this all my adult life.

Rick

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  #48 (permalink)
 
speck's Avatar
 speck 
Kharkiv, Ukraine
 
Experience: Intermediate
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Again, a discretionary take. One feature of the current market (es), is abrupt changes in market tempo and what I call fluidity. Sometimes it's news related, other times not. It's not just about volatility as such, it's how the mkt forms its intraday structure.

It's these changes btw that kill off most of the traders, those who keep forcing a 'strategy' that worked so fine during the previous market state.

What for the most part saves me is leaning heavily on the larger market stucture and so called inflection points I calculate using the visual input.

I'm just wondering what would be the way to deal with these switches using an automated approach when you've got fat tails all over the place.

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  #49 (permalink)
 Bionan 
Palm Harbor, Florida/USA
 
Experience: Intermediate
Platform: NinjaTrader, SharkIndicat
Broker: Interactive Brokers, NinjaTrader Brokerage, TD Ameritrade
Trading: ES
Posts: 76 since Dec 2019
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speck View Post
Again, a discretionary take. One feature of the current market (es), is abrupt changes in market tempo and what I call fluidity. Sometimes it's news related, other times not. It's not just about volatility as such, it's how the mkt forms its intraday structure.

It's these changes btw that kill off most of the traders, those who keep forcing a 'strategy' that worked so fine during the previous market state.

What for the most part saves me is leaning heavily on the larger market stucture and so called inflection points I calculate using the visual input.

I'm just wondering what would be the way to deal with these switches using an automated approach when you've got fat tails all over the place.

Sent using the NexusFi mobile app

Actually I agree with that. I have two strategies which work well, but they work in different market types. I have tried to figure out how I can get the computer to recognize the difference, but it appears to be just about impossible. Plus on back testing strategies I found that just about any strategy I tested which worked prior to 3/2020 stopped working during or after 3/2020 due to the huge increase in volatility, even if they used ATR for bar size. Computer trading definitely has limitations and challenges which do not exist as much in visual-based strategies.

Rick

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  #50 (permalink)
 
speck's Avatar
 speck 
Kharkiv, Ukraine
 
Experience: Intermediate
Platform: Sierra Chart
Broker: NinjaTrader/Dorman
Trading: ES
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Bionan View Post
Actually I agree with that. I have two strategies which work well, but they work in different market types. I have tried to figure out how I can get the computer to recognize the difference, but it appears to be just about impossible. Plus on back testing strategies I found that just about any strategy I tested which worked prior to 3/2020 stopped working during or after 3/2020 due to the huge increase in volatility, even if they used ATR for bar size. Computer trading definitely has limitations and challenges which do not exist as much in visual-based strategies.

Rick

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I hear you.

And get the impression that the market takover by the AI is almost complete at this stage. Little wonder there as it's essentianlly just a numbers game.

Not sure if it will be of any use to you, but my trading really improved since I abandoned using time based charts 3 years ago and switched entirely to constant volume bars of 3 different magnitudes for context. The reason: volume is the only true measure of algo activity. And they run the show.

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