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One year later into my trading career...........seeking guidance and direction
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One year later into my trading career...........seeking guidance and direction

  #101 (permalink)
Market Wizard
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budfox View Post
care to explain what you mean? I would be very interested to know.

Thank You.


back in the day, markets were inefficient and dominated by heavy retail participation. pricing was a value oriented phenomena that actually reflected the laws of supply and demand. technical analysis was more effective back then, because markets were more auto-correlated, and retail participation in the markets contributed to the self-fulfilling prophecy that drives ta. historical price patterns were more reliable, and price reacted in predictable ways after this conditionality was presented. if one could identify these repetitive patterns, then determining path dependency was easy. the markets are now dominated by commercials, commodity funds, indexers, etfs and hfts. the financialization of traded instruments has resulted in more cross asset correlations which have stripped individual assets of their uniqueness, and price discovery and risk transference functions.

over the past decade, institutional management of equity portfolios has increased from 54% to 81% and over the same period, “real institutional trading” has declined from 47% of trading volume to 29%. there are far fewer market participants today than just ten years ago, managing much larger portfolios across more asset classes, and using much less trading. the retail trader has all but disappeared, and traditional traders are predominantly competing against professionals and machines in a relatively illiquid market. this perspective is important to realize, because it underscores how markets have changed. given the near extinction of retail participation, and the almost total dominance of professional and algorithmic trading, it is unlikely that the biases and readily "available" cognitive reference points that are the hallmark of the retail trader, still exert their influence on pricing today.

more than ever, the market is predisposed to preying on unsophisticated traders; and there is no shortage of material for the flexions to practice on to refine their skills. the internet is full of trading forums, venting the opinions of naive wannabe traders who don’t know the difference between a stock and a bond, yet live in the delusional world in which they believe they can better the traders who are rigging the game. at the core of their beliefs is the illusion that they can grind out a living i.e., they can overcome trading friction and be consistent enough to collect a steady paycheck from the market, while taking very little risk and very small profits. they continue to believe in the existence of the exploitable edge that is reproducible on a daily or intra-day basis. and, herein lies the biggest and most stultifying misconception about trading -the belief in the existence of alpha and the denial that the grind is gone.

one of the many advantages of being a local trader on the floor of an exchange was that a trader could earn the bid/offer spread as an incentive for providing liquidity. when a local made a trade he could buy-the-bid and sell-the-offer, which meant he was buying below fair value and selling above fair value. in addition to this edge, traders were able to transact business at a cheaper rate than the public, and had first-hand knowledge of market structure and order flow. this enabled them to trade ahead of large orders and "race" the retail stop orders. a member trader did not have to go far in his quest for alpha.

following decimalization and regulatory initiatives aimed at creating competition between trading venues, the equities market fragmented, and liquidity was dispersed across many lit venues and dark pools. this complexity, combined with exchanges becoming electronic and for-profit, created profit opportunities for technologically sophisticated players. high frequency traders (HFTs) now use ultra-high speed connections with trading venues and sophisticated trading algorithms to exploit inefficiencies created by the new market structure, and to identify patterns in 3rd parties’ trading, so that they can use it to their own advantage in much the same way as the floor trader used his proximal and informational edge to generate alpha.

however, as a short-term, point-and-click, discretionary directional trader, one does not have access to the same process required to generate alpha. for traditional traders, the new market conditions insure that the playing field is tilted against them. retail traders continually find themselves falling behind these new competitors, in large part because the game has changed and because they lack the tools required to compete effectively. nevertheless, as the complexity of trading increases, it is still possible for a trader to separate from the pack and profit. the trader who has the better (more complete) and more timely (current) analysis will enjoy the greatest edge and have the greatest success, because they will have increased the gap between the traders who have adapted to the new environment, and the less informed, less diligent, and less talented ones.

it’s not that alpha doesn’t exist- it just doesn’t exist for the retail trader. what traders earn beyond the risk-free rate is not a true profit but simply factor compensation—the market rate for the risks they take. any positive expectation is the result of accepting that risk: the payment for taking such a position is compensation for risk, not an excess return. so, a trader must assess his approach to trading and decide what steps must be taken to find a proxy for alpha; and it begins with adopting an attitude, that is both realistic and relevant. the best any trader can hope to achieve, under any circumstance, is an incomplete, but probabilistic knowledge of the trading environment. so a trader must realize and accept that the markets are dominated by the rules of chance and randomness, both skill and luck come into play. how traders cope with probabilistic uncertainty and their imperfect view of the market is critical to their success. the essential job of traders then is to reduce uncertainty, not risk.

as a leveraged trader, one makes short-term decisions/trades, but understands what is happening at time frames greater than the one he's currently trading. the decision to trade and its management, flows from an analysis of price action. he is aware traders operate at different time-frames, markets are interconnected, themes abound in markets and that probabilities and departures from value govern trading opportunities. he understands and incorporates relevant informational signals from a wide range of deterministic processes to arrive at a summed probability that acts as deeper context.

he manages the risk through diversification, keeps draw-downs to manageable levels and strikes a balance between profit maximization and loss mitigation by adjusting trade size and stop-loss levels, so that only an extreme event will trigger the stop. he keeps losses in a predetermined range, and prevents getting stopped-out of a potential winner by managing expected value along with p&l, while allowing for a margin of error, so that he may stay-in-the-trade.

he is not concerned about how often he is right about the market, and frequently adds to his winners and turns short-term winning positions into longer ones. yet, never loses sight of the fact there is a downside scenario with an associated probability. the way decisions are evaluated affects the way decisions are made, so one does not allow stress, cognitive load, emotions, and bias, to non-linearly affect the decision process.

smart traders have the capacity to aggregate and synthesize large volumes of information, analyze it, and then derive an edge from it. the primary step in this process is to develop the capability to gather timely information from all the various sources and attach relevance to the information as accurately as possible. then merge both data sets, public information and proprietary tools, to derive insights that are applied in making trading decisions. good traders figure out what game is working and play that game. if they can understand the interactions of the individual factors and their effects on the market as a whole, then they will be able to identify higher order patterns that are the result of these interactions. going beyond the standard correlation/causation question, the trader must ask, does this source of edge make sense? is there a behavioral or structural reason why this source of edge should persist? and he must expect to be surprised and have to make adjustments, and build that into his expectancy.

good traders are always working on themselves, always refining what they do. in an important sense, they don't just use introspection to improve their performance. they work on their performance as a means of extending their personal mastery. the best traders spend significant time generating trade ideas, researching markets, and staying on top of developments worldwide. the ratio of time spent in preparation to time spent actually in trading, is a measure of a trader's professionalism

every trade a trader makes provides an opportunity to learn. gathering information from every trade, as opposed to a select few, helps give the trader a better understanding of how those trades may perform in the future. the more frequent the analysis, the more relevant the findings will be. however, the findings serve a purpose only if they are acted upon. the key is to use information to guide actions whose outcomes are then analyzed and the findings reapplied. this creates a continuous iterative loop that drives towards ever greater efficiency.

if you look at alpha as various types of beta doing different things at different times, then a trader's returns are going to be lumpy and cyclical in nature and performance will revert to the mean. the central message for traders then, is to trade efficiently, and make the most money with the least cost. it's not how often you're right, but how much you're right. if you want to make money, then maximizing geometric returns should be front and center in your thinking.

the market and its past is identical for all observers. yet, the market and the future are understood uniquely by each trader. no matter how crude or refined a method one follows in ascertaining the likelihood of change, it still boils down to surviving against one's own incomplete intellect, a misfired bout of randomness, in controlling the risk, and in executing a set of consistent ideas day in and day out, so that chance can prevail. the opportunity is there for the traditional trader to capture his personal alpha. all he has to do is see the market for what it is, and not what it was, or what it appears to be.

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  #102 (permalink)
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Stop tagging me in these posts, its completely useless and annoying.....

I agree, get a job and invest your money in something else.....but stop tagging me....

Simplicity is the ultimate sophistication, Leonardo da Vinci


Most people chose unhappiness over uncertainty, Tim Ferris
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  #103 (permalink)
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Bud, the unfortunate truth is that nobody can help you much in figuring out what to do and how to succeed in trading. Unless you can find a good mentor, which I imagine is very hard. The lengthy ambiguous posts you get are of little use in real life trading. It's all up to you to research, read, try different things, work on your psychology and find what works for you. It's a long, hard and lonely journey.

You want to trade forex, great! Find a blog where forex traders hang out and read their journals, look at their entries, models, etc. And keep trading in sim or small money every day to get a feel for the instrument you trade, keep records of your trades, do post trade analysis.

That's my 2 cents.

All the best.

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  #104 (permalink)
Market Wizard
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Anna K View Post
Bud, the unfortunate truth is that nobody can help you much in figuring out what to do and how to succeed in trading. Unless you can find a good mentor, which I imagine is very hard. The lengthy ambiguous posts you get are of little use in real life trading. It's all up to you to research, read, try different things, work on your psychology and find what works for you. It's a long, hard and lonely journey.

You want to trade forex, great! Find a blog where forex traders hang out and read their journals, look at their entries, models, etc. And keep trading in sim or small money every day to get a feel for the instrument you trade, keep records of your trades, do post trade analysis.

That's my 2 cents.

All the best.

if you would actually, THINK about what i'm saying, my lengthy ambiguous posts would have some meaning and would actually be of help to you. for someone who is going about the whole process of learning how to trade in an ass-backwards, myopic, & closed-minded manner, you are the last person who should be giving advice. my posts may seemingly be "ambiguous" or based on theory. and, i understand the word “theory,” makes most traders leery because they associate theory with theoretical , which implies impractical. but, if you define theory as a contingent explanation of cause and effect, it is eminently practical. a sound theory helps predict how actions or events lead to specific outcomes across a broad range of circumstances. my main message is that much of trading practice is unsound because it is based on poor practice as a result of improper theory. that is most traders generally dwell on attribute-based categorizations of the market i.e., patterns, formations and set-ups versus circumstance or contextual based categorizations. sound theories reflect context. most traders fail because the market doesn't do what they think it should, and this is because they really aren't trading the market. they don't take enough risk and they aren't patient enough to hold onto their winners. their theory of how to trade the market is flawed from the beginning and for most, they never come to a true understanding of how to effectively approach the market. a good theoretical understanding of how to approach trading leads to a practical application that is successful and profitable.


Last edited by tigertrader; December 9th, 2014 at 01:24 PM.
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  #105 (permalink)
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Oh my...


tigertrader View Post
if you would actually, THINK about what i'm saying, my lengthy ambiguous posts would have some meaning and would actually be of help to you. for someone who is going about the whole process of learning how to trade in an ass-backwards, myopic, & closed-minded manner, you are the last person who should be giving advice.

I found this to be hysterical.

Gary if you started a trading room and rang a bell once for long, twice for short and sounded a horn for square up and if you where correct 100% of the time some folks would want to know if it would work horn for enter bells for square. Then others would want to know if you could code it for auto trade and create an app.

Thanks for making me laugh out loud.

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  #106 (permalink)
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wldman View Post
I found this to be hysterical.

Gary if you started a trading room and rang a bell once for long, twice for short and sounded a horn for square up and if you where correct 100% of the time some folks would want to know if it would work horn for enter bells for square. Then others would want to know if you could code it for auto trade and create an app.

Thanks for making me laugh out loud.

We'll call it the Tigercator. The last indicator you will ever need.

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  #107 (permalink)
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tturner86 View Post
I have no idea why you tag us in these post. Trading sucks... get a real job and buy some ETFs.

lol because I want your opinion. why are you so focussed on trading if you think it sucks? you quit trading?

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  #108 (permalink)
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PandaWarrior View Post
Stop tagging me in these posts, its completely useless and annoying.....

I agree, get a job and invest your money in something else.....but stop tagging me....

Hi Pandawarrior,

Sorry if I am annoying you. The reason I tag you in my posts is that I value your input. You were one of the first few people that offered me advice when I was first starting out.


Why do you think I should get a job? (ie not trade)

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  #109 (permalink)
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chuckchucker View Post
Hey Budfrog,

I'd recommend spending some time with TsT. They have a lot of good educators. I've been trading with them for over a year. I've never passed a combine, it's really helped me in my development. They have a great team there. I trade live now with a prop firm. I am succeeding in my career and I have this forum to thank and TsT. Still trying to pass that combine, LoL. If only I could learn to stop out of a losing position.


Problem with TST is that they don't have a forex combine...I am focussing on forex now since its more affordable.

@chuckchucker what you been up to lately chuckchucker?

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  #110 (permalink)
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budfox View Post
lol because I want your opinion. why are you so focussed on trading if you think it sucks? you quit trading?

People give you their opinion, but you don't listen. You 'decide' something else and then tag the same 20 people asking for their opinion again.

@tigertrader took some considerable time to write those two posts. Read, research, and digest.

I get the sense lately that everyone wants everyone else to do the work for them. That isn't going to work. Figure out how to do it for yourself. Any time tiger or another poster post something I don't understand I google and research the hell out of it. People were missing tiger's commentary in the Spoo thread over Thanksgiving, they shouldn't have been. They should understand what tiger looks at and been making their own (and there was a few who were).

But again the idea isn't to learn how to trade like another trader. The idea is to figure out how to get past your own shortcomings, read what the market is saying, and then create actionable ideas and then execute them. If you can't do any of that then you can't trade. Trading isn't like little league, everyone doesn't get a trophy and an attaboy. Not everyone is gonna be a good trader.

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