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The market is not out to get you
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The market is not out to get you

  #21 (permalink)
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I suppose if you are really concerned with your stops being "gunned" you could use stops that are held internally until triggered....

I'm just a simple man trading a simple plan.

My daddy always said, "Every day above ground is a good day!"
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  #22 (permalink)
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Lornz View Post
Futures & options are both zero-sum games. Who do you think you are buying from or selling a contract to?

A futures contract does not exist until a buyer and a seller agree on a price, thus they are each others opposites. You have the clearing firm stepping in as a counterpart for security purposes, but the loss/gains (excluding extreme cases) are transferred from your account to his/hers and vice versa.

The other trader might be hedged/spread trading, but on that particular trade he must lose money for you to win.

Many different algorithms exist, and many are just using latency to capture the spread. But there also more disruptive algorithms specifically trying to pull in suckers and run stops. Some of my trading is specifically modeled for capturing moves when algorithms flock (unless I am trading against the Flash himself).

Lornz the futures market is not zero sum the way you describe it. Lets say I go long and my target is set to 20 and my stop to 21. Lets say someone else took other side of my trade and went short and they set stop at 30 and target at 18. In that scenario the market could go hit my target at +20 and then reverse come back down hit the person who went shorts target at 18 back from entry. Neither stop gets hit both of us make money. Essentially we were not competing just entering the market with different expectations and trying to take something out of it.

Someone could also short against my long and hold different time frame. I could trade out that day at a loss they could trade out a week later at a loss. Both long and short lost.

Many different scenarios but market is not zero sum on a matched trade by trade basis. It is zero sum in sense that there will be winners and losers in a larger context.

My point being the market is so large with contracts being moved in and out of with different time frame expectations, targets, stops that is really hard for me to see it as a competition. Market is so liquid risk just gets passed around with some winning and some losing at different times. They guy on the opposite side of my trades does not buy or sell back to me he passes that risk to the next guy when he exits. The scenario you describe would take matching the same buyer/seller on the entry and the exit to be considered zero sum. That would create a winner and loser that truly bet against each other and were truly competing but that is not what happens in todays liquid markets.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."

Last edited by liquidcci; March 9th, 2012 at 12:12 AM.
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  #23 (permalink)
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Unlike the stock markets, futures and & options are zero-sum. No value is created, money simply change hands. I get what you're trying to say, but I was correct. I portrayed the most fundamental scenario with only two participants, a buyer and a seller, but in reality there will be overlapping participation. That does not change the fact that, barring extreme cases, the money you make comes from another's account.

Since futures are standardized, it's only the net position that matters for any participant. The actual counterpart is always the clearing house, but the money is taken from whomever that's on the opposite end of your transaction.


Consider this:
Stocks are originally made available in an IPO. As long as the share price is moving up, it's possible for all buyers to make money. They make money because the next seller pays more to retain ownership of the stock.

Unlike the stock market, which has a fixed number of shares open for trading, standardized exchange-traded derivatives, are created when a seller (to open) and buyer (to open) agree on a price. Therefore someone must lose for others to win. They don't, of course, have to lose on a portfolio basis, but only on that particular trade.
If we compare the IPO example above to futures, the difference is clear: A sells (to open) to B, B sells to C, C sells to D and D sells to E. This means that B, C, and D made money, while A is negative and E is at break-even.
Until A buys back a contract, the open interest will be 1. This can be compared to A shorting a stock and having to deliver it back to the owner at some point.


You were only considering the end result of two out of three (or more) participants, which is an incorrect view of the futures market. The example requires new participation in order for both of you to get out at a profit.

Using your example:

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A sells (to open) 1 contract to you at price x. The open interest is 1.

You sell that contract at (x+20) to B. This means that A's position is currently at -20.
You are out of the market, B takes over your position at (x+20).

As the market goes down, B is losing the same amount as A is making.
A exits the market by buying back his contract from B at (x-18).

All positions are now closed, and the open interest is 0.

As you see, all of the losses were transferred to B. He bought at the high of (x+20) and sold at the low of (x-18), thus losing 38 ticks and ensuring that both A and you made money.

That being said, I agree with the essence of your post. There is no point in blaming others for one's own trading failure(s).

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  #24 (permalink)
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Lornz View Post
Unlike the stock markets, futures and & options are zero-sum. No value is created, money simply change hands. I get what you're trying to say, but I was correct. I portrayed the most fundamental scenario with only two participants, a buyer and a seller, but in reality there will be overlapping participation. That does not change the fact that, barring extreme cases, the money you make comes from another's account.

Since futures are standardized, it's only the net position that matters for any participant. The actual counterpart is always the clearing house, but the money is taken from whomever that's on the opposite end of your transaction.


Consider this:
Stocks are originally made available in an IPO. As long as the share price is moving up, it's possible for all buyers to make money. They make money because the next seller pays more to retain ownership of the stock.

Unlike the stock market, which has a fixed number of shares open for trading, standardized exchange-traded derivatives, are created when a seller (to open) and buyer (to open) agree on a price. Therefore someone must lose for others to win. They don't, of course, have to lose on a portfolio basis, but only on that particular trade.
If we compare the IPO example above to futures, the difference is clear: A sells (to open) to B, B sells to C, C sells to D and D sells to E. This means that B, C, and D made money, while A is negative and E is at break-even.
Until A buys back a contract, the open interest will be 1. This can be compared to A shorting a stock and having to deliver it back to the owner at some point.


You were only considering the end result of two out of three (or more) participants, which is an incorrect view of the futures market. The example requires new participation in order for both of you to get out at a profit.

Using your example:

Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).



A sells (to open) 1 contract to you at price x. The open interest is 1.

You sell that contract at (x+20) to B. This means that A's position is currently at -20.
You are out of the market, B takes over your position at (x+20).

As the market goes down, B is losing the same amount as A is making.
A exits the market by buying back his contract from B at (x-18).

All positions are now closed, and the open interest is 0.

As you see, all of the losses were transferred to B. He bought at the high of (x+20) and sold at the low of (x-18), thus losing 38 ticks and ensuring that both A and you made money.

That being said, I agree with the essence of your post. There is no point in blaming others for one's own trading failure(s).

Lornz I agree ultimately the overall system is zero sum. I was more speaking to trader against trader on a specific transaction where we both take different sides of the trade as not really being zero sum against each other. In some ways more like a game of musical chairs that never quite ends as risk gets passed around or maybe "hot potatoe" would even be a better way to think about it. I think we are not that far off in how we see this just looking at it from different angles. I appreciate your comments.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
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  #25 (permalink)
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liquidcci View Post
Lornz I agree ultimately the overall system is zero sum. I was more speaking to trader against trader on a specific transaction where we both take different sides of the trade as not really being zero sum against each other. In some ways more like a game of musical chairs that never quite ends as risk gets passed around or maybe "hot potatoe" would even be a better way to think about it. I think we are not that far off in how we see this just looking at it from different angles. I appreciate your comments.


Yes, I think we basically are in agreement. I haven't posted in a while, and I needed a fix. I also see a lot of confusion regarding these kinds of things on the board, so I thought it might benefit some.

As I understand you, you are essentially saying that the person taking the opposite side of your trade is not necessarily in direct competition with you. I agree with that. A swing trader can sell to open, while the person buying might be going to for a quick scalp. The scalper will sell it quickly to someone else, which in turn might sell it to someone else and so on. My point was just that as the contract is flipped over and over, the original seller loses money if the market rises. If all the sellers close out their contracts, there would be no market. Thus someone must lose for others to make money.

Have a good weekend!

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  #26 (permalink)
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Lornz View Post
As I understand you, you are essentially saying that the person taking the opposite side of your trade is not necessarily in direct competition with you. I agree with that. A swing trader can sell to open, while the person buying might be going to for a quick scalp. The scalper will sell it quickly to someone else, which in turn might sell it to someone else and so on. My point was just that as the contract is flipped over and over, the original seller loses money if the market rises. If all the sellers close out their contracts, there would be no market. Thus someone must lose for others to make money.

Have a good weekend!

Yes, exactly what I am saying. You have a nice weekend as well.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
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  #27 (permalink)
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ThatManFromTexas View Post
I suppose if you are really concerned with your stops being "gunned" you could use stops that are held internally until triggered....

thats what Tradestation used to tell us,stops are held at TS servers. I presume thats true accross the board with all brokers.

I dont worry about it,I trade the higher time frame and take small chunks with more contracts on the table and smaller profit targets most of the time.

Bastard pigs can only manipulate so much.

Sorry pigs for insulting you with the human pigs.

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  #28 (permalink)
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If you are going to trade 5m, 15m, 60m charts and placing your stops at pivot points from the pivot factory, and above yesterday's daily high, etc, etc, You can be sure 'THEY' will be gunning for your stops. Because you are doing what hundreds of thousands of other traders are doing, ant the 'gunners' know it. 'They' read the same manual, and are beating you over the head with said manual.

When you try to take that breakout over the 30 minute opening range, along with 700,000 of your other buddies following the holy manual, guess what, 'they' are licking their chops waiting for you. The same 60m s/r levels I am seeing, is also being seen by massive numbers of other eyes as well. The same 15m double top I am seeing is being called out in 700 trading rooms, and the big market players are counting on it. I don't need that kind of competition.

I believe if you want to beat them, stop falling into their trap, you either have to play the game they are playing, or devise a method that capitalizes on the side effects of their game. My approach is to be the little fish that swims along in the wake of the whale feeding off of him, without him even realizing I am there. I don't want to be in the school of little fishes swimming head on against the whale. To me, this means not trading popular time frames, popular patterns, popular levels, popular methods, and not requiring the market to make major extended moves from one popular major area to the next in order for me to capture profits. There's plenty of patterns, plenty of opportunity inside of those areas (wake) to capitalize on while the big fishes setup their kills.


Last edited by monpere; March 9th, 2012 at 05:00 PM.
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  #29 (permalink)
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Lornz View Post
Futures & options are both zero-sum games.

I've always felt it is not a true zero sum game, because the broker is the house, and the house always wins... (equivalent to zero/double zero on Roulette wheel).

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  #30 (permalink)
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Big Mike View Post
I've always felt it is not a true zero sum game, because the broker is the house, and the house always wins... (equivalent to zero/double zero on Roulette wheel).

Mike

Alot of truth to that.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
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