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If retail trading is an industry, I suspect it may be one from which more vendors are profiting than retail traders - but that just adds to the sense of challenge.
So, I am very late to the thread as I was not here for a couple of weeks until yesterday, and wish to respond to mixed/assorted comments in mixed/assorted ways and hope that doing so will not irritate everyone too much, and at the same time I apologize for doing so and I will not make a habit of it.
There is.
I blame Mark Douglas for it. Not altogether joking. He convinced thousands of people without an edge that they had psychological problems, maybe?
But then you could substitute 100 other words for the word "trading" in the comment above and it might still be true?
I'm glad you did, not only because it started a great discussion but because it is nice for me to know I am not the only person who thinks that.
I am completely convinced by and in agreement with 3 of the 4 things you mention there. (I know very little about trading, really, but I approach it with a couple of math degrees, so that is my perspective and slant, for this and other discussions, just in case anyone wondered.)
Specifically -
It always surprises me that so many people imagine (in spite of all the published academic work on the subject, and there is a lot) that entering trades on the basis of a moving average crossover can in itself have a realistic edge (though I am aware that MAs have other, better uses, too). Whether someone once passed a Topstep evaluation using that, or not.
I think (I am sure!) that some people who repeat the "higher timeframes mantra" do not understand the square root proportionality between time and volatility.
I think reward-to-risk is hugely misunderstood in all trading forums, and that people hugely "misunderestimate" (lol) the risks and problems of using higher ratios without ever wondering why do many hedge funds etc. are using lower ratios.
So I agree with you about all of those.
I am still confused about pin-bars - especially "pin-bars on the line" ("the line" being S/R), which I find more reliable than they "ought to be," so I am not yet ready to dismiss those.
Indeed. And not only that, but within that 20% group, 20% of that group will yield 80% of its results as well. Which means, arithmetically (and very realistically, I think?) that 1-in-25 of the original 100% total will yield about 2-in-3 of the results you're after.
And in the field of retail trading discussed here, it very often is, I think, partly because people don't really know how to work it out, and guess often in horrible ways (like "looking at the longest losing run recently and then adding a bit to try to allow for safety", ugh!!!
For me, this kind of "says it all." Specifically, I strongly believe that many people don't have strategies that work, and imagine mistakenly that their main problem is that they lack the discipline to trade them properly.
As Van Tharp discovered, it is easier to sell trading books about "psychology" than trading books about anything that comes across to readers as "too mathematical"!
I appreciate that, but somehow reading your posts suggests to me - not for the first time - that you're likely eventually to be among the very small minority who make it, and steadily trade profitably.
Coming late into this discussion, but it reminds me of a principle from Ray Barros (now retired trader & educator) who would say the most important aspect (all things being equal) is trader psychology, but the 'formula' for trading success is = Method x Money Management x Mindset.
Notice the multiplication sign between each element. So your overall success will be limited by your weakest element. i.e. you could have a good money management strategy that prevents risk of ruin and great psychology strategies that keep you focused and in the moment, but if you don't have a positive expectancy methodology then you will simply lose. Likewise, you could have a positive expectancy system and strong psychology strategies but if your money management is weak, you will at some point get those 1 or 2 trades that will blow or significantly damage your account and you will lose. And the same goes with psychology...great methodology and money management but you will eventually lose...albeit possibly more slowly.
On psychology, Bill McLaren (a veteran trader from Chicago) used to say you have 2 types of capital....monetary capital and psychological capital. If you lose your psychological capital then you're sure to lose your monetary capital.
I think the topic of trader's mindset is extremely complex and quite confusing. It does not need to be a rabbit hole. Obviously if one is using a system which is guaranteed to blow out the account, no amount of work on their mindset can fix that. I believe most traders have come across at least one system which can be consistently profitable. For some traders being consistently profitable equates to making money everyday and having an 80% or higher win rate. For others it means making money consistently over the sample of about 50 to 100 trades. it is all individual. it is important to figure out what the priorities are and how a trader wants to proceed with a trading system. I do believe that most traders blow up because of unrealistic expectations and faulty self-assessment. that is all. it is important to sort oneself out as a person in relations the ones expectations and needs and to perform a valid realistic self-assessment combined with setting realistic goals
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,049 since Dec 2013
Thanks Given: 4,388
Thanks Received: 10,207
Sorry for delay, been out of town for most of the week.
The short answer is, Predominantly for...
- Position tracking. (Lots of different strategies trading the same instruments. For example in Crude I have 1 month, 3 month, 6 month and 12 month butterfly strategies in the same account).
- Calculation of Implied prices (some products don't have implieds enabled but still have active defered contracts eg crypto, others have them enabled for a certain number of contracts, and even then they are only second order implieds. So I create a more accurate picture of the market than the exchange shows!).
- Forward Curve Building (Crude has 10 years of monthly futures, NatGas has 13 years monthly, SOFR has 10 years of quarterly)
- Derivative Pricing (Some are simple like strips, but also have ability to calculate options and vol surfaces etc. but don't do much of that currently)
- Relative Value Models (In simple terms this is tracking deviance from statistical relationships and entering and monitoring positions based upon the deviation).
For people who are wondering why and don't know me, I don't trade futures like most people here. Almost everything I do is either spread based (or even spreads of spreads, or even spreads of spreads of spreads!), arbitrage or relative value. Additionally about 99% of it is automated rather than click trading and over 90% of what I do is energy contracts. So I'm not trying to predict if @ES is going up or down.
I'll see if I can find it, but it was simple stuff, stops, filters etc which I guess you can argue it was as much 'exit rules' as 'risk management'
Late to the discussion, however I would argue that brokers CAN have a negative influence on trader performance by selling order flow to funds who can use this information to trade against retail postions to enter or exit positions. I have also heard from traders who have worked in retail brokers who said they learnt a lot about how retail traders behave by watching the order flow and profiting from it. Obvioulsy this is the retail trading community in aggregate, not targeting individual traders, but the bigger the retail trading community, the greater the role it plays in providing liquidity to predatory funds.
Some key points in there tr8d3r. It is so fundamental to understand that you cant 'blindly' follow an indicator into trades without understanding the essential context around the indicators role in your strategy. This expains why indicators only 'work' some of the time. You can make money with practically any system if you understand when the conditions are right to use a particular strategy and manage your risk appropriately. Would argue that is more important than any 'holy grail' indicator. Would also add an 'indicator' is not a strategy. How you use what the indicator is telling you in current conditions/context will only 'inform' your strategy.
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,049 since Dec 2013
Thanks Given: 4,388
Thanks Received: 10,207
Just to confirm we are talking futures here not equities. No such thing in futures.
Agree. Globex Tag URRETAIL999 lets everybody see who the retail traders are.
Sorry that was a joke. Again just to confirm we are talking futures here not equities.
Good comments Sienna. For me this becomes just as important after a successful streak as it does a losing streak as the wrong mindset can blowup mid-term successful streaks because you can become sloppy and lose discipline. The opposite of a losing streak where you can often find yourself trying to hard, overtrading and trying to find meaning in every tick which isnt there...
