Well, I'm guessing he didn't have a trading plan at all! He probably bought some overoptimized piece of junk system.
If he never had 2 losing months in a row, then all of a sudden he did, to use your example, that would be a cause for concern.
Maybe he had a multimillion dollar account, so $150K lost would not even be a concern.
But let's say he had $200K to start with. So he lost 75% of his money. Before he even started trading, he should have had a quitting point in mind, based on his system's performance. Maybe it was $50K or $100K lost, or some other metric. The point is he should have had a point that said "HEY!! QUIT!!!!!"
Most people never have that quitting point. Certainly this guy didn't, since he is still searching for reliable income after losing that much.
If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
The following 3 users say Thank You to kevinkdog for this post:
This is very close to my strategy precisely! It may take me a a while to grow account to a sizable amount of working capital. Gains will be small/losses will be small.
The 1000.00 invested is not bread off my kids table, its cash I can afford to lose. If gone quickly, will cut my losses and move on. Very confident I have the discipline to make it last.
Simple Math (I used a calculator online)
1000.00 invested 10% Return monthly, in 18 months= 5559.52 and 24 months=9849.73
No bank has this kinda ROI.
Since we like to make funnies, let me make you guys laugh. Could spend 20 hours per week working a part time brainless JOB for 12.00 per hour. In 24 Months I would earn 23,040.00 with nothing invested. That is double the above numbers!!!
My choice is to learn a new skill that has potential for an early retirement. Willing to put in the time and efforts it takes. Lets face it there is no easy money out there. You have to WORK and earn it![/QUOTE]
You have a shot of doing this and with a great plan, discipline, bonafide edge and luck.
I tried this years ago and blew out the account the first time, but after some fine tuning, the second $1K deposit has been compounding nicely such that I never had to add equity or additional margin. Trading ES only.
The following 5 users say Thank You to GuyMM for this post:
If I were to teach someone how to trade one on one I'd ask them to put 1000 on the table and make trades with sim. Each trade regardless of the stop size is 20 bucks. They have to literally handover 20 dollars. If they win they keep the dollar amount in proportion to the 20. If they lose I keep the 20. We can get a hell of a lot more trades out of the way and the money will go to a decent person (myself), instead of to the broker and the anonymity of the market. The highest I'll payout is 500 dollars in total.
Thank you for pointing that out. I am aware of that thread, found it highly enlightening and really appreciated the honesty that went into it. I was saddened when you announced you would stop posting there, but I fully understand your reasons for doing so.
I was not sure whether I should include a link to your thread as you don't seem to fit my view of the typical daytrader, i.e. you don't seem rushed to take profits, I believe I have seen you hold positions overnight, etc. However, if you feel my view of you as a trader is wrong, I will stand corrected.
The following user says Thank You to grausch for this post:
If it applies to a casino offering roulette to players, then yes, you want to apply your edge as frequently as possible. When you play roulette, the odds can be calculated precisely - let's call this a calculated probability. Of course we are assuming that the wheel is completely random, but you get the idea - using math, we know the exact probability of every possible outcome. With roulette, using the calculated probabilities the payouts were determined in such a way that it always leaves the casino with a small edge. Thus, the more games of roulette get played the better for the casino.
With trading, you can not calculate your probability of success on any given trade, you can merely observe past occurrences and hope that the trend continues. There is a difference between a calculated probability in a closed eco-system (the casino) and an observed probability in the real world. For instance, a trader who developed the most "robust" system during the 1920s would have been slaughtered in the 1930s. That may seem pretty obvious now, but even today, outside influences affect the probabilities of any given trade and I don't believe these to be measurable. For instance, if there is talk of a rate-hike, how would that factor into your probability of success on a certain trade? Depending on whether you go long or short, probabilities also change. How would you determine this? These are all things that a casino does not have to deal with.
I don't wish to go into detail on your observations on intraday traders vs fund managers, but there is a lot more at play than merely the fact that setups occur much more frequently. I will just say that the industry has changed significantly and fund managers no longer trade like Richard Dennis used to in the 1980s.
I can't believe I forgot about Tom Baldwin in my post. In my haste to get this post done, I overlooked the obvious. Guess as in trading, and in life a little bit of humility goes a long way. Unfortunately I don't know much about Paul Rotter and confess my ignorance about his trading techniques.
That being said, the markets have changed and even guys like Seykota, Minervini and Zanger no longer obtain the results they once did. Plus, by focusing only on the winners we are falling prey to survivorship bias. Sure, there are some people who make big returns in the market, but if you were to compare the typical mutual fund investors vs the active trader (swing trader, day trader, scalper, etc.) you will find that the average mutual fund investors will make money over his lifetime. Returns may not be the greatest, but they should have a positive P&L. Once you start moving towards the shorter end of the spectrum, you will find that a much smaller percentage of active traders end their trading careers in the black.
The following 4 users say Thank You to grausch for this post:
Strange intersections this morning. After reading Grausch's post above, I checked my email and found this:
I suppose one reason this thread hasn't attracted more attention or posts is because most people refuse to believe that it really can be that simple lol !
Most system threads that start off with workable stuff like what you and I are doing, for example, will on most boards inevitably and within an incredibly short time span turn into some kind of a monster that will have nothing to do with the original idea.
The main reason for that -- and also why most traders fail -- is, I presume, because people cannot accept losses which every system will have, so instead they go on an eternal chase for a non-existing holy grail by adding on all kinda gizmos or hopping from method to method hoping that at some point they'll have the market cracked and never have to suffer through losses again.
Which in turn reminded me of something I wrote back in the 90s:
Let Your Losses Run
Once upon a time, two behavioral scientists named Daniel Kahneman and Amos Tversky asked subjects what they would do if they were given $1,000 plus either
1a) a certain gain of $500 or
2a) an even chance to gain $1,000 or gain nothing.
A strong majority, 84%, selected the certain gain of $500, passing up the 50% chance to double their money.
A second group was asked what they would do if given $2,000 plus
1b) a certain loss of $500 or
2b) an even chance of losing $1,000 or of losing nothing.
The result of the first option in each case is identical, either $1000 + $500 ($1500) or $2000 - $500 ($1500).
One might reasonably expect, therefore, that investors would be indifferent to these distinctions and show the same preference for both scenarios. However, in the second scenario only 31% of subjects selected the certain $1,500 (choice 1b). The other 69% elected to gamble on the possibility of losing $1000 in option 2b rather than accept the certainty of losing $500 in option 1b.
So what does all this have to do with our kicking our toes into the dirt every time the opportunity to pick up those bargain basement stocks presents itself? Since the subject who chooses option 1 in either case winds up with exactly the same amount of money, there has to be something in options 2a and 2b that accounts for the disparity in the number of people who choose option 1a in the first scenario (84%) and the number of people who choose option 1b in the second scenario (31%), and that something is fear, specifically the fear of loss. In the first scenario, we are more afraid of gaining nothing than we are hopeful of gaining $1000. Therefore, we'd rather lock in the $500 gain offered in option 1a and pass on option 2a altogether.
In the second scenario, the idea of a certain loss (1b) -- even though we'd wind up with exactly the same amount of money as in option 1a -- not only does not appeal to us, most of us don't even consider it. We prefer instead to gamble on option 2b. There is, after all, a chance in option 2b of losing nothing, whereas if we were to choose option 1b, we would lose $500 for sure (there is also a chance of losing $1000, but it's not a certainty).
Put another way, the pain of loss which would result from choosing option 1b is so much greater than the pleasure of the gain that would result from choosing option 1a, we will do anything to avoid it, even if that means chancing an even greater loss by choosing option 2b. The potential loss represented by 2b is after all only potential. It's in the future. Something might happen that will enable us to avoid it. For example, the world might blow up and we'll be off the hook (anyone who's ever watched a gambler increase the size of his bets as he loses will recognize this phenomenon in action; amateur investors who continue to buy stock as it declines in order to lower their "break-even" point are avoiding this same rendezvous with loss).
If all of this sounds crazy, that's because it is crazy. The pain of loss is so great, and our fear of it is so ingrained, that we will do anything to avoid facing it. We will hold onto a stock all the way to bankruptcy to avoid facing it (if we don't sell it, it isn't really a loss).
There's more, but this seemed particularly pertinent to this particular thread.
The following 7 users say Thank You to DbPhoenix for this post: