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Can Day Trading be profitable for retail?
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View Poll Results: Can Day Trading be profitable, consistently, for retail traders
Yes 72 72.00%
No 13 13.00%
Can't say 15 15.00%
Voters: 100. You may not vote on this poll

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Can Day Trading be profitable for retail?

  #41 (permalink)
Reston Virginia/USA
 
 
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Can Day Trading be profitable for retail?

Sure, occasionally. Consistently? Don't be silly.

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  #42 (permalink)
charlotte nc
 
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I'll take the bait on this.....


jefforey View Post
I agree that there is no incentive. I am just looking for some evidence. Not here to offend anyone. One way would be to post backtesting results done using tick data, I guess.


Hi jefforey,

I see no one took the bait on sharing their back testing results with tick data… So I will. But let me caveat this by saying the following.

1. Back testing results can be faked very easily if you know how to trick your back tester. (I.E using an exotic bar type, running strategy analyzer results with simple HLOC using limit orders, checking fill every limit order conditions, Some SIM engines fill limit orders as if they are market orders, etc…)
2. Because of point 1 be very skeptical of anyone trying to sell anything based off of backtesting results.
3. Even if you aren’t deliberately trying to trick your backtester and fluff your results, you can still beat a backtester / SIM engine if you know what you are doing. For example NT 7 fills profit targets for smaller targets way too easy IMO. NT 8 fills weak side limit orders too easily IMO, and at the same time almost never fills strong side limit orders unless the price trades through you.

All of this being said, In my case, I am not cheating in any of the conventional ways. I am however running my code through NT 8 market replay, and this particular SIM assumes 0 latency. Anyone with direct market access could actually run this strategy and get close to this result, but alas us mere mortals have to fight retail level latency. In fact this exact system is being deployed quite frequency and is a particular class of High Frequency Trading, and it does work in the real market all the time with spectacular results. I myself am in the process of getting this off the ground as a retail guy, knowing I have latency limitations, infrastructure limitations and will likely only best case scenario get 25% to 50% of this result.

Here it is: (This is trading one contract over one week. No commissions included, but in this class of strategy they would be around $1.50 all in due to the scale.)

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The winning percentage is misleading because even though I am only winning 35% of the time or so, I am not actually losing the other 65%. I am actually scratching around 57% and really losing around 6%. I could show more history, but there is no point because it is always the same. There are virtually no draw downs, I get hundreds of trades per day, the system has 0 market bias or directional weakness because it doesn't trade direction. This system wins because it has a serious statistical edge. (Although I am running this in a zero latency simulation, this exact class of strategy is already crushing the market every day.)

I also have 4-5 other systems with fairly decent results I have covered in detail in my journal in case you want to take a look. You may get some ideas: https://futures.io/trading-journals/38665-outside-box-then-some.html


But to your original question, can retail guys be profitable. Absolutely! Here is how.

1. Trading is gambling, but unlike Vegas where you always have at least a 51% chance of losing, with trading you can define your own game, set your own odds, and place any bet size you want.
2. You need to know every single aspect of the house edge that you are gambling against. This translates into knowing the market microstructure and auction theory, and every possible way that the market is taking money from you. This includes the spread, toxic fills, commissions, slippage, latency, etc.
3. Define the rules of your game and know your betting odds. This is the biggest part people miss. You need to be 100% confident that if you do x over 100 trades your odds of winning is y. And you need to get this part right. If you don’t know this, you have no business being in the market other than to donate your money.
Just like in Vegas, there are tons of games and they all come with different odds, and different edges both in your favor and against you.

Also, the gap between a hobbyist trader and high end retail or even low end professional is a lot less that you would imagine. For 50-500 bucks a month you can co-locate to improve your latency, and for a few hundred more a month + a few grand you can get your commission cost significantly reduced by licensing an exchange seat. (Which I will be doing soon hopefully!) Also if you are successful you can scale your contracts and get volume discounts from your broker. So maybe your not profitable with $4.00 per trade commissions, but you are with $3.00 dollar per trade commissions or even $2.00 per trade. In my pricing models I can get my all in trade costs down to around $1.50 using the same tools available to anyone. We are talking a few thousand dollars and this is less than any start up business cost I have seen. There is a path here to close this gap and it’s not that hard or expensive in the grand scheme of things. Most people never scale because they can't their first proof of concept off the ground because they don't have a real system to begin with. But for anyone that has an even half decent edge, scaling in this business is very easy.


Happy Trading!

Ian

In the analytical world there is no such thing as art, there is only the science you know and the science you don't know. Characterizing the science you don't know as "art" is a fools game.

Last edited by iantg; February 10th, 2018 at 09:46 PM.
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  #43 (permalink)
edison new jersey
 
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Thankyou Iang for sharing the simulation result. I will definitely read your journal. I did some basic math with your results and the below is my observation:

1. You have 3000 trades in the week with profit of $18000.
2. With round trip commission of $4 it will cost $12000 for commission. If we assume $1 round trip (which is quite unrealistic) then it is $3000.
3. With 2 ticks of slippage per trade it comes to $25 * 3000= $75,000. if we assume 1 tick slippage per trade then it is $ 37,500.
4. That means $40,000 to $78,000 could be lost to slippage and commission alone.

With those numbers your strategy is not profitable.

How do i arrive at 2 ticks of slippage? It's my personal experience trading strategy live and also the number given by likes of kevin davey. This is what i saw. My entries were limit orders and exits market orders. My strategy converted the entry limit order to a market if it was not filled within 5 seconds of price crossing it. All exits were naturally market orders. My observation was a minimum of 2 tick slippage in every trade in es.
You have to win at least 3 ticks per trade to stay profitable overall in the retail world.


Last edited by jefforey; February 13th, 2018 at 09:57 AM.
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  #44 (permalink)
Market Wizard
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jefforey View Post
Thankyou Iang for sharing the simulation result. I will definitely read your journal. I did some basic math with your results and the below is my observation:

1. You have 3000 trades in the week with profit of $18000.
2. With round trip commission of $4 it will cost $12000 for commission. If we assume $1 round trip (which is quite unrealistic) then it is $3000.
3. With 2 ticks of slippage per trade it comes to $25 * 3000= $75,000. if we assume 1 tick slippage per trade then it is $ 37,500.
4. That means $40,000 to $78,000 could be lost to slippage and commission alone.

With those numbers your strategy is not profitable.

How do i arrive at 2 ticks of slippage? It's my personal experience trading strategy live and also the number given by likes of kevin davey. This is what i saw. My entries were limit orders and exits market orders. My strategy converted the entry limit order to a market if it was not filled within 5 seconds of price crossing it. All exits were naturally market orders. My observation was a minimum of 2 tick slippage in every trade in es.
You have to win at least 3 ticks per trade to stay profitable overall in the retail world.

Ian's strat really relies on not having any slippage, and using limit order fills on both sides. Can it be done by a retail trader? As I've told Ian privately, I have my doubts. But I am very interested to see his live real money results.

I always include slippage of a few ticks, even on some strats where I am using limit orders. I find being a little conservative with slippage estimates is a good thing. But that is likely because of the type of strats I trade (non HF strats)...

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  #45 (permalink)
edison new jersey
 
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kevinkdog View Post
Ian's strat really relies on not having any slippage, and using limit order fills on both sides. Can it be done by a retail trader? As I've told Ian privately, I have my doubts. But I am very interested to see his live real money results.

I always include slippage of a few ticks, even on some strats where I am using limit orders. I find being a little conservative with slippage estimates is a good thing. But that is likely because of the type of strats I trade (non HF strats)...

Well that's what the challenge is, isn't it? beating slippage and commission.

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  #46 (permalink)
edison new jersey
 
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another point i wish to raise is that what Iang posted is not a typical HFT strategy. HFTs are based on front running themes where the success probability is approaching 100%. I think they rely on sure-shot success which is how they beat slippage costs.

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  #47 (permalink)
charlotte nc
 
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jefforey,

While there are many different classes of HF strategies, you can find more information about the class that mine is here: https://www.jigsawtrading.com/2016/04/02/2020-market-vision-staying-on-the-right-side-of-the-market/ right around the 6.40 mark. Again, this is a known method that I would characterize as very common, it is deployed to just about every financial market. I just programmed it over the weekend recently as a thought experiment.

Let me just say, that this particular example is not the version that I am working on trading live with. I have my own variation that is considerably different than this, and works within a set of rules and mechanics that are achievable by someone using my platform and co-location disadvantages. I know that in the world of HFT I am a snail, so I have to combat this by using less latency sensitive signals in my algorithms.

And as Kevin mentioned, this system does not cross the spread, so while there is a type of slippage in play, it is not related to losing the spread, it is related to which price level you get filled on. What I take away from this though experiment, (And I am giving this freely to everyone) is that losing a price level 5%,10%,20% of the time, is considerably less bad than losing the spread 100% of the time. Most traders want full control of their risk in terms of the exact size of their targets, but by setting this as a hard line in the sand you are guaranteeing that you lose the spread. Not everyone is capable of programming like this, or even want to use this type of exit strategy, but if you learn nothing else from this, you should consider this point.

Also commissions of $4.00 would never be in play if a system was able to hit anywhere near this result. You would license a seat at the exchange and get a volume discount from a broker. My pricing models for these types of system have a all in cost < $2.00. I would be glad to break down the exact cost structure for you in further detail if you are interested in learning how this works.

If you have any questions, or want to learn more about this let me know and I will be glad to share.


Ian


jefforey View Post
another point i wish to raise is that what Iang posted is not a typical HFT strategy. HFTs are based on front running themes where the success probability is approaching 100%. I think they rely on sure-shot success which is how they beat slippage costs.


In the analytical world there is no such thing as art, there is only the science you know and the science you don't know. Characterizing the science you don't know as "art" is a fools game.

Last edited by iantg; February 13th, 2018 at 09:49 PM.
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  #48 (permalink)
Legendary Market Wizard
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jefforey View Post
Thankyou Iang for sharing the simulation result. I will definitely read your journal. I did some basic math with your results and the below is my observation:

1. You have 3000 trades in the week with profit of $18000.
2. With round trip commission of $4 it will cost $12000 for commission. If we assume $1 round trip (which is quite unrealistic) then it is $3000.
3. With 2 ticks of slippage per trade it comes to $25 * 3000= $75,000. if we assume 1 tick slippage per trade then it is $ 37,500.
4. That means $40,000 to $78,000 could be lost to slippage and commission alone.

With those numbers your strategy is not profitable.

How do i arrive at 2 ticks of slippage? It's my personal experience trading strategy live and also the number given by likes of kevin davey. This is what i saw. My entries were limit orders and exits market orders. My strategy converted the entry limit order to a market if it was not filled within 5 seconds of price crossing it. All exits were naturally market orders. My observation was a minimum of 2 tick slippage in every trade in es.
You have to win at least 3 ticks per trade to stay profitable overall in the retail world.


kevinkdog View Post
Ian's strat really relies on not having any slippage, and using limit order fills on both sides. Can it be done by a retail trader? As I've told Ian privately, I have my doubts. But I am very interested to see his live real money results.

I always include slippage of a few ticks, even on some strats where I am using limit orders. I find being a little conservative with slippage estimates is a good thing. But that is likely because of the type of strats I trade (non HF strats)...

I think a key issue here, especially when it comes to @iantg's recent discussions is what does retail mean?

Since Kevin is here lets start with him. Is Kevin a retail trader? As far as I know Kevin trades his own money and doesn't own or lease any exchange seats. So maybe he is retail. But he's also won 2 World Championship's of Trading, admits to trading between 50 and 100 systems at any one time, is a full time trader, and makes enough from his trading to live off. That on the other hand sounds pretty professional to me.

What about me? I'm also just a guy who works from home trading his own money, admittedly full time. Does that make me retail? What about if I say I lease a NYMEX seat for lower commissions. That in at least CME and the NFA's eye's makes me a professional. But then I also have colocated servers. My trading volumes are also high enough to justify having a seat.

What about Ian. 3000 trades in a week? HFT? Can that be retail?

Then there's institutional. And Hedge Funds. And CTA's. Where do they fit in. Is the guy hedging a refinery for BP considered institutional? Is the person running a small $5M Hedge Fund the same as PM with $1B under management?

For what it's worth I've always considered it to be whether your dependent upon trading for your income or not, but that obviously ignores many other possible definitions.


jefforey View Post
another point i wish to raise is that what Iang posted is not a typical HFT strategy. HFTs are based on front running themes where the success probability is approaching 100%. I think they rely on sure-shot success which is how they beat slippage costs.

Are you an expert on HFT or are is this just repeated rhetoric? Again before we can really start discussing it, we would need to define what we mean by HFT. Today off the shelf software can easily change orders dozens of times per second, does that make them HFT? To some people yes, to others, they would laugh at how slow that is.

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  #49 (permalink)
edison new jersey
 
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SMCJB, How do you know that kevin's automated day-trading is profitable? maybe it's not. or maybe he is not day-trading at all. People posting on this thread except, maybe Ian, have taken exception to my suspicion against day trading. As if day trading is holier than thou. How dare you question day trading? Well, I am going to rely on data and facts than on hearsay and myth. That is why I asked people to post backtest results. Not their strategy but just the results.
Do I know a successful Doctor? Yes.
Do I know a successful banker? Yes.
Do I know a successful builder? Yes.
Do I know a successful broker who has day-trading clients? Yes.
Do I know a successful day trader? No.

I am not convinced, yet, that day trading is a profitable venture for retail traders or any traders. Isn't this the reason why HFT was invented? The issue is that a lot of tool/strategy vendors, brokers etc want us all to believe that day trading is profitable on a consistent basis. It is upon our wisdom to see through it.

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  #50 (permalink)
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jefforey View Post
SMCJB, How do you know that kevin's automated day-trading is profitable? maybe it's not. or maybe he is not day-trading at all. People posting on this thread except, maybe Ian, have taken exception to my suspicion against day trading. As if day trading is holier than thou. How dare you question day trading? Well, I am going to rely on data and facts than on hearsay and myth. That is why I asked people to post backtest results. Not their strategy but just the results.
Do I know a successful Doctor? Yes.
Do I know a successful banker? Yes.
Do I know a successful builder? Yes.
Do I know a successful broker who has day-trading clients? Yes.
Do I know a successful day trader? No.

I am not convinced, yet, that day trading is a profitable venture for retail traders or any traders. Isn't this the reason why HFT was invented? The issue is that a lot of tool/strategy vendors, brokers etc want us all to believe that day trading is profitable on a consistent basis. It is upon our wisdom to see through it.

Just to clarify, I'd consider my trading to be more of swing trading futures, rather than day trading futures. I have only a handful of day trading futures strategies - most of my other strategies are swing strategies (trades lasting days or weeks).

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