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Expectations vs Reality: Trading Profitability


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Expectations vs Reality: Trading Profitability

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  #11 (permalink)
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wldman View Post
that I have a bunch to share on this topic. In typical wldman fashion it will not be easy for many people to accept my VIEW based on thirty-ish years of industry experience.

I want to encourage people and sometimes that involves telling them things that they will resist or ignore. You guys decide...say it or keep it to myself?

Dan

We are waiting wldman. The floor is all yours.

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  #12 (permalink)
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...when wldman talks in 3rd person. It's a bit like the character Terry in Brooklyn Nine-Nine (for those who are familiar with that sitcom).


wldman View Post
that I have a bunch to share on this topic. In typical wldman fashion it will not be easy for many people to accept my VIEW based on thirty-ish years of industry experience.

I want to encourage people and sometimes that involves telling them things that they will resist or ignore. You guys decide...say it or keep it to myself?

Dan

Jokes aside Dan, personally I am always of the opinion that the "patient needs the medicine, even if it is bitter" meaning, even if some injection of reality is harsh, it is likely to be beneficial, at least to those who are open to it.

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  #13 (permalink)
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there is a name for people that keep talking after nobody is listening and I don't want to ever be called, "candidate". I'm not sure where this will go but I do recognize that most people are interested in comparing themselves to others. I do not think that is productive. Compare you to yourself.

Please take the P/L scoreboard off of your screens. Trade price action or whatever method you use or are developing. Consider the results after the game (trade) is over. When the game is on, separate victory from profits and focus on victory. It might sound dumb and I could try to explain it if someone asks, but focus on the scoreboard and you cant see whats going on in the game. For me, when I was new, I was too dumb and under too much pressure to monitor both. At the end of the post I hope I remember to give specific advice to new or struggling traders. If I don't, ask me. It's the advice that I wish I'd gotten and it is now the cornerstone of what I do.

I may have typed this or parts of this in the forum in the past.

In the early 90's I was a salesman (stockbroker) at a small regional boutique that specialized in 1st tier and mezzanine financing in tech and biotech. The salesman role at the firm was evolving into selling Reg D offerings to qualified investors. I was a great bond salesman earlier in my career but I did not understand or believe in many of the offerings my firm was working on. I had ethical questions and thus was not selling anything. Our firms "trader" was a veteran and a wealth of information, but his personality did not work well at the firm. A door was opened...

The trader, recently married, demanded that he was entitled to his vacation time in consecutive weeks to enjoy his honeymoon. He wanted to pick someone to "train" as his backup. I was asked if I'd consider it, I think because the senior management trusted me, but also because I was not "selling" and perhaps to valuable to simply be fired.

I was not who the trader wanted, so my week and a half of "training" was brutal. Within a half hour of the open on my first day I soiled my pants. Go ahead laugh about it...I sure do. No shit, pun intended< I was going Hawaiian by 9am. The phone would ring and someone would be yelling shit fast as hell in a vernacular that might as well been ancient Greek. The only words I understood are not appropriate for the forum. Brokers were sending orders and calling for fills, begging for ad credit and watching my mental and emotional breakdown.

Before 10 I heard a voice that I recognized from the few phone calls that I was allowed to take during my "training". It was one of the girls from a wholesaler desk of the greatest human being I've met in business. I tear up thinking about him as i type this. She was telling our receptionist that she had a meeting with me. Against protocol and probably NASD rules, I opened the door and let her on the desk. She said, Danny, fuck those guys, you are going to get through this. Apparently "the street" was aware of the situation and could smell blood in the water.

She took a Sharpie and put a B on the back of my left hand and an O on the back of my right hand. Yep, I did not know the difference between the bid and the offer when trades would come at me on the phone. She said if I hear "you're bid" or "at you", that I should say, let me buy 1000 and get out of your way. Conversely, if I hear "I'm bid" or "take you", I should say, let me sell 1000 and get out of the way. In an hour, this woman had given me enough training to at least survive on the phone. As long as I live I'll never forget that day.

By the afternoon guys had lightened up and were being reasonable and even engaging in small talk on the phone. I survived the Chicago NASDAQ community for at least my first day.

At 3:30 the guy that owned the firm came over to the window and asked how it went. He said the clearing firm had called because things seemed different in the account. "How did it go today?" I said that I was sorry if I'd fucked things up and that I'd do the absolute best I could to get us through. He said, "Whatever you did today, can you do it again tomorrow?" My response, "I'm so glad you aren't telling me, I'm fired." I had no idea what the firms positions were, a huge failure on a real responsibility. I had no idea about anything, really. So the boss tells me that Fidelity called because the activity was significantly up and that the desk netted $19,000 that day...ten times a typical day. They would lower our rates if that becomes typical and did we need additional support? It was my first effing day and my soiled shorts were still stinking up the bathroom.

I never went back to sales. Actually, I never went back to anything. I was a trader now.

The only expectation I had was help the firm and try not to get fired. When the other guy came back from his honeymoon the was given the option of share the desk/deck with me or leave. He left.

Expecting profits means that if you don't make profits you have failed. Most people are seriously underfunded, especially for short term directional speculation. Focus on making good trades, profits will come. Expect to execute well and defend your capital. When the review shows a less desired outcome, embrace what you can learn and focus on improving your method or your execution. This way every outcome is an opportunity. Personally I study the bottom 20% of trades. Admittedly my frequency is down (which is another topic) but imagine if the bottom 20% of your trades started to contain trades that you made money on?

Anyway I'm losing focus because I'm so damn hungry.

Advice:

Expand your time frame...significantly. If you are day trading the ES because you do not have enough capital to carry positions, STOP, you are going to lose all your money.
I suggest finding a price via whatever method you think works (yes, tone is of the roll the eyes type) where you can responsibly get long SPY. Learn to trade /ES (or /MES if necessary) from the short side, delta neutral, against the SPY. This will allow you to relax and use time in your favor. You will develop immensely and at a rate much faster than usual. Granted, you are not leveraged naked long/short so you won't bank or burn as fast, but you will be able to stay in the game with confidence and develop your approach. I realize that under some amount of deposit, that the pattern day trade rule is in the way. That is to protect the consumer, think about that and expand your time frame.

After I eat something I'll show a risk analysis tab for /MES and SPY...now as I'm thinking about it that might require like $50,000. If you have a significant deposit, chances are you understand my point. While your approach may differ, please consider what Ive said from the perspective of people that are trying very hard against long odds. I don't need to be right, I'm simply hoping to help people, especially people that struggle and are without guidance.

Dan

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  #14 (permalink)
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wldman View Post
While your approach may differ, please consider what Ive said from the perspective of people that are trying very hard against long odds. I don't need to be right, I'm simply hoping to help people, especially people that struggle and are without guidance.

Dan

Dan, posts like this are a big part of why I am happy to be on futures.io.

Thanks, man.

Bob.

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  #15 (permalink)
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wldman View Post
there is a name for people that keep talking after nobody is listening and I don't want to ever be called, "candidate". I'm not sure where this will go but I do recognize that most people are interested in comparing themselves to others. I do not think that is productive. Compare you to yourself.

Please take the P/L scoreboard off of your screens. Trade price action or whatever method you use or are developing. Consider the results after the game (trade) is over. When the game is on, separate victory from profits and focus on victory. It might sound dumb and I could try to explain it if someone asks, but focus on the scoreboard and you cant see whats going on in the game. For me, when I was new, I was too dumb and under too much pressure to monitor both. At the end of the post I hope I remember to give specific advice to new or struggling traders. If I don't, ask me. It's the advice that I wish I'd gotten and it is now the cornerstone of what I do.

I may have typed this or parts of this in the forum in the past.

In the early 90's I was a salesman (stockbroker) at a small regional boutique that specialized in 1st tier and mezzanine financing in tech and biotech. The salesman role at the firm was evolving into selling Reg D offerings to qualified investors. I was a great bond salesman earlier in my career but I did not understand or believe in many of the offerings my firm was working on. I had ethical questions and thus was not selling anything. Our firms "trader" was a veteran and a wealth of information, but his personality did not work well at the firm. A door was opened...

The trader, recently married, demanded that he was entitled to his vacation time in consecutive weeks to enjoy his honeymoon. He wanted to pick someone to "train" as his backup. I was asked if I'd consider it, I think because the senior management trusted me, but also because I was not "selling" and perhaps to valuable to simply be fired.

I was not who the trader wanted, so my week and a half of "training" was brutal. Within a half hour of the open on my first day I soiled my pants. Go ahead laugh about it...I sure do. No shit, pun intended< I was going Hawaiian by 9am. The phone would ring and someone would be yelling shit fast as hell in a vernacular that might as well been ancient Greek. The only words I understood are not appropriate for the forum. Brokers were sending orders and calling for fills, begging for ad credit and watching my mental and emotional breakdown.

Before 10 I heard a voice that I recognized from the few phone calls that I was allowed to take during my "training". It was one of the girls from a wholesaler desk of the greatest human being I've met in business. I tear up thinking about him as i type this. She was telling our receptionist that she had a meeting with me. Against protocol and probably NASD rules, I opened the door and let her on the desk. She said, Danny, fuck those guys, you are going to get through this. Apparently "the street" was aware of the situation and could smell blood in the water.

She took a Sharpie and put a B on the back of my left hand and an O on the back of my right hand. Yep, I did not know the difference between the bid and the offer when trades would come at me on the phone. She said if I hear "you're bid" or "at you", that I should say, let me buy 1000 and get out of your way. Conversely, if I hear "I'm bid" or "take you", I should say, let me sell 1000 and get out of the way. In an hour, this woman had given me enough training to at least survive on the phone. As long as I live I'll never forget that day.

By the afternoon guys had lightened up and were being reasonable and even engaging in small talk on the phone. I survived the Chicago NASDAQ community for at least my first day.

At 3:30 the guy that owned the firm came over to the window and asked how it went. He said the clearing firm had called because things seemed different in the account. "How did it go today?" I said that I was sorry if I'd fucked things up and that I'd do the absolute best I could to get us through. He said, "Whatever you did today, can you do it again tomorrow?" My response, "I'm so glad you aren't telling me, I'm fired." I had no idea what the firms positions were, a huge failure on a real responsibility. I had no idea about anything, really. So the boss tells me that Fidelity called because the activity was significantly up and that the desk netted $19,000 that day...ten times a typical day. They would lower our rates if that becomes typical and did we need additional support? It was my first effing day and my soiled shorts were still stinking up the bathroom.

I never went back to sales. Actually, I never went back to anything. I was a trader now.

The only expectation I had was help the firm and try not to get fired. When the other guy came back from his honeymoon the was given the option of share the desk/deck with me or leave. He left.

Expecting profits means that if you don't make profits you have failed. Most people are seriously underfunded, especially for short term directional speculation. Focus on making good trades, profits will come. Expect to execute well and defend your capital. When the review shows a less desired outcome, embrace what you can learn and focus on improving your method or your execution. This way every outcome is an opportunity. Personally I study the bottom 20% of trades. Admittedly my frequency is down (which is another topic) but imagine if the bottom 20% of your trades started to contain trades that you made money on?

Anyway I'm losing focus because I'm so damn hungry.

Advice:

Expand your time frame...significantly. If you are day trading the ES because you do not have enough capital to carry positions, STOP, you are going to lose all your money.
I suggest finding a price via whatever method you think works (yes, tone is of the roll the eyes type) where you can responsibly get long SPY. Learn to trade /ES (or /MES if necessary) from the short side, delta neutral, against the SPY. This will allow you to relax and use time in your favor. You will develop immensely and at a rate much faster than usual. Granted, you are not leveraged naked long/short so you won't bank or burn as fast, but you will be able to stay in the game with confidence and develop your approach. I realize that under some amount of deposit, that the pattern day trade rule is in the way. That is to protect the consumer, think about that and expand your time frame.

After I eat something I'll show a risk analysis tab for /MES and SPY...now as I'm thinking about it that might require like $50,000. If you have a significant deposit, chances are you understand my point. While your approach may differ, please consider what Ive said from the perspective of people that are trying very hard against long odds. I don't need to be right, I'm simply hoping to help people, especially people that struggle and are without guidance.

Dan

great story .I would gladly soil my pants(proudly) if i was given that opportunity

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  #16 (permalink)
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It is beyond my understanding of platform complexity to make a risk chart to display the concept mentioned above. This is the daily risk chart of an account I trade. Ive obscured some info or left it off out of humility and privacy concerns. If someone wants me to address specifics let me know.

This portfolio, today with ES at 2700 nets about 4200, with ES at 3180, nets about 3000. This example right now leans slightly short. The idea is to create edge and take profits by legging in ES or in this account ES and long SPY puts, against an existing portfolio of stocks. This is a little more complex than ES and SPY, but delta neutral long stock against short ES. All categories of "risk" are specifically managed here.

At 2700 today I make money, at 3300 today I make money. Granted, you still have to be good at leg in and leg out, but is this not what everyone is trying to do?


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wldman View Post
If someone wants me to address specifics let me know.

Understanding any of this would be a start!

For example, what does


Quoting 
This portfolio, today with ES at 2700 nets about 4200, with ES at 3180, nets about 3000

mean? Or the whole paragraph, for that matter.

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xplorer View Post
Understanding any of this would be a start!

For example, what does



mean? Or the whole paragraph, for that matter.

@wldman

Dan, I've just managed to put together the few neurons I have left for today - basically what you are saying is, no matter where the ES is headed, you're going to make money because of the particular techniques you are using.

Am I correct in this assumption?

Sorry for the basic question, it's late here in Europe and it's been a long day.

EDIT: yes, I've re read this bit


Quoting 
At 2700 today I make money, at 3300 today I make money. Granted, you still have to be good at leg in and leg out, but is this not what everyone is trying to do?


I would argue, though, that your approach works coming from someone with 30+ years experience in the field. So, it's easier for you to see what to do.

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  #19 (permalink)
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The horizontal axis is the price of /ES. The vertical axis is P/L day. When you get good prices on legging in or legging out of delta neutral your curve (pink line) moves up the vertical axis.(you are making money)

The idea is that /ES is traded against a basket of stocks delta neutral....a classic hedge.

Think of the stocks as an investment, one that I never want to sell, they give me long side exposure, meaning when the market goes up, my stocks go up. The short /ES gives me downside exposure, meaning that when stocks (the ones I own) go down, the short ES goes up, effectively hedging my long basket. Well executed trades on either side of the market put space between my risk profile (pink line) and the zero line.

So I'm allowed to consider the ES on an extended time frame as a tool to move equity exposure between delta neutral and market exposure long or short. No position in ES is naked long. I like to move between neutral (when I think market is over priced) and naked long, when I think we are going higher. When I get it right I make money on the hedge (ES) when the market moves lower and my dividend and growth machine (stocks) go lower. Keep in mind I look to hold stock perpetually.

Does that answer?

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I have experimented with what might be a delta neutral position. At the same moment I would buy a high yielding dividend stock and marry a long term in the money put. The dividends would cover the cost of the put. I would write out of the money calls and collect the premiums as profit against the position. If the stock advanced against the put the Greeks: delta and theta are suppose to deliver additional profit for the position. If the stock declines: keep the premiums, collect the dividends and put the stock. It's a slow grind so currently all I do is sell naked puts.

So I am interested in hearing more about a delta neutral strategy about the ES or MES vs. SPY or it's options (puts or calls). And to the above post if you are long SPY (a basket of stocks) and you want to be hedged properly, wouldn't you need to be short the ES overnight?

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