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My challenge of being a consistent trader


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My challenge of being a consistent trader

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  #1 (permalink)
Munich, Germany
 
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I´m sitting infront of my screen and see here a good trade location...and there...and here again...
So why the f*ck am I down again?!...

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  #3 (permalink)
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To be a trader was my dream, the last 20 years or so. Nevertheless after I graduated I decided otherwise because I realized that I am not like the people which you find in an investment bank...and anyhow, everybody in my family was of the opinion that a "secure" job was the better alternative.
Thus I started out as a controller in an international company and followed this way through several branches.
Within 5 years I was promoted several times and double my income...
But I was not happy...

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  #4 (permalink)
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on Friday I deposited € 1.000 @ $1.140

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  #5 (permalink)
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$ 1.571 was result from yesterday

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  #6 (permalink)
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Equity for today

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  #7 (permalink)
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...you have to subnstract some for commissions. etc...

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  #8 (permalink)
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I have already a small loss... market is moving stranged somehow...perhaps it is better to sit on handss for a while...

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  #9 (permalink)
Munich, Germany
 
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ok. did some trades in NQ which lead me nowhere. Including commission I am down $ 8.
Copper and Gold also seem not to have favorable price action. I stop trading for today. Otherwise I am poised to take a hit.

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  #10 (permalink)
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The background of "The 1,000 $ Challenge":

In every job I worked my ass off. Often 10-14 hrs a day. Sometimes 6-7 day sper week and even in my vacations. With the earned money I took care for my family in that I bought a real estate. And somehow...somehow I even managed to save some capital for my dream: trading. I reduced gradually my hours in the company and used the won time to for studying the markets. Meanwhile my wife stayed at home and cared for our little children. But she missed her job and wanted to go back to office. So there was it - my opportunity. My wife is the best! We agreed to switch roles. Within 10 days she found an employement and I was Mom. And the best of course was, that I really and seriously could focus on trading. Life was perfect! This was in spring of last year. I put in a lot of dedication and after a bumpy start I became profitable in late autumn.

Then everything suddenly changed...

In a bad accident I almost lost my wife and we lost our baby. That completly broke me. She was many weeks in hospital and to forget the pain I was heavily drunk everyday,. And, you could perhaps guess, I was "trading". My account (I had not all money on it) was melting faster than ice cream in the hot summer sun. Thus I refunded it. It was empty again, refunded, empty again refunded....To be honest I do not know exactly how much I lost. At some point I lost the overview. But within weeks I burned through an amount of lower six figures. I lost everything. The worst thing is, my wife does not know yet. I am a tall guy, almost 100 kg and did a decade of kickboxing and muay thai and even stayed cool when a crazy one went with a knive for me...and I am full of fear. Fear of what this gracful woman and my children could think of me.
But here I am. You have to play with the cards life gives you...and yup...life gave me the last $ 1,000.

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  #11 (permalink)
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hi @asyx

So sorry to hear about what happened to your family. It must have been tragic and I think there are no words that anyone could provide that would even hope to have some semblance of comfort.


I am not going to comment on the feat you are trying to achieve, but if you have specific trading questions I am sure that the very advanced and more long-standing members of the forum can step up and provide constructive support.


All the very best of luck.

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  #12 (permalink)
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Thank you, Sharon and Xplorer.

A friend gave me € 2.000, but I think I will give it back. Until now I have only lost my own money. To use boworred money for trading is a dangerous path to go, I think. Only thing is, that I bought a Topstep. I am trading the same lot size in Topstep and in my live account. In Topstep I am up approx. $ 2.600 and in my live account, after deduction of commissions etc. and data feed cost approx. $ 700. It is obvious that I am trading in a different way. I am aware that the acccount size of my real account is (almost) insane. That is way I have to be very selective with my trades. If you have a bigger account, you could go for trades which have a lower propabilty but higher potential for gained ticks. In absolute terms this is adding to your profits. But with my account size there really is no place for errors...and you need a lot of luck, too. If you are in the wrong market phase, regarding your system, it simply would destroy your account. The good thing is, after I spend 1000s of hours studing the markets, I know when I have good chances. That does not mean that I am good at forecasting. It does only mean that I know circumstances that perhaps could lead to situations....and that is a lot more then most other people seem to know. I do not want to offend somebody, but you need to recognize situations which more or less repeat themselfs. Other persons would say "you need an edge". True. If you could not describe the content of your edge, then I am pretty sure you don´t have one. So please stay tuned in. I am doing this journal for my own motivational purpose. I sucked and this is the last chance I have. I know my account is to small and I am doomed, but if you have anything other to contribute - feel free!

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  #13 (permalink)
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...so I took the beating ...had stepped some days back thinking about everything...I finally told my wife and think it takes only a few days, then I could walk upright again
Should have talked with her earlier.

I also calculated that I lost since beginning of 2017 approx. $ 140.000. Good thing - less than expected. Nevertheless quite an expensive lesson.

Regarding Topstep: I am not sure if we become friends. On several occassions now it was not responsing and then 10sec - 2 min later I suddenly had more contracts open than intended.

LMAX I also tested. In contrast to other CFD-shops they work with a central limit orderbook.
But it turned out to have two main disadvantages from my perspective:
1. commissions for the small contracts, which would be appropriate for a small account, are to high.
2. overall the chance that your limit order gets hit is (a lot) worse than with futures. Then you have to use market orders ,pay the higher than with futures trading spread, and this singnigicantly is adding up.

My wife - good one! - approved a little bit more risk capital. The new challenge is to make something out of approx. $ 4.400. I think it is possible because now I do not have to hide anthing and do not have urgently to gain something back. Psychological this is a game changer for me. If I am down to $2.000 I have to start cleaning toilettes or something like that. Now we get serious! Folks, keep your fingers crossed.

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no drama Llama
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asyx View Post
.
But it turned out to have two main disadvantages from my perspective:
1. commissions for the small contracts, which would be appropriate for a small account, are to high.
2. overall the chance that your limit order gets hit is (a lot) worse than with futures. Then you have to use market orders ,pay the higher than with futures trading spread, and this singnigicantly is adding up.

.

What contracts are you trading and how much are the commissions?

What do you mean the chances of limit order getting hit are worse? Spreads with lmax seem pretty good to me. For instance gold with most brokers averages 50 but lmax fluctuates between 10-20 sometimes lower. On an instrument that can easily move +1000 ticks in a day that spread is nothing.

Of course if you attempting to scalp forex market then you will get your ass handed to you in commissions and spread. That's where futures are probably better.

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  #15 (permalink)
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@asyx
I thought of you when I watch this old webinar again. TopstepTrader Intervention featuring FuturesTrader71, published 12-04-2015
https://www.youtube.com/watch?v=4E0_Oq4gHok


TopstepTrader, the leader in funding traders, and FT71 have teamed up to bring you never before heard, insightful analysis of one Combine trader’s performance. Using the S5 NinjaTrader Trade Analyzer.
FT71 dove into the trade data and metrics of Viraj84, as he continues to be evaluated on his path to a Funded Account with TopstepTrader.

IMHO.. Need to focus on what PRODUCT to trade, what TIME to trade, and how often to trade. Learn risk management and get rid of bad trading habits. Most of all, give yourself time!

Hope that helps!

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..."95 % of all traders..." and so on - probability is against me...but at least 1 guy seems crossing his fingers for me - Thanks, buddy!

Last 4 days attached.

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  #17 (permalink)
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Regarding my trading activity, Thursday is ranked number 2.
On this day I trade a lot more than rank 5-3.
Overall I am profitable on this day but result vs. effort is quite bad.
I try to do better today.

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  #18 (permalink)
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I got the Equity open right. Then my platform crashed.
Now I see this big move up...LOL
I get the feeling of missing out at the moment.
In the past this was not a good base for decision making.
Hmmm... Better I shut down my workstation and play with the kids outsite.

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@asyx , I've read your last few posts. I'm sorry to hear about the accident that claimed your young child and nearly took your wife. I urge you to return the money that you borrowed from your friend. Trading is not a solution to life's problems. It is financial bloodsport. One of the big reasons so many people fail at this game is because of the myriad psychological demons they have gnawing at them in the background of their lives. Family problems, gambling addiction, alcoholism, and other addictions etc. It would be terrible to lose a friend, wife, or other relationship because of trading. It's not worth it to make a little money. The only chance you have to win is to approach the markets every single day with and absolutely clear head knowing that you are risking capital you can afford to lose. Not caring if you lose in a way.

People often say it is a lot easier to find a job when you already have one. Trading is very similar. You can only succeed once you have certain aspects of your life squared away. Not the other way around. Some here will give encouragement to you and say "Yeah! Go get em! You can do it!" That is fine and good but I recommend taking a step back for a moment and perhaps taking a break until you can approach this as a better funded, clearer headed trader.

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asyx View Post
To be a trader was my dream, the last 20 years or so. Nevertheless after I graduated I decided otherwise because I realized that I am not like the people which you find in an investment bank...and anyhow, everybody in my family was of the opinion that a "secure" job was the better alternative.
Thus I started out as a controller in an international company and followed this way through several branches.
Within 5 years I was promoted several times and double my income...
But I was not happy...


I know what you mean about not being happy. Think of the 9-5 as your investor. Use that income to invest in yourself. It doesn't mean you need to like it, but know that is what is going to get you to where you want to be until you are trading like a pro. When you are hating your life at work, just remember, there are people that would kill to switch places with you, literally, and there are others that dream to be in your role at work.

Process oriented goals #1.
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  #21 (permalink)
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Friday is my second worst day in regard to total performance.
Therefor today I will sit a lot on my hands.

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  #22 (permalink)
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Grantx View Post
What contracts are you trading and how much are the commissions?

What do you mean the chances of limit order getting hit are worse? Spreads with lmax seem pretty good to me. For instance gold with most brokers averages 50 but lmax fluctuates between 10-20 sometimes lower. On an instrument that can easily move +1000 ticks in a day that spread is nothing.

Of course if you attempting to scalp forex market then you will get your ass handed to you in commissions and spread. That's where futures are probably better.

With LMAX I looked at Gold, NatGas, WTI and EquityIndixes. With futures copper, too.
Regarding commissions(I mean also clearing and other fees) for futures, e.g. Gold, for most retail traders, all in for a round turn is below $ 4 or at least $ 5. The equivalent with LMAX is approx. $ 6.5 if I remember right. If you trade LMAX smallest contracts for the EquityIndexes the equivalent to a futures contract is $ 12 something.

Assume you want to buy via a limit order. When there are many people playing with each other then probability someone is hitting with his market order in your resting bid is higher than if it is in a case where it is only you and the market maker. If price is bursting through all levels it is not a big issue. It is different if you are at an inflection point, which is quite often in my daily trading, it is an disadvantage if no one is willing to hit your limit. LMAX gold has a spread of 1.2 which is ok. But look at the other: Natgas 5, WTI also 4-6 , Equity 2. If you are forced to use markets orders a lot of time, always leaving there 2-3 ticks or more, then no doubt this has impact on your performance. For some systems this difference means success or failure. I also compared COMEX Gold and Micro-Gold futures. With the Micro it is the same like with LMAX. The lack of participants and the spread: you do not get the same fills.

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@asyx
I thought of you when I watch this old webinar again. TopstepTrader Intervention featuring FuturesTrader71, published 12-04-2015
https://www.youtube.com/watch?v=4E0_Oq4gHok


Thanks for the video. Could only recommend it to everybody.

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@TheShrike , @teamtc247

I am on futures.io several years but have not participated a lot. Part is, it takes me relatively long to write down my thoughts in a foreigh language.

Nevertheless I try to participate a little bit more in the future. Helps me to reflect on myself.
That is also in part reason of my journal.
Your additional perspectives makes me think. Which could only do good to my development.

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asyx View Post
@TheShrike , @teamtc247

I am on futures.io several years but have not participated a lot. Part is, it takes me relatively long to write down my thoughts in a foreigh language.

Nevertheless I try to participate a little bit more in the future. Helps me to reflect on myself.
That is also in part reason of my journal.
Your additional perspectives makes me think. Which could only do good to my development.

Schauen Sie sich Lisa Nichols und Tom Bilyeu an, sie haben einige gute Sachen in Bezug auf Motivation und Erfolg veröffentlicht. Tom hat eigentlich einen YouTube-Kanal, alle seine Inhalte sind kostenlos.

Check out Lisa Nichols and Tom Bilyeu, they put out some pretty good stuff in terms of motivation and success. Tom actually has a YouTube channel, all his content is free.




Process oriented goals #1.
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@asyx
I thought of you...
Most of all, give yourself time!

Hey,
I thought of you again... I am writing a trading journal for myself, and for other newbies.
Check it out, ok?



Hope you are doing well!


Find the missing piece of the puzzle... Let's be amazing, be awesome in trading today!
iTS
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  #27 (permalink)
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Last few months I racked my brain a lot over how I should tackle the trading puzzle.
Took some time, but I also think I got my self straight again and found my trading style.

I looked at a lot of markets and found that I do better in faster markets like NQ/CL than in slower markets.

Focusing on only one market, in general, is pretty rewarding as you learn all the ins and outs. Nevertheless, my brain wants to be busy. It turned out that I do better when I watch 2-3 markets.
More is confusing me. With less, I overtrade even if I know that one market better.

From now on, I mainly practice a scalping style. I tried different ones but I sucked completely at them.
I know that some experienced people are strictly against this.
However, for me, this turned out to be the only way to make my "Slope" go up.
Whenever I tried a different style, having in the back of my mind that scalping is "evil", I started to lose...and I always lost big.

Instead of how much a trader should make daily or how much I lost already, I now focus on stats regarding consistency and risk.

So - let it begin

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# of trades: 7
winning trades net: 86 %
profit factor net: 2.4
max. cons. wins net: 6
max. cons. losses net: 1
max. drawdown: 420 $

...I should also count how many trades I executed according to strategy.

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  #29 (permalink)
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Tuesday is my best performing day. That´s why I trade bigger size today.

According to the Stock Trader´s Almanac the US indices performing badly on the second day after the June triple witching. Normally I do not give too much on such statistics.
But the S&P closes in green only 33 % of all cases. As we lately had a little bit up and down, I think many investors bought Puts.
The sellers had therefore a lot of incentives to push up stock prices last week, to make a lot of Puts worthless.
Yesterday we already saw not much interest in buying and today overnight session was already down. Perhaps the above mentioned 33 % is already in the market, perhaps there is another leg down.
Whatever in the end materializes I prefer to join momentum down over any move up and I play the downside with more contracts than moves to the upside.

In Gold there are some sharp intraday corrections, but at the moment it is definitely a Bull market.
Some Big guys announced that they are big in gold.
Thus "all" the small fund managers have joined already or will follow. Will it last? - I don´t know.
Often there seems to be a correction around the corner...

CL is struggling with moving higher.
But from my experience even then there are some guys out there with big enough balls to bid it up another 400 ticks.
I do not like those circumstances and try to sit on my hands.

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Tuesday is my best performing day. That´s why I trade bigger size today.

Be careful with size today.

Jerome Powell Speaks
8:00 PM GMT + 3

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  #31 (permalink)
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all net commissions & fees

# of trades: 11
winning trades: 82 %
profit factor: 11.9
max. cons. wins: 5
max. cons. losses: 2
max. drawdown: 1.600 $ ok I admit I put on too much size

...last year I did a lot of stupid things out of desparation. Now I have to learn immediately that overconfidence is bad, too. Otherwise I crash the plane before it really takes off.

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yesterday my max drawdown was $ 1600.
This was shortly before my bearable pain threshold.
In the past, whenever I came into the region of 1700-2000 my mind started to play tricks.
Then I see set-ups where no set-ups are.
I deviate completely from my trading style, mostly shooting for home runs.
And I do one trade after another.

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  #33 (permalink)
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I should also have some comparison # of trades on good days vs. # of trades on bad days.
On bad days I trade a lot more than on good days.
This has to be the other way round.

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  #34 (permalink)
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# of trades: 31
winning trades: 61 %
profit factor: 0.96
max. cons. wins: 6
max. cons. losses: 3
daily gain to max. drawdown: -0.06
devils: 7

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  #35 (permalink)
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Prep

  • yields falling
  • CL & industry metal correcting
  • volatilities compared to Apr./May still elevated
  • HB vs. LV still rising
  • more stock volume to the upside
  • open interest of puts higher than for calls

Prefer NQ & GC more to the upside.
GC´s correction could lure in some buyers again.
If I was big I would try to bid it up again, before I unload before the weekend.
CL I still don`t know how I should interpret the movements.
Gonna go only on board if I see really strong moves - in either direction.

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  #36 (permalink)
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It happens too often that I have already banked enough but go on with trading.
The assessment shows that I am overall better off when implementing a daily loss limit.
When I have a "run" there is nothing wrong to book additional profits.
But it is a big error to give back to much or even let it turn into a daily loss.

Therefore I need an add. measure. Something like:

GiveBackFactor
daily peak profit drawdown factor
....

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  #37 (permalink)
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lackluster trading in stocks; daily PB stopped yesterday
yields still falling but perhaps building a temporary low, time-spread still rising
HYG vs. IEF consolidating
CL & industry metal correcting
volatilities compared to Apr./May still elevated but coming down
HB vs. LV still rising
more stock volume to the upside
open interest of puts higher than for calls


NQ:
difficult guess: if someone wanted he could have taking NQ higher yesterday without spending too much money.
But this did not happen. Think we also see some position closing before the weekend.
Expect a range-market with not too much activity.
After European close perhaps they bid it again a little bit up.

GC:
lots of opportunities these days in GC
But don´t underestimate the volatility.
Perhaps a push up to lure in buyers and then unloading before the weekend
Prefer upside fading moves and momentum down.

CL:
seems more vulnerable to the downside.

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  #38 (permalink)
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# of trades: 15
devils: 1
winning trades: 57.1 %
profit factor: 3.15
max. cons. wins: 4
max. cons. losses: 5
daily gain to max. drawdown: 3.4
PeakProfitGiveBack: 0.0 %

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  #39 (permalink)
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# of trades: 38
devils: 3
profit factor: 3.24
winning trades 66.7 %
max. cons. wins: 4
max. cons. losses: 2
daily gain to max. drawdown: 3.4
max. drawdown: -1.2
PeakProfitGiveBack: 0.0 %

...had the max. dd at the beginning. the rest of the day i had a run.
if i gave not back most of the gains on bad days, i already would be rich lol...

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  #40 (permalink)
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# of trades: 18
devils: 1
winning trades 72.7 %
max. cons. wins: 7
max. cons. losses: 2
profit factor: 2.6
max. drawdown: -3.0
daily gain to max. drawdown: 1.0
PeakProfitGiveBack: 0.0 %

Not happy with my trading today. The high win rate lures me into too many contracts.
More conviction than healthy.
Taking too much heat!

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NQ:

I expect not too much today as it is a shortened trading day.
In the Indexes, we probably visit new highs - at least for a short time.
This is also the most probable scenario for Friday.

GC:

Same like NQ.
But in regard to comparative analysis move it getting over-stretched.

CL:

If CL does not stabilize around 56,50 now it could easily fall to 54,50.
Above 56,50 we now have a lot of resistance.
A move up I would interpret more like short-covering after the 400 T drop.

Overall:

yields still seem to consolidate, especially short-term ones
Indexes around highs, market internals looking good
HYG came back the last few days a little bit more
Volas seem to come back down
HB/LV still rising
YEN-index came back last few days

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  #42 (permalink)
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# of trades: 6
devils: 0
winning trades 50.0 %
max. cons. wins: 2
max. cons. losses: 3
profit factor: 1.4
max. drawdown: 5.2
daily gain to max. drawdown: 0.1
PeakProfitGiveBack: 0.0 %

What a day! First I got it wrong on the mean GC move then I had a fat finger.
Somehow I finished the day in green, nonetheless.

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# of trades: 17
devils: 1
winning trades 64.7 %
max. cons. wins: 5
max. cons. losses: 3
profit factor: 1.7
max. drawdown: 0.7
daily gain to max. drawdown: 1.1
PeakProfitGiveBack: 0.0 %

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  #44 (permalink)
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When it comes to Trading I am fire and flame.

But the book "Mind over Markets" is the most boring piece I had in my hands.
I couldn`t stand it . So I sold it right away.
For someone who "...isn´t a profile trader..." the author filled a lot of pages.

However, doing some more research on different kind of trading days is a good idea:
  • Normal day
  • Normal variation of a normal day
  • Trend day
  • Double distribution day
  • Non-trend day
  • Neutral day

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  #45 (permalink)
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Overall:

short-term yields consolidate, longer-term falling
Indexes around highs - NYA not
market internals looking good
HYG came back the last few days
HYG vs. IEF consolidating
Volas seem to come back down - not Gold
HB/LV still rising
YEN-index came back last few days but still upwards
IndiMetals and Crude seem to consolidate

NQ:

In the Indexes, we probably visit new highs - at least for a short time.


GC:

In regard to comparative analysis move it getting over-stretched.
Seems to build trading range 1.380-1.450.
Most correlated over 1 week and 1 month with:

USD/THB
USD/SGD
USD/JPY...seems Asia shifting out of US assets into Gold.

CL:

If CL does not stabilize around 56,50 now it could easily fall to 54,50.
Above 56,50 we now have a lot of resistance.
A move up I would interpret more like short-covering after the 400 T drop.

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I love volatility.
But GC does such nasty moves nowadays.
I am used fast moves from NQ, but GC is a biest.
If one has absolutely no time to react to a 50 T move,
it is getting absurd.

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  #47 (permalink)
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# of trades: 42
devils: 1
winning trades 67.4 %
max. cons. wins: 8
max. cons. losses: 2
profit factor: 1.4
max. drawdown: 2.2
daily gain to max. drawdown: 1.0
PeakProfitGiveBack: 0.03 %

Traditionally Friday is my very worst day.
Overall it´s a losing day.
Glad to booked profits this time.
But have to work more on my drawdowns.
Last few day my net profit factor was low - should trade less and/or with less contracts until circumstances are more favorable again.

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  #48 (permalink)
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Should include new metrics:

total number of contracts in winning trades / losing trades
-> averaging losers is bad; targeting skewness to the positive side

Average profit per trade

-> targeting more profit with less trades

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# of trades: 12
devils: 0
winning trades 66.7 %
max. cons. wins: 4
max. cons. losses: 2
profit factor: 2.3
max. drawdown:2.6
(tonight had a trade with profit of $ 1k + then NQ broke away leaving me with $ 1k -)

daily gain to max. drawdown: 1.3
PeakProfitGiveBack: 0.0 %
Average # contracts in winning/losing trades: 10.5 / 11.5
Average profit per trade: 295

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As stats were not that well last week I scaled back contracts.
Of course today every trade was a winner.....


all net commissions & fees

# of trades: 5
devils: 0
winning trades 100.0 %
max. cons. wins: 5
max. cons. losses: 0
profit factor: all winners
max. drawdown: 0.38
daily gain to max. drawdown: 3.4
PeakProfitGiveBack: 0.0 %
Average # contracts in winning/losing trades: 6.8 / 0
Average profit per trade: 258

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Market Wizard
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Relative to your other post and my response...

First, if you can normalize the last few days you are ahead of the vast majority of people that trade or talk about trading.

You are on the right track IMO, buy looking to do fewer trades IS absolutely the smart thing to do. If I divide 258 but the tick size of what I trade I get that on 5 trades you made 20 ticks total or 1 ES "handle" per trade. Consider that every product has a range to put in each day. If you are day trading, IMO you should look to capture at least half of the days range.

I don't know about your assets or what you have on deposit but if you can build a portfolio of stocks that you like and then trade the future against that long basket of stocks you will be able to focus on one market and buying good stocks.

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wldman View Post
If you are day trading, IMO you should look to capture at least half of the days range.

To squeeze out half the days range I had to take my day trading completely different.
The numbers I posted are based on a scalping style.
However, when the market screams at me that a big move is going on, I try to ride it as far as possible.
But in general, the longer I hold to positions the worse the results get.
Then, somehow I lose "touch".

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You have to be comfortable and effective. So, keep doing and developing what works for you.



asyx View Post
To squeeze out half the days range I had to take my day trading completely different.
The numbers I posted are based on a scalping style.
However, when the market screams at me that a big move is going on, I try to ride it as far as possible.
But in general, the longer I hold to positions the worse the results get.
Then, somehow I lose "touch".


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Overall:

yields in short-term correction mode
10-2 year spread rising again
30-10 year spread rising again
Indexes around highs - NYA not
market internals looking good
HYG vs. IEF printing new interim high
HB/LV still rising/consolidate
BTP came back last few days but still upwards
Volas come back down
YEN-index consolidating
IndiMetals consolidate
CL new interim high

--> risk on

NQ:

In regard to the overall conditions, I still prefer upside for stocks.
The only strange thing is, that yesterday should have been quite a strong day - historically.
But buying first was not that strong and then we sold off.

GC:

As expected some days ago this scenario manifested itself:
"In regard to comparative analysis move it getting over-stretched.
Seems to build trading range 1.380-1.450"

Nonetheless, intraday swings/volatility is that high, that GC puts in 50T pullbacks without problems.
Same is true whenever it has a run.

Big guys push it hefty in either way.

I only see a prolonged break-out to the upside when the Yen against the Dollar is strengthening and yields falling further at the same time.

CL:

"If CL does not stabilize around 56,50 now it could easily fall to 54,50.
Above 56,50 we now have a lot of resistance.
A move up I would interpret more like short-covering after the 400 T drop"

...CL did not only stabilize but even put in a new interim high.
Let´s see if this is only a pump and dump or not.
I play it from both sides but expect it to take out 61 late in the day.

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Relative to your other post and my response...

If you are day trading, IMO you should look to capture at least half of the days range.

Great advice and to add a futher point aim for that >50% days range in the minimum amount of trades possible , in my case i try and make that 1

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wldman View Post

I don't know about your assets or what you have on deposit but if you can build a portfolio of stocks that you like and then trade the future against that long basket of stocks you will be able to focus on one market and buying good stocks.

That´s an interesting idea which I also thought about some time ago.

But what keeps me from holding assets for long-term is that I do not know the future.
I worked at big companies in a higher position and had to do a lot with budgeting and forecasting.
And I tell you something. We had "all" the information/data, a lot of stuff even on a daily basis, and we had no clue
Sure, if your business is in a trend you extrapolate and adjust here and there a little bit, and you get a scenario which is not so far of if you are lucky...but beware if things change

Thus, now that I am an "outsider" I feel even less able to pick the right companies.

And even if I buy only the SPY and not several stocks and trade the future against it, the time of buying the SPY would be random as I have no proofen strategy for buying the SPY.
I had only hope.

How do you manage this? Have you done this kind of trading already around 2000 and 2008?
I would expect if the index is down for longer, one could not make enough with a short-trade in the futures market to cover the loss on the other side. What do you think?

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@wldman , @Qzquant

Do you shoot for 50 % plus every day - no matter what kind of day it is?

Do you only go for it on specific days?

Do you have specific set-ups and as soon as you see them you go into the market?
Or do you start with one contract and when it seems that your market scenario is playing out you add contracts and when market behavior is shifting away from your scenario you reduce contracts?

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I should have been more specific, sorry.

It is very hard to trade the scoreboard. I'd suggest taking p/l or net liquidation off of your screen.

To clarify: Taking a significant piece of the days range is a measure of expectation, not a goal per se.


asyx View Post
@wldman , @Qzquant

Do you shoot for 50 % plus every day - no matter what kind of day it is?

Do you only go for it on specific days?

Do you have specific set-ups and as soon as you see them you go into the market?
Or do you start with one contract and when it seems that your market scenario is playing out you add contracts and when market behavior is shifting away from your scenario you reduce contracts?


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IMO there are some significant logical and practical fallacies in this approach.

Let me submit that perhaps nowhere else in human history has more money been made over time than in equity ownership.

If you establish the direction of the longer term trend (which is easy) and you trade with the trend you are only "wrong" when the trend reverses. You do get to decide how long you are wrong. How much you make or lose is not really under your control. The shorter the time frame the more likely tiny price moves will convince you that you are wrong. In MANY cases, time frames shorter than swing...people are simply trading noise. This is why trend and range are important. So trend and range...and this is not a method or advice, simply a display of equity ownership or participation.




asyx View Post
That´s an interesting idea which I also thought about some time ago.

But what keeps me from holding assets for long-term is that I do not know the future.
I worked at big companies in a higher position and had to do a lot with budgeting and forecasting.
And I tell you something. We had "all" the information/data, a lot of stuff even on a daily basis, and we had no clue
Sure, if your business is in a trend you extrapolate and adjust here and there a little bit, and you get a scenario which is not so far of if you are lucky...but beware if things change

Thus, now that I am an "outsider" I feel even less able to pick the right companies.

And even if I buy only the SPY and not several stocks and trade the future against it, the time of buying the SPY would be random as I have no proofen strategy for buying the SPY.
I had only hope.

How do you manage this? Have you done this kind of trading already around 2000 and 2008?
I would expect if the index is down for longer, one could not make enough with a short-trade in the futures market to cover the loss on the other side. What do you think?


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To be an excellent trader it is very important to acquire the preparation that is needed from advanced and successful traders. Experience has taught me that a true trader does not sell courses, but offers his knowledge of forex strategies and methods for free. In this order of ideas I met Rosario Carrasco Flores, and I can assure you that she is an exceptional trader and has professionalism for the common good, she with her efforts and constant work has developed excellent trading techniques and methodologies, based on technical analysis and financial. I do not say this just because it takes its strategies well to achieve success in the operations it performs, but because it offers its knowledge for free. She has obtained very good earnings operating in euro dollar for more than 4 years.

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filiberto View Post
To be an excellent trader it is very important to acquire the preparation that is needed from advanced and successful traders. Experience has taught me that a true trader does not sell courses, but offers his knowledge of forex strategies and methods for free. In this order of ideas I met Rosario Carrasco Flores, and I can assure you that she is an exceptional trader and has professionalism for the common good, she with her efforts and constant work has developed excellent trading techniques and methodologies, based on technical analysis and financial. I do not say this just because it takes its strategies well to achieve success in the operations it performs, but because it offers its knowledge for free. She has obtained very good earnings operating in euro dollar for more than 4 years.

Thanks but I will not go into forex.
It turned out that I need also to see volume.
On the other hand, at what I am doing now I see progress.
Starting from scratch with new instruments would be a set back.
My brain is wired to some things already.

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ok, I tried it once again - don´t scalping but aiming for more.
But it´s always the same - I suck.
All I had won the last few weeks I gave back.
Some part is probably attributable to the changing market environment in the summer.
Most part is: I don´t get it.
I am over-leveraged.
I handle an intraday swing like a scalp.
I am missing the discipline for waiting until the right days come.
Should be sitting more on hands.

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Whenever I plan scenarios, there is the one I prefer.
I don´t want it to be this way, but it´s like it is.
The bad thing about this is, I am then too biased.
I am such convinced then of a specific scenario, that I turn off all the information the market is giving, which is opposed to my position.

For me scenario planning is detrimental.

I am doing much better if I simply take what the market is showing me.

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all net commissions & fees

# of trades: 9
devils: 0
winning trades 77.8 %
max. cons. wins: 3
max. cons. losses: 1
profit factor: 5.97
max. drawdown: 46.7
daily gain to max. drawdown: 1.07
PeakProfitGiveBack: 0.0 %
Average # contracts in winning/losing trades: 3.4 / 3
Average profit per trade: 5.53

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Munich, Germany
 
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# of trades: 16
devils: 0
winning trades 68.8 %
max. cons. wins: 5
max. cons. losses: 1
profit factor: 1.2
max. drawdown: 100
daily gain to max. drawdown: 0.18
PeakProfitGiveBack: 0.0 %
Average # contracts in winning/losing trades: 3.9 / 2
Average profit per trade: 1.12

Hold too long to a losing Gold trade.
Without it, results would be quite ok.

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General conditions:

yields seem to move down again
10-2 year spread falling again
30-10 year spread seems to consolidate
Indexes pulled back from all-time-highs on historically good performing days
market not that good anymore but also not bad
HYG vs. IEF coming down again
HB/LV consolidate
BTP came back last few days but still upwards
Volas seem to have built an interim bottom and now rising again
YEN-index consolidating
IndiMetals rising
CL correcting

--> conditions turning to Risk-Off

But today is the day before July expiration. That could lift stocks

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record weekly inflows in June and July

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all net commissions & fees

# of trades: 10
devils: 0
winning trades 70.0 %
max. cons. wins: 5
max. cons. losses: 2
profit factor: 4.3
max. drawdown: 100
daily gain to max. drawdown: 1.11
PeakProfitGiveBack: 0.0 %
Average # contracts in winning/losing trades: 6.7 / 10.0
Average profit per trade: 11.14

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General conditions:

yields falling again
10-2 year spread seems to consolidate
30-10 year spread seems to consolidate
Indexes pulled back from all-time-highs on historically good performing days, and rose before Exp.
NYA still problems getting over 13.265
market not that good anymore but also not bad
HYG vs. IEF coming down again
HB/LV consolidate/pulling back
BTP upwards
Volas seem to have built an interim bottom and now rising again
YEN-index consolidating after up-move
IndiMetals rising (Nickel Indonesia story)
CL correcting
Gold at the highest price since 05.09.13

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One of my investment principles is:

Identify the paradigm you’re in, examine if and how it is unsustainable, and visualize how the paradigm shift will transpire when that which is unsustainable stops.

Over my roughly 50 years of being a global macro investor, I have observed there to be relatively long of periods (about 10 years) in which the markets and market relationships operate in a certain way (which I call “paradigms”) that most people adapt to and eventually extrapolate so they become overdone, which leads to shifts to new paradigms in which the markets operate more opposite than similar to how they operated during the prior paradigm. Identifying and tactically navigating these paradigm shifts well (which we try to do via our Pure Alpha moves) and/or structuring one’s portfolio so that one is largely immune to them (which we try to do via our All Weather portfolios) is critical to one’s success as an investor.

How Paradigm Shifts Occur

There are always big unsustainable forces that drive the paradigm. They go on long enough for people to believe that they will never end even though they obviously must end. A classic one of those is an unsustainable rate of debt growth that supports the buying of investment assets; it drives asset prices up, which leads people to believe that borrowing and buying those investment assets is a good thing to do. But it can’t go on forever because the entities borrowing and buying those assets will run out of borrowing capacity while the debt service costs rise relative to their incomes by amounts that squeeze their cash flows. When these things happen, there is a paradigm shift. Debtors get squeezed and credit problems emerge, so there is a retrenchment of lending and spending on goods, services, and investment assets so they go down in a self-reinforcing dynamic that looks more opposite than similar to the prior paradigm. This continues until it’s also overdone, which reverses in a certain way that I won’t digress into but is explained in my book Principles for Navigating Big Debt Crises, which you can get for free here.

Another classic example that comes to mind is that extended periods of low volatility tend to lead to high volatility because people adapt to that low volatility, which leads them to do things (like borrow more money than they would borrow if volatility was greater) that expose them to more volatility, which prompts a self-reinforcing pickup in volatility. There are many classic examples like this that repeat over time that I won’t get into now. Still, I want to emphasize that understanding which types of paradigms exist and how they might shift is required to consistently invest well. That is because any single approach to investing—e.g., investing in any asset class, investing via any investment style (such as value, growth, distressed), investing in anything—will experience a time when it performs so terribly that it can ruin you. That includes investing in “cash” (i.e., short-term debt) of the sovereign that can’t default, which most everyone thinks is riskless but is not because the cash returns provided to the owner are denominated in currencies that the central bank can “print” so they can be depreciated in value when enough money is printed to hold interest rates significantly below inflation rates.

In paradigm shifts, most people get caught overextended doing something overly popular and get really hurt. On the other hand, if you’re astute enough to understand these shifts, you can navigate them well or at least protect yourself against them. The 2008-09 financial crisis, which was the last major paradigm shift, was one such period. It happened because debt growth rates were unsustainable in the same way they were when the 1929-32 paradigm shift happened. Because we studied such periods, we saw that we were headed for another “one of those” because what was happening was unsustainable, so we navigated the crisis well when most investors struggled.

I think now is a good time 1) to look at past paradigms and paradigm shifts and 2) to focus on the paradigm that we are in and how it might shift because we are late in the current one and likely approaching a shift. To do that, I wrote this report with two parts: 1) “Paradigms and Paradigm Shifts over the Last 100 Years” and 2) “The Coming Paradigm Shift.” They are attached. If you have the time to read them both, I suggest that you start with “Paradigms and Paradigm Shifts over the Last 100 Years” because it will give you a good understanding of them and it will give you the evolving story that got us to where we are, which will help put where we are into context. There is also an appendix with longer descriptions of each of the decades from the 1920s to the present for those who want to explore them in more depth.
Part I: Paradigms and Paradigm Shifts over the Last 100 Years

History has taught us that there are always paradigms and paradigm shifts and that understanding and positioning oneself for them is essential for one’s well-being as an investor and beyond. The purpose of this piece is to show you market and economic paradigms and their shifts over the past 100 years to convey how they work. In the accompanying piece, “The Coming Paradigm Shift,” I explain my thinking about the one that might be ahead.

Due to limitations in time and space, I will only focus on those in the United States because they will suffice for giving you the perspective I’d like to convey. However, at some point I will show you them in all significant countries in the same way I did for big debt crises in Principles for Navigating Big Debt Crises because I believe that understanding them all is essential for having a timeless and universal understanding of how markets and economies work.

How Paradigms and Paradigm Shifts Work

As you know, market pricing reflects expectations of the future; as such, it paints quite detailed pictures of what the consensus expectation of the future is. Then, the markets move as a function of how events transpire relative to those expectations. As a result, navigating markets well requires one to be more accurate about what is going to happen than the consensus view that is built into the price. That’s the game. That’s why understanding these paradigms and paradigm shifts is so important.

I have found that the consensus view is typically more heavily influenced by what has happened relatively recently (i.e., over the past few years) than it is by what is most likely. It tends to assume that the paradigms that have existed will persist and it fails to anticipate the paradigm shifts, which is why we have such big market and economic shifts. These shifts, more often than not, lead to markets and economies behaving more opposite than similar to how they behaved in the prior paradigm.

What follows is my description of the paradigms and paradigm shifts in the US over the last 100 years. It includes a mix of facts and subjective interpretations, because when faced with the choice of sharing these subjective thoughts or leaving them out, I felt it was better to include them along with this warning label. Naturally, my degree of closeness to these experiences affects the quality of my descriptions. Since my direct experiences began in the early 1960s, my observations of the years since then are most vivid. While less vivid, my understanding of markets and economies going back to the 1920s is still pretty good both because of my intense studying of it and because of my talking with the people of my parents’ generation who experienced it. As for times before the 1920s, my understanding comes purely from studying just the big market and economic moves, so it’s less good though not nonexistent. Over the last year, I have been studying economic and market moves in major countries going back to about the year 1500, which has given me a superficial understanding of them. With that perspective, I can say with confidence that throughout the times I have studied the same big things happen over and over again for essentially the same reasons. I’m not saying they’re exactly the same or that important changes haven’t occurred, because they certainly have (e.g., how central banks have come and gone and changed). What I am saying is that big paradigm shifts have always happened and they happened for roughly the same reasons.

To show them, I have divided history into decades, beginning with the 1920s, because they align well enough with paradigm shifts in order for me to convey the picture. Though not always perfectly aligned, paradigm shifts have coincidently tended to happen around decade shifts—e.g., the 1920s were “roaring,” the 1930s were in “depression,” the 1970s were inflationary, the 1980s were disinflationary, etc. Also, I believe that looking at

10-year time horizons helps one put things in perspective. It’s also a nice coincidence that we are in the last months of this decade, so it’s an interesting exercise to start imagining what the new ‘20s decade will be like, which is my objective, rather than to focus in on what exactly will happen in any one quarter or year.

Before briefly describing each of these decades, I want to convey a few observations you should look out for when we discuss each of them.

Every decade had its own distinctive characteristics, though within all decades there were long-lasting periods (e.g., 1 to 3 years) that had almost the exact opposite characteristics of what typified the decade. To successfully deal with these changes, one would have had to successfully time the ins and outs, or faded the moves (i.e., bought more when prices fell and sold more when prices rose), or had a balanced portfolio that would have held relatively steady through the moves. The worst thing would have been to go with the moves (sell after price declines and buy after price increases).
The big economic and market movements undulated in big swings that were due to a sequence of actions and reactions by policy makers, investors, business owners, and workers. In the process of economic conditions and market valuations growing overdone, the seeds of the reversals germinated. For example, the same debt that financed excesses in economic activity and market prices created the obligations that could not be met, which contributed to the declines. Similarly, the more extreme economic conditions became, the more forceful policy makers’ responses to reverse them became. For these reasons, throughout these 10 decades we see big economic and market swings around “equilibrium” levels. The equilibriums I’m referring to are the three that I provided in my template, which are:

1) Debt growth that is in line with the income growth that is required to service debt;

2) The economy’s operating rate is neither too high (because that will produce unacceptable inflation and inefficiencies) nor too low (because economically depressed levels of activity will produce unacceptable pain and political changes); and

3) The projected returns of cash are below the projected returns of bonds, which are below the projected returns of equities and the projected returns of other “risky assets” (because the failure of these spreads to exist will impede the effective growth of credit and other forms of capital, which will cause the economy to slow down or go in reverse, while wide spreads will cause it to accelerate).

At the end of each decade, most investors expected the next decade to be similar to the prior decade, but because of the previously described process of excesses leading to excesses and undulations, the subsequent decades were more opposite than similar to the ones that preceded them. As a result, market movements due to these paradigm shifts typically were very large and unexpected and caused great shifts in wealth.
Every major asset class had great and terrible decades, so much so that any investor who had most of their wealth concentrated in any one investment would have lost almost all of it at one time or another.
Theories about how to invest changed frequently, usually to explain how the past few years made sense even when it didn’t make sense. These backward-looking theories typically were strongest at the end of the paradigm period and proved to be terrible guides for investing in the next decade, so they were very damaging. That is why it is so important to see the full range of past paradigms and paradigm shifts and to structure one’s investment approach so that it would have worked well through them all. The worst thing one can do, especially late in a paradigm, is to build one’s portfolio based on what would have worked well over the prior 10 years, yet that’s typical.

It is for these reasons that we invest the way we do—i.e., it’s why we built a balanced All Weather portfolio designed to hold relatively stable though the big undulations by being well-diversified and built a Pure Alpha portfolio to make tactical timing moves.

Below, I have summarized the picture of the dynamics for each decade with a very brief description and with a few tables that show asset class returns, interest rates, and economic activity for each decade over the last nine. Through these tables, you can get a feel of the dynamics for each decade, which I then address in more detail and show the market movements in the appendix to this report.

1920s = “Roaring”: From Boom to Bursting Bubble. It started with a recession and the markets discounting negative growth as stock yields were significantly above bond yields, yet there was fast positive growth funded by an acceleration in debt during the decade, so stocks did extremely well. By the end of the decade, the markets discounted fast growth and ended with a classic bubble (i.e., with debt-financed purchases of stocks and other assets at high prices) that burst in 1929, the last year of the decade.

1930s = Depression. This decade was for the most part the opposite of the 1920s. It started with the bursting reactions to high levels of indebtedness and the markets discounting relatively high growth rates. This debt crisis and plunge in economic activity led to economic depression, which led to aggressive easing by the Fed that consisted of breaking the link to gold, interest rates hitting 0%, the printing of a lot of money, and the devaluing of the dollar, which was accompanied by rises in gold prices, stock prices, and commodity prices from 1932 to 1937. Because the monetary policy caused asset prices to rise and because compensation didn’t keep up, the wealth gap widened, a conflict between socialists and capitalists emerged, and there was the rise of populism and nationalism globally. In 1937, the Fed and fiscal policies were tightened a bit and the stock market and economy plunged. Simultaneously, the geopolitical conflicts between the emerging Axis countries of Germany, Italy, and Japan and the established Allied countries of the UK, France, and China intensified, which eventually led to all-out war in Europe in 1939 and the US beginning a war in Asia in 1941. For the decade as a whole, stocks performed badly, and a debt crisis occurred early, which was largely handled via defaults, guarantees, and monetization of debts along with a lot of fiscal stimulation. For a detailed account of this period, see pages 49-95 in Part Two of Principles for Navigating Big Debt Crises.

1940s = War and Post-War. The economy and markets were classically war-driven. Governments around the world both borrowed heavily and printed significant amounts of money, stimulating both private-sector employment in support of the war effort and military employment. While production was strong, much of what was produced was used and destroyed in the war, so classic measures of growth and unemployment are misleading. Still, this war-effort production pulled the US out of the post-Great Depression slump. Monetary policy was kept very easy to accommodate the borrowing and the paying back of debts in the post-war period. Specifically, monetary policy remained stimulative, with interest rates held down and fiscal policy liberally producing large budget deficits during the war and then after the war to promote reconstruction abroad (the Marshall Plan). As a result, stocks, bonds, and commodities all rallied over the period, with commodities rallying the most early in the war, and stocks rallying the most later in the war (when an Allied victory looked to be more likely) and then at the conclusion of the war. The pictures of what happened in other countries, especially those that lost the war, were radically different and are worthy of description at another time. After the war, the United States was the preeminent power and the dollar was the world’s reserve currency linked to gold, with other currencies linked to the dollar. This period is an excellent period for exemplifying 1) the power and mechanics of central banks to hold interest rates down with large fiscal deficits and 2) market action during war periods.

1950s = Post-War Recovery. In the 1950s, after two decades of depression and war, most individuals were financially conservative, favoring security over risk-taking. The markets reflected this by de facto pricing in negative levels of earnings growth with very high risk premia (e.g., S&P 500 dividend yields in 1950 were 6.8%, more than 3 times the 10-year bond yield of 1.9%, and earning yields were nearly 14%). What happened in the ‘50s was exactly the opposite of what was discounted. The post-war recovery was strong (averaging 4% real growth over the decade), in part through continued stimulative policy/low rates. As a result, stocks did great. Since the government wasn’t running large deficits, government debt burdens (government debt as a percent of incomes) fell, while private debt levels were in line with income growth, so debt growth was in line with income growth. The decade ended in a financially healthy position, with prices discounting relatively modest growth and low inflation. The 1950s and the 1960s were also a period in which middle-class workers were in high demand and prospered.

1960s = From Boom to Monetary Bust. The first half of the decade was an increasingly debt-financed boom that led to balance of payments problems in the second half, which led to the big paradigm shift of ending the Bretton Woods monetary system. In the first half, the markets started off discounting slow growth, but there was fast growth so stocks did well until 1966. Then most everyone looked back on the past 15 years of great stock market returns and was very bullish. However, because debt and economic growth were too fast and inflation was rising, the Fed’s monetary policy was tightened (e.g., the yield curve inverted for the first time since 1929). That produced the real (i.e., inflation-adjusted) peak in the stock market that wasn’t broken for 20 years. In the second half of the 1960s, debt grew faster than incomes and inflation started to rise with a “growth recession,” and then a real recession came at the end of the decade. Near the end of the ‘60s, the US balance of payments problem became more clearly manifest in gold reserves being drawn down, so it became clear that the Fed would have to choose between two bad alternatives—i.e., a) too tight a monetary policy that would lead to too weak an economy or b) too much domestic stimulation to keep the dollar up and inflation down. That led to the big paradigm shift of abandoning the monetary system and ushering in the 1970s decade of stagflation, which was more opposite than similar to the 1960s decade.

1970s = Low Growth and High Inflation (i.e., Stagflation). At the beginning of the decade, there was a high level of indebtedness, a balance of payments problem, and a strained gold standard that was abandoned in 1971. As a result, the promise to convert money for gold was broken, money was “printed” to ease debt burdens, the dollar was devalued to reduce the external deficits, growth was slow and inflation accelerated, and inflation-hedge assets did great while stocks and bonds did badly during the decade. There were two big waves up in inflation, inflation expectations, and interest rates, with the first from 1970 to 1973 and the second and bigger one from 1977 to 1980-81. At the end of the decade, the markets discounted very high inflation and low growth, which was just about the opposite of what was discounted at the end of the prior decade. Paul Volcker was appointed in August 1979. That set the stage for the coming 1980s decade, which was pretty much the opposite of the 1970s decade.

1980s = High Growth and Falling Inflation (i.e., Disinflation). The decade started with the markets discounting high inflation and slow growth, yet the decade was characterized by falling inflation and fast growth, so inflation-hedge assets did terribly and stocks and bonds did great. The paradigm shift occurred at the beginning of the decade when the tight money conditions that Paul Volcker imposed triggered a deflationary pressure, a big economic contraction, and a debt crisis in which emerging markets were unable to service their debt obligations to American banks. This was managed well, so banks were provided with adequate liquidity and debts weren’t written down in a way that unacceptably damaged bank capital. However, it created a shortage of dollars and capital flows that led the dollar to rise, and it created disinflationary pressures that allowed interest rates to decline while growth was strong, which was great for stock and bond prices. As a result, this was a great period for disinflationary growth and high investment returns for stocks and bonds.

1990s = “Roaring”: From Bust to Bursting Bubble. This decade started off with a recession, the first Gulf War, and the easing of monetary policy and relatively fast debt-financed growth and rising stock prices; it ended with a “tech/dot-com” bubble (i.e., debt-financed purchases of “tech” stocks and other financial assets at high prices) that looked quite like the Nifty Fifty bubble of the late 1960s. That dot-com bubble burst just after the end of the decade, at the same time there were the 9/11 attacks, which were followed by very costly wars in Iraq and Afghanistan.

2000-10 = “Roaring”: From Boom to Bursting Bubble. This decade was the most like the 1920s, with a big debt bubble leading up to the 2008-09 debt/economic bust that was analogous to the 1929-32 debt bust. In both cases, these drove interest rates to 0% and led to central banks printing a lot of money and buying financial assets. The paradigm shift happened in 2008-09, when quantitative easing began as interest rates were held at or near 0%. The decade started with very high discounted growth (e.g., expensive stocks) during the dot-com bubble and was followed by the lowest real growth rate of any of these nine decades (1.8%), which was close to that of the 1930s. As a result, stocks had the worst return of any other decade since the 1930s. In this decade, as in the 1930s, interest rates went to 0%, the Fed printed a lot of money as a way of easing with interest rates at 0%, the dollar declined, and gold and

T-bonds were the best investments. At the end of the decade, a very high level of indebtedness remained, but the markets were discounting slow growth.

2010-Now = Reflation. The shift to the new paradigm, which was also the bottom in the markets and the economy, came in late 2008/early 2009 when risk premiums were extremely high, interest rates hit 0%, and central banks began aggressive quantitative easings (“printing money” and buying financial assets). Investors took the money they got from selling their financial assets to central banks and bought other financial assets, which pushed up financial asset prices and pushed down risk premiums and all asset classes’ expected returns. As in the 1932-37 period, that caused financial asset prices to rise a lot, which benefited those with financial assets relative to those without them, which widened the wealth gap. At the same time, technological automation and businesses globalizing production to lower-cost countries shifted wages, particularly for those in the middle- and lower-income groups, while more of the income gains over the decade went to companies and high-income earners. Growth was slow, and inflation remained low. Equities rallied consistently, driven by continued falling discount rates (e.g., from central bank stimulus), high profit margins (in part from automation keeping wage growth down), and, more recently, from tax cuts. Meanwhile, the growing wealth and income gaps helped drive a global increase in populism. Now, asset prices are relatively high, growth is priced to remain moderately strong, and inflation is priced to remain low.

The tables that follow show a) the growth and inflation rates that were discounted at the beginning of each decade, b) growth, inflation, and other stats for each decade, c) asset class returns in both nominal and real terms, and d) money and credit ratios and growth rates of debt for each decade.
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For the appendix with more detail on each decade, you can access the full report here.
Part 2: The Coming Paradigm Shift

The main forces behind the paradigm that we have been in since 2009 have been:

Central banks have been lowering interest rates and doing quantitative easing (i.e., printing money and buying financial assets) in ways that are unsustainable. Easing in these ways has been a strong stimulative force since 2009, with just minor tightenings that caused “taper tantrums.” That bolstered asset prices both directly (from the actual buying of the assets) and indirectly (because the lowering of interest rates both raised P/Es and led to debt-financed stock buybacks and acquisitions, and levered up the buying of private equity and real estate). That form of easing is approaching its limits because interest rates can’t be lowered much more and quantitative easing is having diminishing effects on the economy and the markets as the money that is being pumped in is increasingly being stuck in the hands of investors who buy other investments with it, which drives up asset prices and drives down their future nominal and real returns and their returns relative to cash (i.e., their risk premiums). Expected returns and risk premiums of non-cash assets are being driven down toward the cash return, so there is less incentive to buy them, so it will become progressively more difficult to push their prices up. At the same time, central banks doing more of this printing and buying of assets will produce more negative real and nominal returns that will lead investors to increasingly prefer alternative forms of money (e.g., gold) or other storeholds of wealth.

As these forms of easing (i.e., interest rate cuts and QE) cease to work well and the problem of there being too much debt and non-debt liabilities (e.g., pension and healthcare liabilities) remains, the other forms of easing (most obviously, currency depreciations and fiscal deficits that are monetized) will become increasingly likely. Think of it this way: one person’s debts are another’s assets. Monetary policy shifts back and forth between a) helping debtors at the expense of creditors (by keeping real interest rates down, which creates bad returns for creditors and good relief for debtors) and b) helping creditors at the expense of debtors (by keeping real interest rates up, which creates good returns for creditors and painful costs for debtors). By looking at who has what assets and liabilities, asking yourself who the central bank needs to help most, and figuring out what they are most likely to do given the tools they have at their disposal, you can get at the most likely monetary policy shifts, which are the main drivers of paradigm shifts.

To me, it seems obvious that they have to help the debtors relative to the creditors. At the same time, it appears to me that the forces of easing behind this paradigm (i.e., interest rate cuts and quantitative easing) will have diminishing effects. For these reasons, I believe that monetizations of debt and currency depreciations will eventually pick up, which will reduce the value of money and real returns for creditors and test how far creditors will let central banks go in providing negative real returns before moving into other assets.

To be clear, I am not saying that this shift will happen immediately. I am saying that I think it is approaching and will have a big effect on what the next paradigm will look like.

The chart below shows interest rate and QE changes in the US going back to 1920 so you can see the two times that happened—in 1931-45 and in 2008-14.
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The next three charts show the US dollar, the euro, and the yen since 1960. As you can see, when interest rates hit 0%, the money printing began in all of these economies. The ECB ended its QE program at the end of 2018, while the BoJ is still increasing the money supply. Now, all three central banks are turning to these forms of easing again, as growth is slowing and inflation remains below target levels.
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2. There has been a wave of stock buybacks, mergers, acquisitions, and private equity and venture capital investing that has been funded by both cheap money and credit and the enormous amount of cash that was pushed into the system. That pushed up equities and other asset prices and drove down future returns. It has also made cash nearly worthless. (I will explain more about why that is and why it is unsustainable in a moment.) The gains in investment asset prices benefited those who have investment assets much more than those who don’t, which increased the wealth gap, which is creating political anti-capitalist sentiment and increasing pressure to shift more of the money printing into the hands of those who are not investors/capitalists.

3. Profit margins grew rapidly due to advances in automation and globalization that reduced the costs of labor. The chart below on the left shows that growth. It is unlikely that this rate of profit margin growth will be sustained, and there is a good possibility that margins will shrink in the environment ahead. Because this increased share of the pie going to capitalists was accomplished by a decreased share of the pie going to workers, it widened the wealth gap and is leading to increased talk of anti-corporate, pro-worker actions.
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4. Corporate tax cuts made stocks worth more because they give more returns. The most recent cut was a one-off boost to stock prices. Such cuts won’t be sustained and there is a good chance they will be reversed, especially if the Democrats gain more power.
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These were big tailwinds that have supported stock prices. The chart below shows our estimates of what would have happened to the S&P 500 if each of these unsustainable things didn’t happen.
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The Coming Paradigm Shift

There’s a saying in the markets that “he who lives by the crystal ball is destined to eat ground glass.” While I’m not sure exactly when or how the paradigm shift will occur, I will share my thoughts about it. I think that it is highly likely that sometime in the next few years, 1) central banks will run out of stimulant to boost the markets and the economy when the economy is weak, and 2) there will be an enormous amount of debt and non-debt liabilities (e.g., pension and healthcare) that will increasingly be coming due and won’t be able to be funded with assets. Said differently, I think that the paradigm that we are in will most likely end when a) real interest rate returns are pushed so low that investors holding the debt won’t want to hold it and will start to move to something they think is better and b) simultaneously, the large need for money to fund liabilities will contribute to the “big squeeze.” At that point, there won’t be enough money to meet the needs for it, so there will have to be some combination of large deficits that are monetized, currency depreciations, and large tax increases, and these circumstances will likely increase the conflicts between the capitalist haves and the socialist have-nots. Most likely, during this time, holders of debt will receive very low or negative nominal and real returns in currencies that are weakening, which will de facto be a wealth tax.

Right now, approximately 13 trillion dollars’ worth of investors’ money is held in zero or below-zero interest-rate-earning debt. That means that these investments are worthless for producing income (unless they are funded by liabilities that have even more negative interest rates). So these investments can at best be considered safe places to hold principal until they’re not safe because they offer terrible real returns (which is probable) or because rates rise and their prices go down (which we doubt central bankers will allow).

Thus far, investors have been happy about the rate/return decline because investors pay more attention to the price gains that result from falling interest rates than the falling future rates of return. The diagram below helps demonstrate that. When interest rates go down (right side of the diagram), that causes the present value of assets to rise (left side of the diagram), which gives the illusion that investments are providing good returns, when in reality the returns are just future returns being pulled forward by the “present value effect.” As a result future returns will be lower.
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That will end when interest rates reach their lower limits (slightly below 0%), when the prospective returns for risky assets are pushed down to near the expected return for cash, and when the demand for money to pay for debt, pension, and healthcare liabilities increases. While there is still a little room left for stimulation to produce a bit more of this present value effect and a bit more of shrinking risk premiums, there’s not much.

At the same time, the liabilities will be coming due, so it’s unlikely that there will be enough money pushed into the system to meet those obligations. Then it is likely that there will be a battle over 1) how much of those promises won’t be kept (which will make those who are owed them angry), 2) how much they will be met with higher taxes (which will make the rich poorer, which will make them angry), and 3) how much they will be met via much bigger deficits that will be monetized (which will depreciate the value of money and depreciate the real returns of investments, which will hurt those with investments, especially those holding debt).

The charts below show the wave of liabilities that is coming at us in the US.

*Note: Medicare, Social Security, and other government programs represent the present value of estimates of future outlays from the Congressional Budget Office. Of course, some of the IOUs have assets or cash flows partially backing them (like tax revenue covering some Social Security outlays). 10-year forward projections are based on government projections of public debt and social welfare payments.
No alt text provided for this image

*Note: Medicare, Social Security, and other government programs represent the present value of estimates of future outlays from the Congressional Budget Office. Of course, some of the IOUs have assets or cash flows partially backing them (like tax revenue covering some Social Security outlays). 10-year forward projections are based on government projections of public debt and social welfare payments.

History has shown us and logic tells us that there is no limit to the ability of central banks to hold nominal and real interest rates down via their purchases by flooding the world with more money, and that it is the creditor who suffers from the low return.

Said differently:

The enormous amounts of money in no- and low-returning investments won’t be nearly enough to fund the liabilities, even though the pile looks like a lot. That is because they don’t provide adequate income. In fact, most of them won’t provide any income, so they are worthless for that purpose. They just provide a “safe” place to store principal. As a result, to finance their expenditures, owners of them will have to sell off principal, which will diminish the amount of principal that they have left, so that they a) will need progressively higher and higher returns on the dwindling amounts (which they have no prospect of getting) or b) they will have to accelerate their eating away at principal until the money runs out.

That will happen at the same time that there will be greater internal conflicts (mostly between socialists and capitalists) about how to divide the pie and greater external conflicts (mostly between countries about how to divide both the global economic pie and global influence). In such a world, storing one’s money in cash and bonds will no longer be safe. Bonds are a claim on money and governments are likely to continue printing money to pay their debts with devalued money. That’s the easiest and least controversial way to reduce the debt burdens and without raising taxes. My guess is that bonds will provide bad real and nominal returns for those who hold them, but not lead to significant price declines and higher interest rates because I think that it is most likely that central banks will buy more of them to hold interest rates down and keep prices up. In other words, I suspect that the new paradigm will be characterized by large debt monetizations that will be most similar to those that occurred in the 1940s war years.

So, the big question worth pondering at this time is which investments will perform well in a reflationary environment accompanied by large liabilities coming due and with significant internal conflict between capitalists and socialists, as well as external conflicts. It is also a good time to ask what will be the next-best currency or storehold of wealth to have when most reserve currency central bankers want to devalue their currencies in a fiat currency system.

Most people now believe the best “risky investments” will continue to be equity and equity-like investments, such as leveraged private equity, leveraged real estate, and venture capital, and this is especially true when central banks are reflating. As a result, the world is leveraged long, holding assets that have low real and nominal expected returns that are also providing historically low returns relative to cash returns (because of the enormous amount of money that has been pumped into the hands of investors by central banks and because of other economic forces that are making companies flush with cash). I think these are unlikely to be good real returning investments and that those that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold. Additionally, for reasons I will explain in the near future, most investors are underweighted in such assets, meaning that if they just wanted to have a better balanced portfolio to reduce risk, they would have more of this sort of asset. For this reason, I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio. I will soon send out an explanation of why I believe that gold is an effective portfolio diversifier.

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  #71 (permalink)
Munich, Germany
 
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Behind the Eminis there is a lot of leverage - and therefore potential emotions.

Last weeks I traded the MNQ.
I chose the MNQ because the NQ is the instrument I know best.

I am mainly a DOM-trader. That is to some extent a curse.
To collect some value-adding knowledge takes some years...if you don´t have a profitable mentor.
As a beginner, other, slower markets like interest rate futures or the ES, felt tooooooooooo slow.
I wanted fast results...That was an error.

But as said, the learning takes a long time and that is why I am with the NQ and for that reason it also makes also no sense to change the focus on another main market.

When it comes to the MNQ the problem is that is feels different than the NQ and the moves on the DOM are even more brain-damaging than with the NQ. It´s too jumpy.
Also looking at two DOMs for both instruments was too confusing.
The costs are too high for my trading style.

I know change back to the NQ. Trading it in SIM.
Furthermore I focus only on that one instrument instead of 3 - how many professional football players are out there which are professional tennis stars and soccer players at the same time???

Like @wldman suggested I am going to build a stock portfolio, too.

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  #72 (permalink)
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what else I learned - besides not trading drunken:

- reliable software/technology has a bigger impact than I thought first
- cost structure, as long as it is in the "common" range, is not the crucial driver of profitability if you do it right
- your trading style is not the crucial driver of profitability if you do it right
- the instrument you trade is not the crucial driver of profitability if you do it right
- it is pretty obvious when you should trade...if not: one needs more practice
- doing "business" every day in the same market holds more risk than opportunity
- spending all the time on one instrument could work almost like magic
- it´s a game...and two kinds of people most probably win it:
the one how has the most money or
if this is not the case, the one who could wait the best

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  #73 (permalink)
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Hey! I see I am ranked Number 12 in regard to Top Poster within 14 days and 6 months...

...at least some success in the realm of trading...

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  #74 (permalink)
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It´s almost impertinent how small edges are these days.

Netting (after commissions) only 3-6 ticks on average.
6 ticks is quite good.
I also found things giving more, but generally such patterns decay quite fast.

So much to getting rich fast.

Be realistic and practice good risk management!

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  #75 (permalink)
Denver Colorado/USA
 
Experience: Intermediate
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Start looking for an edge with a swing trading strategy. They exist. They don't require staring at the market in real time all day. I felt the way you did at one point and decided I'm not going to settle for mediocre strategies anymore. I stopped watching the charts and reading the news everyday, took money out of my account, and worked on my edge for a couple months. I found it. It's worth it to ignore the market for a while and work on something that makes the returns you desire with a trading style you are comfortable with.

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  #76 (permalink)
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LittleFinger View Post

So for gaming (shooters specifically):
40ms and less - i can't detect lag
70ms - I detect minor lag
>100ms - lag is annoying but I can deal with it
>150ms - big delay, can't play competitively
.

Interesting. Once I pinged several times servers in Chicago and others where IQFeed is.
On normal days it was between 130-170 sometimes even more.
Saw already 220. So, in really heavy times it could even be more.

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  #77 (permalink)
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Last few years I compared data feeds, DOM`s and combinations ...of course also next to next.
I accumulated 1000´s of hours starring at DOM´s...

It is not about theoretical physics where an electron needs a specific time to travel a specific way and the human eye processing data faster or slower compared to that in a theoretical world

In the real world when data travels from Europe to the USA and back there could somewhere be a bottleneck.

When TT is using a dedicated infrastructure but Tradovate using an Amazon server there could be a bottleneck.

If IQfeed is transmitting every tick for bid and ask and trade and all the changes per level of depth there could be a bottleneck...

When your software does a lot of calculation or your actual software setting, be it by the software of its own or the volume of data it receives, there ...yeah you know...

And then, of course, there could be several bottlenecks at the same time.

So again. I do not say that the one data feed is always several seconds behind another feed or wrong.
In slow markets or market periods, there is no issue.
If your edge is anyway that huge -no issue.
If your trading style is not performance orientated - no issue.
If you are not a nickel nurser like me - no issue.
Perhaps there are more reasons but I am more in the mood for coffee now...

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  #78 (permalink)
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wldman View Post
@asyx

In another thread you mention building a basket of long stocks.

The /NQ will work fine as a basis to build from.

You can own QQQ as your long basket representing equity ownership. If you focus on daily chart as your primary and look mostly at hourly for actionable signals. When you have time frame continuity (both bars the same color) you have a better chance of being "right" directionally. Owning the basket will allow you to trade the /NQ from the short side or as a hedge longer term.

Additionally, you could begin to position the top ten or so components of the Nasdaq 100 as those individual companies diverge from the directional trade of the broader index. What that means is that you can sniff out "natural buyers" or "natural sellers" in an individual name. When the index is down and one of those "members" has a bid it can reasonable be said that there are natural buyers and vice versa. For me, and I recognize this wont work for everyone, I'd look to be selling puts on individual names (long delta) to collect the premium. The worst case scenario is I have to roll the puts or buy the stock.

Does that make any sense?

Makes sense. Thanks again for stuff to think about!

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  #79 (permalink)
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LittleFinger View Post
Start looking for an edge with a swing trading strategy. They exist. They don't require staring at the market in real time all day. I felt the way you did at one point and decided I'm not going to settle for mediocre strategies anymore. I stopped watching the charts and reading the news everyday, took money out of my account, and worked on my edge for a couple months. I found it. It's worth it to ignore the market for a while and work on something that makes the returns you desire with a trading style you are comfortable with.

Thanks I am always happy about criticism and advise as it makes me think in anotherway I would do on my own.

Just to put your comments into perspective:
Since when are you trading?
Since when are you profitable?

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About 12 years of trades. The first year of trading was full time. That was my first profitable year. 2007/2008. I was only trading the S&P at that time.
I've traded off and on since and been profitable off and on since. I gave it up and came back after blowing accounts. My problem is that I've never stuck with one way of analyzing the market and would always look for a stronger edge with new tools and rearrange my charts all the time. Look at different time frames all the time, etc. Only over the last few months have I come upon the swing strategy I'm speaking of. I have backtested with data from 2012 to current and nothing has changed with it's effectiveness. I am live with the strategy now, but I haven't accumulated enough live trades to have reliable stats. It's not like one kind of trade, it's actually a collection of trades that occur in a specific sequence over and over. I just keep finding more variations around the same concept. It's been a major paradigm shift for me. Hourly bars are my core time frame. Only a few moving averages and different volume-related indicators being used.

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