IMO this is why a disciplined discretionary trader with risk management has an advantage. Watching a basket of stocks every day all day its easy to see some patterns emerge that work for a few days or maybe a week or two. Trying to make a system to take advantage of these with automated rules seems too stiff and rigid to take advantage of short term observations. Maybe IM just too lazy to make a system.

But it also takes the right kind of mathematically talented person who can compute risk/rewards, statistics, and other data very fast and in your head. Writing out a system to me is like having to show your work when I was in college math classes. "Can't I just show the correct answer?"

Sorry for the hijack.

Good discretionary traders make a lot more than system traders, who are by definition, T/A traders. When you see those big volume breakouts that you jump onto as a t/a trader - that volume was put in by discretionary traders that are in ahead of you.

What is the source of this belief? Do you have any experience attempting it yourself? Have you spoken to other traders? Are you just repeating the standard academic line with respect to trading?

There are plenty who say it's extremely hard to almost impossible to win at poker, too.

Academic research on day trading.
Mathematical - how inefficient markets must be to overcome transactions costs.
Psychology - how humans react to randomness, lie to themselves, other biases.
General understanding of markets and exploiting them.
Anecdotal evidence.

Given this I believe that it is extremely hard to almost impossible to make money (in a positive EV/utility sense) day trading as a discretionary trader. There is some evidence it is not as difficult to make money in poker, although many of the above points apply there as well.

What's your experience with FX, and what would you say are the main differences between FX and equities when day trading?

Re read the thread carefully.

I choose high quality R:R trades which means I will move the market too much IF I do much more then a million dollars per trade.

This is a business of milliseconds and what your referring to would cause me too much of what we call SLIPPAGE.

It's a good thing that I haven't read the books you've read then isn't it.

In reality it's actually totally the opposite.

Black box mechanical systems have very short lived lifespans because the markets are constantly in flux.

The only quants that make money are the ones that constantly re write their programs and have the skill sets to adapt quickly enough.

Discretionary traders are the Ungers and Iveys of the trading world.

Actually in the prop world I am a light weight and I know of traders that make hundreds of thousands to million a month with 25 - 50k max.

That being said they do not have the longevity that I have had and usually only have a few good years and they are gone.

Personally I believe that 10 million is what I need to retire permanently and live a very comfortable life off of treasury bill interest only (never having to touch the principle).

I easily blow 150k a year and seriously have no clue where I spend it

I drive my accountant nutz because I never keep receipts, I love cash and rarely even use a credit card.

This is a good question and one I have STRONG opinions on.

When you trade with an FX broker your trading directly against that company (the broker takes the other side of your trades) as he acts as the market maker.

He also "manufacturers" the charts your trading off. That's right he gets to make up what he wants as far as the actual quote on the chart goes !!!

What this means is your trading against someone that gets to see all your entries, your bank roll and your stops and too boot he has a vested interested in you losing money because HE makes more when you do.


It is the equivalent of playing poker against someone who always see's your hand.

In summary: Only longer term trades with very wide stops will beat your broker consistently and that's assuming you have everything else right.

If you want to trade the currency markets, trade the futures not the forex and you should do much better.

Maybe that's because vols saw their historical lows and historical highs within the last 24 months. Wasn't hard to be buying vol that carried well when it was being given away for free, and slowly sell it out as the world blew up. That's what we did at least..

Not sure how the OP's stop loss reflects that his (relatively undefined) strategy wouldn't have worked over that period of time?

Out of curiosity, how long have you been in finance? I don't know the OP, but I find it completely believable. Let me ask you this, what is more likely, that the OP's claims are true, or that the guy who sits next to me makes more than the OP a year through punting around futures in his PA? I can attest to the latter being true, so I'm not going to doubt the OP on his relatively modest claims.

Anecdotal evidence is going to depend on who you hang out with. Of course most traders fail, we accept this, and strive to be among the very small group of those that do not.

Most of the academic studies of traders simply aggregate the results of all traders. Of course this will produce a poor result, just as taking the results of all poker players lumped together will show an aggregate loss. This does not mean poker (or day trading) is necessarily unprofitable for those who put in a large amount of time and effort developing their skills.

But I found one study that looked more closely at individual results:

http://faculty.haas.berkeley.edu/ode...e%20040330.pdf

The conclusion:

"Our analysis of performance indicates day trading is treacherous, but not entirely a fool’s game. Heavy day traders, as a group, earn gross profits (before transaction costs). Thus, heavy day traders do appear to have a trading advantage over other investors. The stocks bought by the most active day traders outperform those sold by 31 basis points per day. Unfortunately, the gross profits of heavy day traders are not sufficiently large to cover reasonable estimates of transaction costs. Thus, as a group, they lose money. In contrast, occasional day traders experience both gross and net losses. The stocks bought by occasional day traders actually underperform those sold, even before considering transaction costs.

There is considerable cross-sectional variation in the performance of day traders. Over the typical six month horizon, using lower range assumptions regarding transaction costs, less than 20 percent of day traders earn profits net of transaction costs.

These results paint a rather dim portrait of day traders. However, we do document a select few are able to consistently earn profits sufficient to cover transaction costs. We identify day traders who earn substantial profits over a six-month period and analyze the performance of their subsequent trades. These profitable day traders continue to earn stellar returns. The average day trader in this group earns a semi-annual income of over $NT 1 million from his day trading activity, though the group’s median income is a more modest $NT 126,000. The stocks they buy outperform those that they sell by 62 basis points per day. These profits survive transaction costs. In other words, there is strong evidence of persistence in the ability of day traders.

Our analysis makes clear the need for comprehensive risk disclosure. Prospective day traders should be apprised of their likelihood of success: only two out of ten make money; fewer do so consistently."

The good news is transaction costs have been falling, and if you can profit before transaction costs, there are ways to reduce them further.

Academic studies of price behavior also suffer from this aggregation problem. They usually look at all price changes over a long period of time and conclude there is not enough serial auto-correlation of prices to overcome transaction costs. That is, past prices do not correlate to future prices enough to profit after costs. But the successful trader doesn't care about the aggregate behavior of prices, he cares about finding the temporary anomalies that do allow profits after costs. The difficulty of being selective with one's trades is similar to the difficulty of "playing tight" in poker. Not everyone can maintain that level of self-control.

I agree

this is a great thread

I have read this whole thread and I want to say thank you. It was very informative on a basic enough level that a beginner/novice like myself can understand. My question is about taxes though.

Let's say you make $400k per year in day trading and have like 2 mil saved. Some in bank and some long positions + other monies and interests. Around how much, or what % of your total yearly profits, with interest on all monies that you earn per year would you pay in taxes per year? ...Capital gains tax included.

Also how much do you put away, You said you can spend $150k a year easily. So lets say for this example you spend $200K a year on average. What do you do with the other $200k? and what % of that goes to Long term stocks and what % goes other places for long term savings, and bank accounts etc.

Im sure you have a good accountant. What basic methods, and legal loopholes do you use to lower your tax bill? These are just vague figures, and I undersand if you answer vaguely. I just want to know what someone making this kind of money in this field would pay in taxes per year

Thank you

If you have a creative accountant that specializes in taxes you can get away without having to pay too much.

I won't get into my personal details I hope you understand.

Here is a link to one of the best firms you can use and I would even recommend them to poker players.

http://www.greencompany.com/


I use to invest in real estate (re habs) but since the market went south I haven't touched it.

I have a sizable private investment in a bio fuel company that has some serious long term growth potential.

Mostly I just enjoy life though and spend 80% of what I make on lifestyle.

The normal stupid things:

Women
Cars
Houses
Clothes
and I Travel a lot (first class)

I went to Tao in Vegas the last time I was there and spent 9k in one night.

http://www.taolasvegas.com/

With its big intraday swings is DRYS a good candidate to day trade? The volume in this stock has been way above avg over the last 8-9 days and exceeded the float on several days so the vast majority of this volume has to be day traders.

Is this the type of stock you target?

DRYS is an excellent starter stock for someone to learn the basics on.

I personally target larger companies with bigger market caps like GOOG, POT, RIMM, MA but really anything that is having consistent unusual high volume spikes for a few days gets my attention.

Once you find a hot stock or sector that gets into play you have a cash cow for awhile.

Fertilizers were an excellent for the last 2 years. POT MOS MON AGU

Solars had a nice little run for about 9 months earlier this year. FSLR SPWR

Oil stocks where great immediately after Bush took office and for a long time after the war started. XOM APA DVN

these are all just some examples ...

The bottom line is you have to do your homework and follow the markets as well as the news and what's getting attention and why.

I am a total n00b, but how the **** can you move the market, for example the GOOG with your measily $1m?

When you loose money on a trade, what is the usual reason? In poker terms, would it be closer to a bad beat, getting coolered (like KK vs AA preflop) or just misplaying a hand? Thanks again for a very interesting thread.

Yes you are a total noob and since you had to swear at me I will explain it to you like a 2 year old.


http://i447.photobucket.com/albums/q...etpro/goog.jpg


1 million measly dollars of a $300 stock equals 3000 shares

Look at the depth of the market and you will see how much you will move the market IF you hit the offer on that many shares.

This is a game of inches and every penny counts.

also

GOOG is the most expensive stock I trade and you "trying" to make me look bad and quoting me on it is a slow roll and out of taste.

Nice try though.

A million dollars does not move the market too far on a lot of things though like futures markets of many commodities. I am mildly surprised it would move big stocks like GOOG, but I def take your word on that.

I said I was total newbee. You should not seek any ulterior motives behind my question. I picked google because its the only symbol I know lol.

You lose money for multiple reasons.

1. Execution errors

Entering the wrong trades or key strokes into your platform.

This happens more then you think.

2. As we would say in poker, Variance.

Edges = areas of possibilities.

Because each and every moment is unique and the players are constantly changing nothing is for sure in the market or any trade for that matter.

We trade because we "think" the market is behaving in a way that we can understand at that moment BUT that can change in a heart beat because new buyers or sellers show up that we did not expect.

3. Someday's your just off your game and you think your reading the market right but your just having a bad day for various reasons ie: not sleeping well etc etc...

No problem sorry if I mis read your post.

I hope you understand it better now though