A Successful Trader
Posted 01 October 2011 - 09:20 AM
Posted 01 October 2011 - 09:39 AM
Most traders fail because they want to hit home run on every trade.
Not unlike traders always attempting to get into position for that wave-3 (better yet, the 3-of-3). Just like crack-cocaine.
Have you noticed that the $100K income level has been used as a benchmark for 20 years or so? Same thing for "millionaire".....that's been going on for over 50 years.
Posted 01 October 2011 - 10:44 AM
Posted 01 October 2011 - 11:37 AM
Posted 01 October 2011 - 12:38 PM
DrWu - I use those income levels merely as examples rather than the "benchmarks", but I get what you're saying. The nominal median household income's still hovering around $50,000, but the inflation adjusted figure is another story.
relax - You've brought sexy back. :=)
its all there in my tag line:)
www.bubbleshort.blogspot.in My Blog with focus on markets and "Act" of trading
Posted 01 October 2011 - 01:33 PM
The term "successful trader" is somehow associated with someone that's rich and famous. And, since most people don't personally know too many people, if any, that are rich and famous, they naturally deduce that there's no such thing as a "successful trader".
To me, a successful trader is a working class person, who's able to earn sufficient income to support himself. It's that simple. They may make, say, $50,000 or $100,000 a year, and they don't go on TV to tell the world about it. Other than their family and friends, no one else in the world knows about them.
Let's say a person's goal is to make $50,000 a year. He can break it down to $960 a week, $190 a day, or $38 per trade, if he makes 5 trades a day on average, to achieve this goal. Given the skill, the experience, the right trading system, and luck, it's not really all that complicated or unachievable.
Most traders fail because they want to hit home run on every trade. Home runs do happen, but it's only because of all the hard work that's put into it. And, the harder we work, the luckier we get.
At one time I traded on a futures exchange. It was populated by "locals", guys who traded their own account (there were no women at the time). Alot of guys said things like "I only need to make $100, $200 per day". And as your arithmetic shows, it ought to be easy. But it rarely seemed to happen. I'm sure the reasons for this probably varied by the person, but I have a theory as to why it was.
When a guy starts off with the idea that he only needs to make let's say $50 per trade on 4 trades, here's what happens: The first day he makes 4 trades and makes his $200. The next day he has a couple of $50 losses, and a couple of $50 profits, so the day was a scratch, 0. So now our trader has made an average of $100 per day for the 2 days, under his goal. If he makes $200 on the third day, he is still under his goal.
Now, making these skinny profits is in itself a problem, because it's difficult to keep your losses that small. Take the ES for instance. One point is $50. So if you're going to make $50, what type of loss are you going to take? I defy anyone to show me a method where they took $50 profits in the ES and only lost $50 on their losses. You have to approach it from the standpoint of how big your loss may be in the market your trading. Take the ES again, let's say you determine that it's reasonable to trade with a 5 point loss, or $250. To make this work for you you're going to have to have a profit of perhaps $500. All of a sudden we're expecting a profit of 10 points ES, and obviously you're not going to be able to do that 4 times a day. So using these numbers, a $500 profit one day, offset by a $250 loss the next day, gives you $250 profit over 2 days. Unfortunately that only gives you an average of $125 per day. And further, a 10 point day trade every other day is not going to be so simple.
Over the years I've decided approaching the market in a way where you break it down as you have done does not work. "Trading the market for a living" gives you the wrong approach. And I might add, I saw few people trading as locals on the floor actually "make a living" for a long period of time. Many more went broke trying. And keep in mind, these were guys in a position to do exactly what you suggested, paying extremely small commissions, ability to make quick trades that the public trading off the screen can't do, and the advantage of seeing the order flow.
The guys I know that made a living off the market traded bigger swings typically. Not that there aren't examples of guys doing as you suggested. The bigger swing allows you to set your stop appropriately for the market. But, what the bigger swing won't do is give you XX every trading day. Your money will come more unevenly, perhaps similar to the compensation for a salesman on commission or a store owner who sees swing in his daily income.
Frankly, I think "trading for a living' sets you off on the wrong road. "Trading to make a fortune" seems to me to be the right tack. A guy who can pick up some of these bigger swings is has that potential. A guy who recognized March 2009 as a bottom could have really cashed in with judicious leverage in futures or options, allowing the market to work for him, instead of working at the market every day.
Just an opinion. Maybe it's just my age.
Posted 01 October 2011 - 01:33 PM
He can break it down to $960 a week, $190 a day, or $38 per trade, if he makes 5 trades a day on average
...assuming 100% winning percentage for simplicity sake. Of course, in real life, the lower winning % would require higher number of trades. higher profit per trade, or the combination of both to achieve the same goal.
By the way...
6 out of the last 11 years, since 2000, are down on the 1st day of October. However, all the down days are relatively small, i.e. Doji & Spinning Top, except for 2009 (-2.6%). As far as 2009 goes, we all know that by the time October came around, the market had already gained 30%-40% since the March low.
And, when it goes up, it really goes up. 3 of the 5 advancing sessions in 2002, 2003, & 2004 in a row are up 4%, 2%, & 1.5%, respectively. In 2002, the market had suffered a double digit loss in September. It looks like the harder the selling in September, particularly the 2nd half of the month, the harder the rebound on the 1st of October.
IndexTrader - Looks like we were posting at the same time. Just saw your comment above.
Everyone's different. What works for me may not work for others. I personally found it very rewarding taking $100 here and $50 there just to make my quota. And, they do add up very nicely.
Edited by TechMan, 01 October 2011 - 01:41 PM.
Posted 01 October 2011 - 02:06 PM
Posted 01 October 2011 - 02:29 PM
Posted 01 October 2011 - 02:49 PM
Personally, I treat trading as a wealth building exercise...
You're talking about the longer term holding instead of day trading accounts. The strategy for that, of course, is totally different than day trading. Yes, it's a "wealth building" process.
But, even for my SEP IRA and long term portfolios, I don't set my goals like that. I only take one trade at a time. I guess that's why for me "profit protection" is so important. To me, earning $1 is much better than $0 or losing.
It just works out so much better for me to take small increments to get to $1 million as a working class trader than trying to get $1 million all at once.