Note: This is another in the continuing series of great posts on Elite Trader. I hope you enjoy this as much as I am enjoying rereading many high quality posts and insights. If you have any poster you would like to nominate, please send me a PM. All the posts in this thread come directly from posts made by Vulture with as little editing as possible. Enjoy! -------------------------- RE: Kiev and Bull Market Shrinks I had to laugh when I read that critique of Ari Kiev because I remember reading portions of his book that came out of a few years ago and refers to several of his seven figure clients who were "not realizing their full potential"...At the time of his writing(probably 1999) he was probably the hottest thing going as there were numerous traders who felt left behind if not making 100% per year, and the ones who were not making double digit returns probably wanted his advice as well...The entire market was all about positive expectations, most of which were entirely unrealistic... Flash forward 3 years and I would bet the majority of his clients only wished they could replicate their "pre Ari Kiev" performance...Many stock mutual funds just disintegrated and many bull market traders have blown up...Sometimes in the bull market mania no one can discern between the talent and the hype and I get the impression that many of these trader "shrinks" were at least as hyped as many of their clients... I don't have a real big axe to grind with these people, but I have heard about the techniques they use and their overall approach towards counseling their clients...Like many others before me on this thread have said, no amount of optimism can overcome a faulty or defective methodology...The fact of the matter is that in a market where most equities were in a straight line up no one EVEN KNEW if they had a defective methodology and these shrinks were just cheerleaders telling them that they were great guys and gals who should shoot for the stars... The best advice I have ever gotten has been from the guys who have been around years, have blown up accounts and come back to make a living at it...they always have the same advice, which is, namely, "never take advice from anyone who doesn't trade!!!"...
This may appear to be a forced comparison...But I honestly look at professional(i.e. people who derive their sole source of income or bulk of their income from trading) trading and professional golf as very similar fields...Like the PGA Tour where you have to EARN your paycheck from week to week, where in any given year you can find yourself bumped from the Tour and back at the Q-School...where week in and week out you have to trust your "swing" and focus almost exclusively on the "now" moment, where you are up against other professionals who have just as much talent and are as just as hungry...One year you can be at the top and two or three years down the road you can be out of the game working as a club pro or struggling on the mini-tours... Trading is no different...One year you can really be "on" and one year you can be "off"...Hopefully, if you have enough self-knowledge you can detect if/when things are not going right mid-way through the trading day and not get annihilated...But that takes experience and objectivity, not unlike that of a professional golfer... If you ask many of the former great pros on the PGA Tour what went wrong, you will often hear them say, that they "listened" to someone else's opinion about what the perfect swing was or they made unnecessary changes and eventually lost the "feel" for the golf swing and the game itself...The best golfers know their own swing better than anyone else and any changes they make are minor...On the other hand, amateur golfers are constantly picking up issues of Golf Digest(Active Trader, Futures Magazine) and reading articles written by "Club" Pro's who do not have the talent to make it on the big tour, but can tell anyone who wants to listen "how" to do it, but cannot lead by example...It is no different with the trading industry, you can pick up any book, magazine, etc, etc... and find plenty of opinions about how best to do it, but 9/10 times the people preaching the information are not the greatest practioners... I am not going to claim that Teresa Lo or whomever else was mentioned as chat room trader cannot trade or does not have any worthwhile advice, I feel that it is just the contrary...She probably has an excellent grasp of trading and makes money for herself, it might not be seven or eight figures, but that is not really too important for the people she is instructing...Personally, I feel that many of these people who trade AND run advisory services are like the members of the professional tours who know that any given day they can lose their "swing"(edge) and have a whole lot of financial responsibilities without any source of income...This is not to say that they cannot trade, just that they may have a better understanding of their limits as traders...After all not everyone was born to be a Marty Schwartz, Monroe Trout or Tudor Jones... For what it's worth
I started with stocks back in 1997(pre-bubble mania) and then went to futures...Stocks were far easier in my opinion than trading something as volatile and unforgiving as SP 500 futures, Nasdaq futures or e-minis for that matter... Someone new would have a much better learning experience with the listed stocks, which is something I definitely agree with...Once someone starts going the futures way, one single mistake on a smaller account means the game is over, no mulligans... But, after saying this...I feel that anyone who started with futures and survived would have a much easier time moving to listed stocks...Kinda like trading the market at 1/2 speed with more room for "slight" errors... two cents worth...
I agree with Darkhorse...Once your money is on the line, all of the seminars and training will go right out the window...Every trader has a "different" personality in the markets...Some can only trade breakouts, others can only fade breakouts...It is so highly personalized that training, aside from the most basic information, often hinders rather than helps... And once you are in trades, you are far more sensitive to the trading environment than when trading on "paper" which does not simulate anything aside from fantasy...
There are currently a few futures trading firms, not unlike, what the prop stock firms do...I know of one here in Chicago and I am certain there are many other in the CME building...I had considered doing something such as this, but it did not really appeal to me simply because I already have enough capital on my own to cover margin for these trades...Even with a 25k account you "could" trade around 15 minis(although I have never done this myself)...These equity daytrading firms get you in the door because you want the leverage, and perhaps to a lesser degree the technology and the office structure, which admittedly is a very nice feature... Regardless, Don is right as are alot of other people when comparing equities to futures...The futures require another type of skill set, in my opinion, and not that many people do make the transition...You also have to be able to use variable contract sets, etc and there is no real "easy way" to learn them...If you had to cover the overhead of a professional firm and split a percentage of the profits, I believe it would be a surefire way to NOT make money...LEt's face it very few people are making a dime trading the mini's in this current environment, throw in a profit split and some fixed overhead costs and you are just asking for trouble... Just my opinion of course...
It is funny that you mention 2500/day =$500k per year...I always hear this argument from people BEFORE they start trading...It is almost a universal belief that some absurdly high number can be AVERAGED, but when even the better traders average their numbers (good and bad), they rarely come out to this high figure... I agree with your contention that the bigger numbers are made when the "noise" factor is filtered out...I agree with this for a number of reasons, not the least of which is that fewer, higher quality trades enable more trade management options, even hedging for longer term moves, etc, etc...However, I realize this is outside the scope of this argument and of the day trading/prop firm philosophy so I understand that it cannot be used...Regardless, as Hitman has said, the overall market volatility has dropped off so much from even a year ago, that making 500k now is the equivalent of 1m last year and perhaps 2m two years ago... I also find that trying to "average" a specific dollar amount per day is not exactly beneficial to trading...In tends to make you feel complacent on days when you have the "edge" and stop too soon, yet it makes you want to push your luck on days when there clearly is not enough range or opporunities to hit a pre-determined and arbitrary daily goal...
Another interesting phenomenon that has almost always been present in the stock indicies has alot to do with the mechanics of the rollover...I do not know how many times I have seen the roll from one contract month to another turn into some form of "squeeze" in the days prior to the rollover...This makes sense when you consider that longer term position traders have a limited life span in any specific front month contract...Hence, traders who were short the NAS futures in the MARCH contract were squeezed out during the first few weeks of March and then rolled into the June contract at which time the NAS has dropped like a rock... In addition, the first quarter has ended and the pressure to keep the indicies in the uptrend has ended...Rather than simply trash the market down to the February lows it appears that the market just hits a dead zone and alot of covering takes place very quickly at which point the shorts just resume their selling... The real problem most people are having does relate to the intra-day breakouts and it is interesting that so many people have picked up on it recently...From my perspective, the market has basically eliminated the "obvious" entries and, therefore, the non-thinking traders(especially in the index futures markets)...During the bull market, many traders could be very "sloppy" on the entries and rely on the residual momentum to "take them out" for at least a small profit...THe difference was that there was a great deal of committment to both sides of the market...Now, markets can make seemingly "clean" breaks and then stop on a dime and reverse to the days highs or lows...Many, many people have been getting hit with these new market tactics...I just believe that there is no commitment on either side of the market and that the market, as a whole, has become "reactionary" at all levels, with the majority reacting in a major game of "chicken"...
My personal opinion about this, (remember this is only one opinion), is that the bear market has an entirely different feel and therefore requires different trading tactics...The entries are far more important in this environment and losses cannot be recaptured as easily because the markets tend to compress very often...You have very sharp spikes off of lows into areas of resistance and either you step up and sell the strength or you find yourself flat and without an entry...This market requires a very counter-intuitive approach...I often track a small variety of common systems to see where they enter and exit and many times the systems are "triggered" by a few handles and then annihilated... Past few weeks, the market has basically been a cover off of the lows and sell into the longer timeframe resistance...Regardless of what people say about "not picking tops and bottoms", fortunately or unfortunately, that is how money is made in this environment...
Someone asked what dates these surprise price spikes happened...I remember everyone of them clear as day simply because these things stop your heart whether you are long, short or flat...Not only that it is the euphoria and despair of those who were lucky or unlucky enough to have been exposed to these moves that really is the most amazing aspect of these price spikes... For what it's worth, the three that I clearly remember that are probably the most referred to occurred on the following dates: Oct 15, 1998...Fed reserve cut the discount rate following a private meeting about the illiquidity following the Russian crisis, Asian crisis and LTCM blow-up...This occurred on a Thursday one day prior to the October options expiration...I was lucky enough to have some OTM calls leftover from a spread I had unwound that day...That was as lucky as one gets, pure luck...Many others were positioned short and had no way to get out...This announcement occurred minutes after the bond market closed and provided an absolute rocket shot that propelled the market higher throughout the remainder of 1998 thru 1999...It became clear that day that the FED was willing to do anything to achieves its end goal... January 2, 2001...Fed cut the Fed funds 50 basis points mid-afternoon and caught many, many traders short the market...Once again, there was almost no way to get out of the market following this news spike... April 12, 2001...Again the Fed cut rates by surprise and sent the market flying higher... Each time this occurred, one could have(theoretically) exited the trade prior to a 50 handle run against them, but they would have needed to be at the keyboard...
Interesting thread... I would agree that many of the returns that CTA's return are really inferior to what a very good experienced discretionary trader will earn...But, then at the same time, you have to distinguish the two objectives...For a CTA, his "gravy train" is assets under management and therefore his portfolio will always be DE leveraged so as not to increase the volatility of the account...If you notice, the guys who get the most assets have the most boring returns...They are almost running a "money market" fund...That is trading as a money management business and, to be honest, I find very little of value from their techniques and methodologies... The best traders are the proprietary and discretionary traders...However, we very rarely hear about them because they are not in the business of marketing themselves or their returns...But either way, I find that they have an incredible "arsenal" or tricks and techniques for minimizing drawdown and increasing leverage when they are right...That is the stuff that always interests me...Whether it be the way they scale into positions or hedge their positions, or scale out of losing positions, these are the techniques used by "survivors" not by the slick, Armani suits who sit behind a desk and run a mechanical system on a 400 million dollar portfolio of derivatives...These guys get alot of press, but what can really be learned from guys who are just trying to minimize drawdown and manage a huge portfolio...Some will disagree with me, but I would like for someone to tell me what "tricks" these guys use that any of us can use...