Paul Tudor jones started out as a broker and with his experience he stated what's pretty logical when you are placing the odds against you by incurring higher transaction costs and when cutting your winners short that 95% of daytraders are losers.
Cutting winners short arbitrarily and limiting your upside compounding potential ain't great financial sense.
The big money is in the big swings, and a minority of your trades will make the majority of your profits, so you have to maximise your winners, not prune em.
"An Analysis Of The Profiles And Motivations Of Habitual Commodity Speculators
He is both an aggressive investor and an active gambler. This trader does not consider preservation of his commodity capital to be a very high trading priority. As a result, he rarely uses stop loss orders. He wins more frequently than he loses (over 51% of the time) but is an overall net loser in dollar terms. In spite of recurring trading losses, he has never made any substantial change in his basic trading style. To this trader, whether he won or lost on a particular trade is more important than the size of the win or loss. Thus he consistently cuts his profits short while letting his losses run.
http://ideas.repec.org/p/ags/uiucao/14768.html
It's all about maximising your winners, and
not about wanting to be right.
Multi-Billionaire George Soros:
"I don't care when I'm wrong. I cut my losses and move on to the next opportunity. Trading is not about being right. It's about how much you make when you are right."
You have to max your winners, because:
Kenneth Grant, who in "Trading Risk: Enhanced Profitability through Risk Control", depicts his experience as risk manager for some of the best and most successful hedge funds, amongst others Paul Tudor Jones funds and Steve Cohens SAC Capital, that:
ACROSS ALL MARKET CONDITIONS, TRADING STYLES, TIME FRAMES AND TRADERS, ONE RULE HOLDS TRUE:
10% OF ALL TRADES INEVITABLY ACCOUNT FOR 90% OF PROFITS !
http://www.amazon.com/Trading-Risk-E.../dp/0471650919
Thiose figures are roughly true in my case as well, roundabout 20% of my trades resulting in 80% of my profits, just reproving that
Paretos Priciple is ubiquitously valid, but also means that your big winners when you do get em really need to be maxed out, and not cut short if you want to align the odds and extent of your success with your trading timeframe.
Of course there are some successful daytraders, but the odds of making it when never capitalising on the really big swings are definitely against you, and even if you do make it you won't be getting filthy rich because your upside potential is limited as well due to liquidity issues, and all that while stressfully having to watch a screen the whole day, so I'd really consider if you want to go down that path.
In summary, very few make it in daytrading, those that do have a pretty stressful life, and you won't ever be howling with the top dogs, so why choose daytrading ???
Nothing to do with funds either, Dan Zanger started with all of 10 000 dollars and turned that into 42 million within 2 years off of simple chart patterns and with really letting his winners run by holding over several days or weeks depending on chart.
Or think of Darvas who turned what was it, 20 or 30 k into several million within several months,also holding over days and weeks, etc.
