Can all traders be successful traders?

[darrenf]

darrenf

historically your view had been the accepted wisdom

but things have changed

the ability to buy and sell over a period of time is trading - albeit you might want to add a period of time to differentiate the type of trader from intra-day to longer time frames

the reality was that the real definiton of buy and hold - was - i really dont have a clue and how can i when i only do a few trades now and then - so i will buy now so i look as though I am doing something, but i wll have left the job and gone to a new fund before the xxxx hits the fan

there can only be absolute return trading - by logic - the alternative is a loss!

the fact is that the key business models of these funds etc is to make money from the monies coming in, and for whatever reason - they have discovered that no matter what they do wrong - people tend to leave the bucks in and even more comes in - so you cant blame them for taking people for a ride - if they did not work for the funds - they would only be qualified to get a job sweeping up somewhere

Hi Stevet

I don't want to bang on about this because our conclusions on this are in agreement: these type of funds/ managers business model is to make money from money coming in, or more precisely from net funds under management. As long as inflow exceeds outflow, they have an increasing revenue from amc's. In order to keep funds under management, they have pretty lowly aims, ie to outperform an average etc. As long as they have a relatively believable story to tell joe public then they can defend poor absolute performance by using the old excuses of "we are still doing well relative to our competitors" or "The market overall is poor which is why our fund has lost money this year". Most people who invest in these type of funds are passive investors, in it for the long haul and even if they bother to track performance, will usually be satisfied with such explanations, hence they leave their money put.

As long as this is the case, institutional fund managers will continue to make profits.

What I still disagree with though is the notion that these people should be regarded as traders. I work in the financial services industry and know some fund managers at high levels in such institutions. I also know some discretionary fund managers. What I would say is that all of these people do not regard themselves as traders. I have discussed with one or two of them my own strategies, and I have to say they regarded my trading activities as highly speculative, akin to gambling. They look on trading as gambling and what they do as investing. They would not consider employing such tactics!

Now you and I know that "trading" is capable of producing much better returns, even with less volatility to capital, but clearly these people do not understand this and can not be described as traders?

Personally, I take it all with a pinch of salt. I look at my own results in comparison and have to say that I can smile smugly to myself that despite my approach being frowned up on, I am acheiving better results than if I had invested my money in their fund.

That said, many people do invest in them and imo, for passive long term investors who want to gain exposure to asset classes other than cash, then these funds are the only real alternative. As long as there's a demand, you can't blame institutions from making a profit out of it?

 

[stevet]

darrenf

there are no other business people in the world who are only buyers and not sellers - buying makes someone else rich - selling creates the wealth for the buyer

in truth - they are not there to make money from trading - they are there to find ways for the company running the fund to make money - so they can share in the profits of the company at the expense of the investors in the fund

so they of course would think you are gambling if you are trading, simply because they themselves dont need to gamble - they have a win win situation living off and depreciating the investors money and picking up their cheques regardless of how the fund does

and if anyone queries them - they can just say that they said that buy and hold was the way they do it -so if you are looking at having lost 25% or 50% or whatever of your investment money - or dont have a pension now - you just can wait to get it back -maybe 5 years, maybe 50 years, maybe a 100 - but there is a good chance that with buy and hold -one day you can get your money back!

 

[Stoat Trader]

Just So.

But how about if the 5 guys are all playing to their own rules and each one doesn't know if the others are winning or losing playing by THEIR OWN rules. Can't happen in poker obviously as the rules are fixed but in trading?

Take timescale as an example:-

Trader 1 is a scalper and trades 1 minute bars. The market opens sharply up and he/she decides to look for a reversal and go short to play the gap as evidence shows that gaps often close. He is successful and gains 10 points/ pips/ cents profit.

Trader 2 is an intraday position player, looking to catch the main trend of the day. He she trades using 15 min bars. He she buys on the open, a sharp upmove which according to their rules suggests a good chance of the main trend being up for the day. After an intial correction, (gap closing), the market takes off northwards again. Trader 2 holds until the close and takes 60 points profit.

Trader 3 is a swing trader, looking to catch larger moves over the course of a few days. Trader 3 is short from 2 days ago and has a stop at b/e. Today the market opens sharply up and continues modestly upwards for the day. However, the stop is not hit and as trader 3 has a profit target of 200 points, leaves the trade open at the end of the day as today is a correction in an established longer term downtrend. The next day, the market continues to fall and hits trader 3's profit target.

All these traders have been successful on this occasion, trading the same market but over different timescales and using their own rules. Each one if they have a valid method can be successful over the long term.

Clearly, each trader will lose sometimes, and their money will be taken by other traders.

Also, clearly, all market participants can not be profitable over the long term. However, all traders that have a valid trading method and be able to stick to their own rules, (and be flexible in adopting new rules when old rules start to be less effective), can be effective over the long term.

The difficulty therefore comes in a) finding a valid trading method and b) trading it to the rules.

You have written here exactly what I think. Each to their own. We are all different and trade differently. How else would we have all these theories from the top men and women who know their noodles, if we didn't have precisely these different methods to attain the same end?
Different methods will still achieve the same end. I know from rioting about this with member Number 4!
Wonderful post.
The Stoat Lady

 

[stevet]

as long as there are pension funds and mutual funds - trading will never ever be a zero sum game for professional traders

 

[jj777]

A first class post, thanks. Some very good points raised, not all of which will be universally popular but which are nevertheless true and well made. You rang a couple of psychological bells :-(

MT

ps any significance to the 777?


Hi Jtrader-

You ask "If all traders were to use a trading system that ensures greater profits than losses - and stick to it, is it fair to assume that all traders can be profitable/successful and make a living from trading?"


Yes and no. We all know that the markets are driven by the need to make profits short or long. The little research that exists in Cognitive Psychology suggests that losers are influenced by the bias called The Sunk Cost Error. We are also influenced by the Confirmation Bias, making us continue in an incorrect course of action. These are traps that occur in every day life as well as in trading. Traders rarely use a robust and efficacious model of the skills required to achieve competence. When one trains in medicine,law.etc., the model is clearly developed and the learning is structured in such a way that you build upon skills as you study further.

Trading is an anomaly in that anyone can pretend to have knowledge and some gurus exploit this to their own selfish advantage. There are "experts" in trading psychology who hold no qualifications at all, let alone a degree in psychology. Traders are inclined to follow psychobabble because it is easier to work with stereotypes than learn a rigorous methodology. It is easier to have fun by making up parables and allegories because the creators don’t have the knowledge to develop robust ideas that can be tested against a base line. Dealers and Brokers have been shown to make up stories to fit the facts. It is a salutary and frightening fact that you need only to study for 40 hours to become an FSA “approved person”.

So my suggestion is “yes” everyone with average intelligence can become a successful trader in the same way that all the average population can pass GCSEs. And “no” not everyone passes GCSEs nor become successful traders because they fail to identify what needs to be learned and if knowing what to learn, will self sabotage by avoiding to study the most difficult subjects (and other self sabotaging behaviours) . This of course is a very narrow answer to a huge area. My apologies for keeping it brief and missing a number of important points but I must return to study and the screens.

Hope this helps. I am back to monitoring a trade and studying now ;-)

Jj777

[/QUOTE]

 

[darrenf]

as long as there are pension funds and mutual funds - trading will never ever be a zero sum game for professional traders

Stevet: Agreed! I think we are agreed on most things here although your view of fund managers is obviuosly a little more cynical than mine?

Stoat trader: At last, someone agrees with me

My conclusions? There are many market participants and ways of investing/trading: institutional funds, long term buy and hold, hedgers, speculators, individual investors etc etc.

As individual speculators/ traders we fall into a category where we look to profit from flutuations in one or more of our chosen markets, long or short. There are many ways of extracting a profit and in order to do this consistently, we must devise a valid method and stick to it. This is the difficult part and why many can not produce consistent profits. Both steps ie 1)devising a method and 2) sticking to it are difficult.

Could more traders be successful? Probably, given that there are many other market participants to take profits from, not just other traders and we are all playing our own game, and can make up our own rules.

 

[jj777]

Skills Competence in trading

Thank you for your kind words.

Please ignore my previous posting to you. I made a booboo by pressing the wrong button so previous post went without my message. I did this once before and had placed a few large S&Ps the wrong way! Yikeeessss....

Does the 777 have any significance? I guess I could discuss the basis of superstition from an empirical perspective ...but hell...facts and inferences are so boring even thought they may approach a truth. I'd much rather play!!!

Soooo....from a numerological and "mystic" perspective there are three 7s which have a product of 21 and when summed make 3 which is the number of............kool eh...

And 7 is the number of perfection and I'll keep shovelling if you like. I've read plenty on mysticism and loved the works of the beast AC 666....what a sad man! The Temple of the Golden Dawn. Did you see his house on the island...pathetic small hovel...!!!

Well the fact is I can never ****ing get a user name I want and I always bash a few digits. Well..I had to come clean.

BTW - I think Gann had something approaching a truth so whilst I'm puckish regarding mysticism I am open to all things of value and hold what R Dilts called the "spiritual layer of belief" as deeply important. However, I do think there are a few who like to puck with heads on this site.

Wishing you good trading!!!

jj777 (or 333 or 555 or 999 or 222)

A first class post, thanks. Some very good points raised, not all of which will be universally popular but which are nevertheless true and well made. You rang a couple of psychological bells :-(

MT

ps any significance to the 777?


Hi Jtrader-

You ask "If all traders were to use a trading system that ensures greater profits than losses - and stick to it, is it fair to assume that all traders can be profitable/successful and make a living from trading?"


Yes and no. We all know that the markets are driven by the need to make profits short or long. The little research that exists in Cognitive Psychology suggests that losers are influenced by the bias called The Sunk Cost Error. We are also influenced by the Confirmation Bias, making us continue in an incorrect course of action. These are traps that occur in every day life as well as in trading. Traders rarely use a robust and efficacious model of the skills required to achieve competence. When one trains in medicine,law.etc., the model is clearly developed and the learning is structured in such a way that you build upon skills as you study further.

Trading is an anomaly in that anyone can pretend to have knowledge and some gurus exploit this to their own selfish advantage. There are "experts" in trading psychology who hold no qualifications at all, let alone a degree in psychology. Traders are inclined to follow psychobabble because it is easier to work with stereotypes than learn a rigorous methodology. It is easier to have fun by making up parables and allegories because the creators don’t have the knowledge to develop robust ideas that can be tested against a base line. Dealers and Brokers have been shown to make up stories to fit the facts. It is a salutary and frightening fact that you need only to study for 40 hours to become an FSA “approved person”.

So my suggestion is “yes” everyone with average intelligence can become a successful trader in the same way that all the average population can pass GCSEs. And “no” not everyone passes GCSEs nor become successful traders because they fail to identify what needs to be learned and if knowing what to learn, will self sabotage by avoiding to study the most difficult subjects (and other self sabotaging behaviours) . This of course is a very narrow answer to a huge area. My apologies for keeping it brief and missing a number of important points but I must return to study and the screens.

Hope this helps. I am back to monitoring a trade and studying now ;-)

Jj777

[/QUOTE]

 

[MysticalTrader]

lol

That is what I thought. Fat Al was an interesting man, but that is off-topic. We should talk about numbers and GD and stuff sometime, not here, not now :-D

MT

 

[jj777]

I would like that. Thanks for your reply .

jj777

lol

That is what I thought. Fat Al was an interesting man, but that is off-topic. We should talk about numbers and GD and stuff sometime, not here, not now :-D

MT

 

[Beach Runner]

I'm uncertain, but did I just read a reference to Alastair Crowley? Is someone holding a black mass before trading pork bellies then? Is it effective?

Sorry, guys, couldn't resist it!

 

[MysticalTrader]

a hex comin' yore way?

LOL

MT

I'm uncertain, but did I just read a reference to Alastair Crowley? Is someone holding a black mass before trading pork bellies then? Is it effective?

Sorry, guys, couldn't resist it!

 

[PurplePerson]

If I'm a sprinter and I join in with a marathon intending to run only one mile, I will outpace everyone around me. Nobody will be bothered or feel threatened by my action, because it will be obvious that I am pacing myself 'wrongly' in terms of the longterm race, and I will be dismissed as a surefire loser. But if I beat one or two others who are doing the same as me, I will have won my own race.

If I am, say, a 10,000metre runner joining in just as a loosening-up exercise, and planning to quit a quarter of the way round, my pace might be 'wrong' by a significantly lesser amount than the miler, but probably still too fast for any marathon runner to regard me a serious contender. If I am a recently injured marathon runner just testing my fitness, I may again be no threat and appear a likely loser even though I may well complete the course to my satisfaction.

If the pack that leaves the starting line comprises a whole range of racers all working to their own agenda - sprinters and middle distance runners mixed in with juniors and veterans and pacemakers. Some chasing records and some just there for fun, it is likely to be impossible for the onlooker, and most participants, to determine who is winning and who isn't. Many will win a category but not the race.

In Formula One motor racing, the mix of 'two-stoppers' and '3-stoppers' and '4-stoppers' and lapped backmarkers all circling on the same track, and some entering or emerging from the pit lane, makes it near impossible for the onlooker to keep abreast of who is ahead of whom and who can expect to achieve whatever is their target, and at whose expense.

With the stockmarket being played by everyone from scalpers to the lifelong dividend-collector, long players , short players, hedgers, and via every kind of leveraged derivative imaginable, each with their own (secret) exit point in mind, and each working their own chosen timeframe, I would have thought there might be ample scope for the canny player to succeed somewhere; in some cases without the losers having a clue as to how to avoid ending up holding the unwanted parcel.

Purple ;o)

 

[TheBramble]

A nice brace of analogies PP and thought-provoking for all sorts of reasons...

If we take your example of various types of runners, running in a marathon (though not necessarily running a marathon), in the context of the original posters intention ("Can ALL Runners Win the Race?") - no, they can't.

Some traders may lose less this trade than the last trade. Or lose less this month/qtr than last. Yes, that's an improvement and they can consider themselves successful in their own terms, subjectively.

But in the long run (pun intended), you have to be first past the post (i.e. make profit) to stay in the game and be considered, objectively, to be/have been successful.

If you're first past the post, nobody else can be - they are losers.

I understand your position and how the subjective view can be considered from a number of perspectives. However the objective observer would see one person making a profitable trade at the expense of one (or more) others.

Yes, all Traders can consider themselves successful in their own terms based on whatever criteria they set themselves (together with any subsequent modifications to accommodate reality).

No, all Traders cannot be successful in real terms as measured by objective reality by the one true yardstick of success in the markets - are you making a consistent profit?

 

[PurplePerson]

...If you're first past the post, nobody else can be - they are losers...

I think we might have to agree to differ on that one Tony ;o)

I don't want to pursue the marathon analogy too far (analogies have a habit of turning around and biting back!), but I see the stockmarket as, in effect, a permanent parcel-passing race in which the intended finishing line and target for some runners is unknown to the others.

Those heading en masse towards the more obvious visible start-finish lines are vulnerable to manipulation by race organizers and rivals (and bookies). So my answer to the thread question is, no - not all traders can win; but the canny ones who recognize the event for what it is can expect to be consistently collecting prizes, while newcomers and others who think it's a straightforward race (or, having sussed that there is more than one agenda but having not twigged how many unsussed agendas there are) will consistently form part of a large enough pool of losers to fund those prizes.

(Think I'll shut up before my analogy bites me!)

Purple..

 

[GirlPower]

This might help...

Lawrence Harris.

 

[philhackett]

Trade Forex, specifically Cable and have watch list which includes the Euro and Jpy pairs. Use Kagi alongside Candles with CCI and DiNapolli Macd. Have Bollinger, Dema and Tema on screen; they are good indicators of trend. Always use ADX to establish a trend is in place over; 25 is a trend and over 40 is a strong trend. Always watch Jpy when Oil os in the news. Nevert Spread Bet. Use Dealbook as your broker and Wes Newman as your manager.

Phil

 

[LION63]

In economics it is accepted fact that real wealth is not created by the world, it is simply redistributed. This theory is the basis on which all financial markets work. There is no extra money (wealth) creation at any given time it is simply redistributed.

It therefore stands to reason that the successful traders take from the less successful or the blissfully ignorant. Market participants can be grouped into various categories ie. long term investors, funds, traders, hedgers, speculators, brokers etc.; but the fact remains that you are all trying to get a piece of the cake. As some have pointed out, some losers are not aware of the fact that they are losing their money on an annual basis others feel that because they are losing less this year than they lost last year they are doing well (who am I to judge?). The fact remains that a loss is a loss.

It is impossible for all or even most market participants to make money. The best example used in this thread was that of a card game; even if some players had stood up and left the game to be replaced by other individuals, the fact remains that from the total amount wagered at the table participants have left with various percentages. At best, all players will leave with their original stakes but the chances are some will be forced to quit due to their losses; others will feel that leaving with less is better than quitting with nothing later. The lucky one or two will leave with smiles on their faces and the other players' money in their satchels.

 

[Trader333]

Lion63,

In economics it is accepted fact that real wealth is not created by the world, it is simply redistributed.

If that is the case how does real wealth get to be there to start with ? and by comparison to 100 years ago we have a Western World that is staggering wealthy so where has this all come from if it was already there ?.

That said I agree that in trading it is wealth redistribution that happens.


Paul

 

[stevespray]

Lion63….

I’d also have to disagree with your comments regarding wealth, especially when talking about equity and futures markets.

Prices in the markets are determined by one factor alone. Supply vs. Demand. Willing Buyers vs. Willing Sellers. At any given time, while the market is open, there is a perfect balance between the two sides. The true value of a stock or a futures contract is simply the price which someone else is prepared to pay for it. If we take stock ABC as an example. Lets say that at Monday’s open it is worth $50.00. Over the next 3 days it rallies $10.00 and closes on Wednesday evening at $60.00. On checking the volume we see that, between Monday and Wednesday, over 1 million shares were traded. The final result is that on Wednesday evening people are prepared to pay $60.00 per share based on all available information. On Thursday morning, before the market opens, company ABC warns that they’re being taken to court for a patent infringement on one of their leading products. Immediately people will no longer be prepared to pay $60.00 for the stock. The fact that its run up $10.00 in 3 days on 1 million volume means nothing. The stock is only worth what someone else is now prepared to offer for it. Merck & Co (NYSE:MRK) was a classic example of that last week. Take a look at the daily chart, you will see the drop. All because of some bad news. The reverse is true when a company releases unexpected good news. The value of the stock literally ‘goes up over night’. This is simply because people are now prepared to offer more for the stock, its perceived value is now higher and this is discounted into the price. When this happens new wealth is created. In effect it is a bubble of kinds. Stock prices remain where they are because of the balance between the buyers and the sellers. No where is this more evident than the housing market. Prices have gone up quickly over the last few years because sellers have asked that little bit extra and buyers have always responded to pay that little bit extra.

There are actually two areas which you are comparing and you tend to let them feed into one argument. Wealth is always being redistributed, this is the basic economy where people are buying and selling anything and exchanging money for goods or services.
Don’t confuse this with the overall wealth that exists at any given point in time. This is a different factor. The reason that the stock market survives as it does is because people are happy to keep their money in equities. It would be impossible to liquidate, into cash, the value of every portfolio held. If this happened the value of stocks would drop to zero as there would be no demand for stocks. Implicitly this never happens. This is because of liquidity within the individual markets. There are always enough willing participants that will buy and sell over a given period of time. Therefore, effectively, ‘wealth’ is more of a perception than the physical existence of anything. If you have a large stock holding which is increasing in value then you perceive that you are becoming more wealthy. You don’t actually become more wealthy until you liquidate the position and realise your perception by turning it into physical cash. At this point you are no longer a market participant as you hold no stock. Because of this you perceive that you are no longer ‘making any money’ and most people seek a new stock which they can invest their cash in. And so the cycle repeats.

Steve.

 

[JTrader]

Thanks for the replies.

Lets look at intraday trading. If all intraday traders were to trade in their chosen market, in their chosen timscale, strictly with their chosen mechanical trading system - which is sound in basis, profitable, and the trader is prepared to adapt their mechanical trading system to changes in market dynamics through further periodical backtests and optimisations of the system - can all these intraday traders be successful?


Many thanks

jtrader.