MightyMouse

I don't intentionally attempt to keep my losing days to no more than 1.5%-2.5%, but it sort of just happens that way when I daytrade because of the way I cut losses. I generally do not look at my losses or gains while I am trading, though I am completely conscious of whether I am up or down. If I have a a string of large winners, I will want to take larger trades, so I will use the gains as leverage and, therefore, need to do some math. Small losers is absolutely the prescription for maintaining a healthy mental state. I am not going to lie; a string of losers certainly pisses me off, but fear or doubt or other ills doesn't enter the picture. I am not about to try to work on learning how to not get pissed off. I have worked a lifetime at learning how to act when I am pissed off and I am not about to waste all that hard work.

When I say "who" I do not mean specific traders. I identify who by size and strategy. From that perspective you can identify who is in the market. They leave track marks. Learn to read the track marks. It is art and not science. As in poker, there are times that I will simply not take a trade in a market because I am confident that I cannot win because of who I suspect is present. So, 10-20 "set ups" can occur, and I will stubbornly wait on the sidelines. I have a good idea of who I shouldn't try to slug it out with and I have a good idea of when they are there. Other times I will take many trades and losers, because I do know there is a good chance for me to get paid. I am not suggesting it is easy and I am not suggesting that I am right all the time. I am sure that most will agree that certain traders are attracted to certain types of market activity and other traders are not. To win at trading we need to catch people trading in places where they should not be trading and we need to avoid trading in placed where we should not be trading. I enjoy marathon poker. I do it a few times a year. Its nice to get away from everything and spend some alone time with the most important person on earth. I will bet that my blood pressure is lower when I am playing than when I am not.

Poker is a zero sum game and nearly identical to trading. If you can, on balance, take money from poker tables, then you'll do well trading once you stop trying to find the holy grail. A major difference is the odds. In poker there will be times when you know you have the nuts. Then it is a matter of making sure that you get other players to commit as much money as possible in the hand. There is no such time in trading. Traders will convey that they "feel" they have the nuts, but that's just not the case. However, you will experience situations where other traders continue to commit funds to your winning trade. You need to learn to identify those situations and remain in the trade when that is occurring. A major similarity between poker and trading is that in each I do not gain an edge at the table or the market until I can understanding who I playing or trading against. In poker it is easy to figure out the odds of hitting a hand. The real art is learning how each player is going to play. What, if any, their physical tells are, if they are tight or conservative, if poker is a narcotic, if they know how to play, the size of their stack, if they won that stack or brought it there, etc. Some players I can play rags against and win and other players I know the best thing to do is fold unless i have the nuts. I learn who i can get money from and who I can't. No player can beat every player and I am not a player that can beat everyone I play and I know it Similarly in trading, you need to trade against people who you know you can get money from. If you enter a trade, say, short, who do you expect to pay you in order for you to make money? Are they present? Can you take money from other short term highly capitalized traders if you are trading against them? Do you want to take a trade against a long term trader who sees the S&P as units of 100 points? Do you want to be on the same side as a long term trader if other traders who attempt to prey on long term traders are present? We are trading traders. The traders who are trading at the same time as you will completely impact the pretty chart pattern that has formed. Just like in poker, you will do infinitely better if you learn how to play the players at your table. I will be in Vegas from Tuesday to Friday for 3 solid nights of poker. It is how I relax.

I laughed when I heard the Tyson quote in his interview; however, I did take it to mean that he fights without a plan. Instead, I thought it was more a comment on the dynamics of a plan.

What I stated may have come out wrong. I know that there are some that make a lot of money from trading the markets. I do not allow that to be denied. I also know there are some that lose a lot of money from trading activity. The losing funds do not survive. The funds we do hear about are the winners, but they do not win just because they employ complex strategies that neither you nor I have the requirements to do. We can expect there to be outliers who win, but there are also outliers who lose. A lot of those who are not lucky enough to be in the high flying group, understanding that they need return to survive, will employ unethical or illegal tactics to survive. Hence, my mention of insider trading, front running, and huddling. I also stated that some of these guys do smart things to make money. As examples: (I may get some of this wrong) a hedgefund bought shares in a company that was in takeover talks. They bought enough shares to be able to impact the takeover vote. They also bought puts on the company's stock. When they voted for the takeover, they voted "No". The stock sank. They, of course, had more puts than they had stock long and I forgot the sum that they netted but it was large. Ethical? They probably crossed the line. Brilliant? yes. Did they take on market risk? not really. A fund manager, who I am personally acquainted with, buys old life insurance policies at a discount to face and packages them to earn 30% gain at mortality for the investors who provide the funds. He, naturally, marks them up before he packages them. Brilliant? yes. Did he take on market risk? not really. I suppose if rates went up high enough, the risk of his fund for the return they get may not look as attractive. Another hedge fund manager I am acquainted with in the 1990's purchased annuities of mutual insurance companies that he thought would convert to stock companies. When a mutual company converts to a stock company, the policy holders (those who own life or annuity contracts) are given stock and rights to purchase stock. So, if they don't go public, the hedgefund earns interest on the money invested (slightly higher than market rates) if they go public, they still earn interest, but they also receive the windfall shares of stock. Brilliant? yes. Market risk? no. Company risk? yes. He was able to sell the concept to investors as a return between 8% and 25% net of his fees. Some of these guys are good, brilliant, in my book, but they do not make money the way we think they might. If they are, instead, going to try to slug it out in the markets, they face the exact same market that we do. Their size will add benefits and complexities that we do not need to be concerned with, but the beast is the same.Thew water does not part for a hedgefund manager if he trades, say, the S&P. MM

Blowfish, Say you have 2 traders: one with a 25k account and one with a 2000k account, and each account was all each trader had, then why would one want to take bigger risks than the other if in each case if they went broke, it meant being out of the game? I get that it is certainly easier to raise another 25k for most than it is to raise another 2000k. If the guy with 25k takes more risk, his risk of going bust increases with his potential for increased gains. I am posting this because I have heard it before and it has never made sense to me. There are certainly differences between the strategies that each trader should use, but the differences are more a result of the scale than a difference in risk profiles: ie. it is more difficult to get out of a 80 contract trade than it is to get out of a 1 contract trade; additionally, scaling of positions is done much differently. If a trader has to increase his risk profile because his account is too small, then I suggest he not trade yet or trade something else that allows him to properly manage his funds. If we are inherently assuming that the 25k trader can reload if he blows the account, then we are not really talking about a trader with a 25k account. Instead, we are talking about a trader who is only putting up 25k at a time which means he in fact has significantly more than 25k at his disposal. If so, then sure he can trade aggressively. Otherwise, the advise to trade aggressively with a small account equates to suggesting that it is ok to try to get lucky when you have a small account. MM

Trading and rocket building are apples and oranges. A NASA scientist will always build a rocket better than I can. Always means 100% of the time. A trader at any given hedge fund will not do better than I will do 100% of the time. It could be the case that I do better than him 100% of the time. It is pointless to look at the average winning hedgefund and draw a conclusion about the success of hedgefunds without taking into account the gains and losses of all hedgefunds. You can draw an equally invalid conclusion by comparing the returns of only the losing hedgefunds. There are lots of smart guys who make money doing very interesting things with money. Most have to do with taking advantage of loopholes or arbitrage situations created by contracts or securities laws. Not everyone has to cheat and steal to ensure that they can generate fees, but a lot cave in. Many of them are big name firms that you have come to respect. You can believe that people can walk on water or that snakes talk or any other fantasy that helps settle your mind along your path to B from A.

Nice cliff hanger. Guess we'll have to watch commercials until you come back.

Some of those guys made lots of money on moves of +- 200 points in the S&P. The S&p has moved about 250 points since October. The timing was right and the vision was right. Others made money in moves in currencies over like a 17 cent move. Again, the timing was right and the vision was right. These kind of moves happen all the time in less than a year. All we need to do is catch a few of these good trends, ride it properly, and exit handsomely and someone will write about us one day if we are foolish enough to tell. If you know Paulson's story, you, then, know how the timing of what he did was so critical to his success. If he was a bit off, then his name never would have been known. The difference between he and us is that he is trading with OPM and we are not. If he failed, he would resurface as something else since he is able to raise large sums of money. Not the case for us or not me at least.

I do not know what they make. I will assume they are making money. I will guess, though, that if you take all their funds across classes, their performance isn't as spectacular as an onlooker would be led to believe. Can you wonder why hedge funds are so secretive about their returns? When they enter a market, they are subject to precisely the same forces we are faced with, adjusting, of course, for scale. We can achieve greater than market returns for a while by leveraging, or being lucky or both. Optionally, we can take the path of insider trading, front running, huddling, etc and do very well too until we get caught.Otherwise, or sooner or later we will have to succumb to the market like everyone else who casts a line into the sea of opportunity.

No I do not have actual figures, but you would have done well if you invested in their good funds.. The issue is that they promote their bad ones as being as good as their bad ones until they turn bad. So we have to guess at which is good and which is bad.

Do a search on some of the names. Richard Dennis, one of the most well known, was sewed and was apparently bankrupt and could not pay. You will find George Soros earned a modest % over his lifetime and not meteoric percentage you would expect from his notoriety.. George Soros also has the dubious distinction of being on the list of The Largest Losing Traders. The same is true of Paul Tudor Jones, et al. All made modest returns in the 10% area. Each fund managing "Wizard" practices the tricks of splitting a fund or moving the bad funds out of the line-up to maintain a sellable win rate so they can collect fees. The key word is "Sell". These guys are salesmen and are constantly promoting themselves to attract funds so that they can collect fees. The truth has not proved a good sales tool for attracting funds. Bullshit sells a lot better. The best thing to do is look at the track records and fund histories of these guys and make your own judgement. If we judged you only by your best trades, you would be a trading rock star too.

Hopefully, the Euro is breaking down. I have been short for almost 2 months. I still firmly think money is going to flow out of the the EZ and into other more stable currencies. Superficially, I do wish I chose the eur/gpb instead of the the eur/usd, but I am not comfortable with my understanding of the British economy.

Hedge funds do not make billions on HFT and stochastic models of price behavior. They face the same market we all do, unless they are using privileged or inside information that is not available to us.The market humbles all egos, not just the egos of small retail traders. They earn money by generating fees. They need everyone to think that they are making billions and billions to be able to continue attracting money so that they can continue to generate fees. A lot of hedgefund managers have niche funds which have not too much to do with taking risk in the financial markets; instead, they capitalize on other arbitrage situations created by securities law, federal and state laws, and etc. I do agree that we are so much better off waiting for the outlier trades than trying to make sense of every single ripple in the market. Most of the guys in "Market Wizards" made their fortunes by following the longer term trends and catching big moves. A few things though: A., you have to be patient to trade those trends, ignoring all technical signals that commonly impact a trader, B., these trend moves have to happen during the period of time within which you are trading. C., you have to reach a level of satisfaction during the time within which you are trading so that you can keep the wealth you have accumulated from trading trends. Folklore aside, a lot of the traders in "market wizards" have gone broke since then.

This is in no way similar to a profession like medicine.

You need a sense of humor to trade es today.

It's never too late. They can learn it on the way down.

Josh, My comments, relative to preparation, regard one's ability to deal with fear. Being prepared means knowing what to do with your trade when scenario A, B, or C occur, given the number of indicators you use to trade. In this context being prepared has to do with what you do next, and not what you do before you enter a trade. Being prepared will help you with fear, but it isn't going to make the market go in the direction of your trade. We can never escape the fact that we are dealing with the unknown; however, we can know what to do when A, B, or C occurs. MM

Just latching onto your post for no particular reason, but if someone struggles with all these issues, it sounds like getting out of bed is a difficult task. If someone has any number of these issues, then trading probably is just not going to work for him. There are lots of other things to do other than trading. Put another way, if someone has the risk under control, is properly prepared and still cannot execute a trade sufficiently well, then he should really go find something else to do.

Freshly ground espresso coffee for the early morning session. French roasted coffee for the NY Open. Really cold diet soda served in a glass at around 3:00PM EST. One last espresso after the close of the new york session.

Jesus Josh! Nice call if you rode it down.

Ugly but telling. There is no balance in a trend type of move. Knife catchers lose fingers.

No matter which direction we go, the overnight range is awesome. That is, awesome for ES. It should make for some really good daytime moves today. Good luck to all.

I have made statements like that in the past. It provides me with a mental hedge. If the trade makes money, I was brilliant for taking it. If it loses, then that was the expected outcome. Either way my mind is hedged from psychological damage of taking a bad trade that I knew I would get stopped out of. No need to hedge though, it seems that Will is doing a good job and I give him credit for doing this publicly. Mistakes, bad decisions, etc are part of the landscape. The markets will give a perfectionist slow stomach cancer.

Blowfish, I assume that the one contract trader is trading es. Can a trader "earn a living" trading es with one contract? Maybe. it depends on what it means to earn a living. If he lives in the Sudan and can live on $2 USD a day, then, sure he can earn a living trading one contract. If he lives in your country or my country, then he can only make a living trading one contract if he lives in a cardboard box and receives state aid to make up the difference. Could be be incredibly talented? Perhaps as talented as an individual who can flip a coin 10 times in a row on a regular basis. If not that fortunate, then he is probably omitting just a small bit of information from you. MM