MightyMouse

Daedalus, You might want to try to use stops and targets that have substantially different volatilities. 4 and 8 tick, say, volatility during the high volume periods can be 1-2 minutes apart or the rate at which volatility changes for such small ranges can be so fast that when you enter a trade, order flow is such that the 2 minute ATR increases from 4 ticks to 8 ticks or higher in no time. So in spite of the fact that your stop is twice as far as from your stop, surges in volatility make you a dead duck with minor changes from normal market activity. If instead you choose something more like 50 ticks as a stop and try to scalp 10-12 ticks, from a purely mechanical perspective, I suspect you will have much better success. To trade this, you need to be good at identifying failure early and escaping before your stop gets hit. With a wider stop, you have the luxury of time on your side to let the normal market rotations bring price back to your entry or better to let you exit BE or at a gain less than you had hoped. I hope this makes sense. MM

Thales, Thank you for categorizing me as a human. Its good to have the reassurance every so often. I appreciate your enthusiasm for the Loeb material and desire to share it; however, I am in the process of shrinking what I have learned over the last 2 years so it would be pointless to add something new to the list. Take it as truth and at face value and by no means am I making a derogatory statement regarding the material or to the value of learning by reading trading books. MM

The prospects are very high that a trader will lose money (not you personally). So if 15% isn't exciting in average market conditions, then its a good decision to stay away from the start. I tremendously encourage anyone taking advice from a trader who performs at a triple digit level to seek validation of the results before you you drink from the dipper. If they are willing to say they make xxx%, they should be willing to show it too. Otherwise, its likely smoke and mirrors.

I never stated that I am trying to earn 6% 10% or 15% or any amount. I have stated that 15% is a good rate of return given the fact that most traders lose money and that most CTA's will not achieve a 15% rate of return. With a few months to go, I will be happy with 15% for the year, but will certainly like to have more. But for fun's sake, what is the difference if we have the same amount of money and I end up earning 20% on my capital or if you only use 10% of your capital and make a 200% return for the year and each year (or week or month) we adjust size according to our gains and losses?

Thales, It is and always will be about risk and reward. If you want infinite yield you will need to take infinite risk. Trying for infinite yeild has a tendency to bring your chances of surviving as a trader closer to zero. Granted I have a minuscule chance of taking a $25k account to $millions using my approach, but I do not have a nearly perfect chance of losing it. On the other hand, if you have an unlimited source of funds to commit to the market, then that is a completely different story. Unfortunately for me and many others, I do not have an unlimited source of funds. The method one chooses, prudence or cowboy, is going to depend on their particular situation. I have attempted my own version of the infinite yield approach earlier in my life, and have stated such elsewhere; however, my situation then was considerably different from my situation now. I know I wouldn't be able to stomach it now. All in all, the approach is an aggressive money management scheme that could pay off with a great deal of luck. If you in fact use this approach, I will cheer you on. I tried and bailed when the heat got too intense. MM

Thales, Are you really doing this or are you simply countering the slow and steady approach to trading with the theoretical testosterone version?

I could not agree more.

I am curious. What is it that ruins a board in your opinion? Is it that some might offer a different opinion than the status quo? Isn't a forum for open discussions? Is an unruined board one that we all applaud at how great the Emperor looks as he walks by naked?

Thales, I can see how you can erroneously infer that my goal is to preserve capital. I assure you that every trade I put on I have visions of it being a monster winner. I hope for a flash crash when I am short, and I hope for a flash rally when I am long. What I end up with is something entirely different. Even when I do catch a big winner, it gets thrown into the pot with all the smaller winners and losers and expenses. In the end when you add everything up, you have your rate of return. There is a hard truth to that ROR and for most it is negative. If you are going to apply some sort of rational money management, then it is going to require an extraordinary amount of of luck to achieve the type of results that everyone dreams of. If you are going to argue that you can walk on water and bend spoons with your mind, and conclude that your extraordinary rate of return is not a result of good fortune, then please do since I find it entertaining.. MM

Thales, For most parents and children, the choice is between the child playing a sport or the child watching TV or playing video games or worse. If the chidl doesn't end up as a professional athlete, there shouldn't be anything lost. If the parents are allowing the chidl to neglect education in favor of sports, there will likely be a something lost. But in most cases nothing is lost. On the other hand, if the parent, decides to live his dream of becoming a trader, and is completely mislead into thinking it is easier than it is, then the time and money spent may mean that the only chance the child has of succeeding is if he or she becomes a pro athlete. There is a cost to being mislead into thinking one can earn enough money trading. The fact is that even if one is part of the successful group of traders,he may not have enough capital to earn enough money. MM

The devil is in the details: As an example if you have a 10,000 account. You are risking 200 a trade to make 200 a day. So, for a market like ES you are risking 16 ticks to net 16 ticks by the end of the day. Assume simply, $4.75 of commissions and 1 tick of slippage, spread, bad fills, etc. That is 17.25 a trade in fixed expenses. If you are trading 1 contract and risking 16 ticks and on average are correct 60% of the time, and on average are taking 1 to 1 risk reward, your average per trade is about $23 and you then need to take +-9 trades a day to achieve your $200 or 2% goal. If you are trading 2 contracts and risking 8 ticks each and on average are correct 60% of the time and on average are taking 1 to 1 r/r, your average per trade is about $5.60 and you will need to take somewhere around 35 trades a day to achieve your net $200 or 2% goal. If you slip to a 50% success rate in either of these examples, your average trade is under water. If you still trading 2 contracts and are able to increase your r/r to 2 to 1 and have a 50% success rate, then your average trade will be about $65 per trade and then you need to take +- 4 trades a day. However, if your desire to achieve 2 to 1 lowers your success rate to 40%, then you need to take about 35 trades to achieve the 200 goal. That is what each and every trader faces when he clicks himself into a position.

What you do is a wise thing to do, but then if your "account" represents 10% of the funds available to you, then earning 10% on your "account" is only a 1/10 of the return on your available trading assets plus the awesome money market interest you are earning on the other 90%.

That is such a great example.

The common themes seem to be that it can be done, but it is very difficult and most people will lose money trying.

The Clapton comparison is meant to show how difficult it is to become a great trader since Clapton is a great guitarist. Anyone can learn how to play a guitar and anyone can learn how to trade. But few guitarists are able to attain the status of Eric Clapton just as few traders will be able to attain the status of Great Trader. Eric Clapton makes a fortune playing the guitar. Great traders make a fortune trading. Aspiring guitarists starve. Aspiring traders starve. need I go on? The Clapton comparison works quite well. Is he born with it? I disagree. Clapton, Tiger Woods, Michael Jordan, Etc. are simply willing to do what it takes to be number one.

It's nice of Al Brooks to package and deliver his trading methodology.

I agree that it is hard and discomforting and it requires a paradigm shift. Of course you can think you know the odds and take trades and make money and be none the wiser. So if you back test your hypothesis and determine that it will provide you with a 2:1 payout 42% of the time and it works in real time, then you are a winner whether you know the odds or not. Similarly, a Gann trader can populate his chart with Gann Square of 9 data and take trades based on it and swear the numbers have meaning and make money using it. Ultimately, if you have figured out how to take money from the market, that is all that matters.

A trader will have a problem with my first statement only if he thinks he needs to know the odds and payout of a trade before he enters a trade. The question is then can you trade if you really do not know the odds and payout and risk? My answer is yes.

Nice, man. I did something similar in Es and ended up having a really good day. One of the hardest things to do is take that trade when the ideal trade has already passed. The fact is that you got in short at 42 and you are not a knucklehead for doing that. A knucklehead thinks he is going to catch the ideal trade every time. The real knuckleheads are the traders who didn't get in at 42 kept trying to buy the bottomless bottom on a day like yesterday.

I think, and have never tried to verify, that no matter what the pattern, in the long run if you trade it perfectly, you'll likely break even if you trade it every time it appears. Break even really means losing since you have to pay the house a small amount to play. After a thousand trades, you are down +- 5000. On the other hand, if a trader has learned when to trade that pattern, when not to trade that pattern, and when to take the opposite side of that pattern, then he has an edge. I am minimizing the importance of the pattern. I read MD's Zone and it was a great book to get me to break even. In a nutshell, me getting to BE meant ceasing to move my stops and targets out of fear and greed. It didn't take long to do, and I laugh now at how wimpy my behavior was. However, I do not think that a trader can use what he suggests as an entry and exit strategy for an extended period of time. And, I think he is off on his definition of an edge which seems to be a commonly used definition on these threads. I do not see how a trader would stumble trading if he thought he had an edge like a casino. You will never see the day when you are playing blackjack and you put your chips in the circle and the dealer second guesses whether he wants to take your bet or not. He knows in the long run that he is going to kick your ass. My belief is that when you enter the market, you do not know what the odds of your trade really are, and what type of payout is available to you. So, you need to be prepared to be wrong, right or prepared to be more right or more wrong than you thought. The better you get at this, the more you will be able to take and keep.

I am not sure where you disagree with me. It seems to me that you feel a traders edge is in his perception of the market, etc? That is nearly identical to what i mean when i said that a traders edge is in his ability to keep up with the changing circumstances.

No doubt about it. If you make 10% a week and trade for 40 weeks, you'll do 400% in a year. If you are doing this, I wish you continued success. I know that statistically, people like you exist.

Look at the dates on those posts. Give me a break. What do you want to prove?

Every day, week, month, and year that a casino opens its doors, they have the odds in their favor. They know this because the have set the edge and payouts. If they need to make more money, they lower the payouts and or increase the edge. If they want to get more customers, they lower the edge and raise the payouts. In trading we do not have this privilege. Nothing is set. We do not know whether the odds are in our favor this time or not, and we don't know what the payout will be. We do not have a set of finite outcomes to draw valid statistical conclusions the way a casino does. If we did, then we would have an edge like a casino has. Mechanically, an edge in trading is a set of circumstances that in the past created a future positive outcome, continues to work in the present, if you are employing it, and you hope will continue working in the future. If you are an intuitive or discretionary trader, trading is only slightly different. The fact that one really does not know what the odds and payout are before entering a trade, makes it very difficult to stick to trading a system for most. The fact that an edge gets "tweaked" means to me that the trader had to adjust to changing circumstances as he perceives the changes in the market if his edge is going to continue to be profitable. A wrong tweak and he is no longer profitable. So, then, a traders edge is based on his ability to read the changing circumstances. If you can read the changing circumstances, you have an edge. Can a trader continue to read the changing circumstances? I want to answer this with a yes. Is there luck involved? Absolutely! I have had incredible strings of winners but I have also had strings of losers. Fortunately for me, my winners have been significantly bigger than my losers. In my case, I choose to remain humble. Humility helps my mind remain limber.

I don't think they are the greatest in the world, though some great traders have been CTAs and then later became hedge funds. The only reason that I point to them is that they have published data and, given the fact that they are able to attract funds, someone has enough faith in them to give them their money which tells me they must have a track record.