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Everything posted by BlueHorseshoe
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Position Sizing or Diversification?
BlueHorseshoe replied to BlueHorseshoe's topic in Risk & Money Management
Hi FTX, Thanks for an excellent response! By trotting out those cliches I wasn't meaning to imply that I agree with them, but rather wanting to open them up for discussion - that's why I placed question marks at the end of each sentence to try and make them less declaritive. From what I've experienced in the past at TL, it can be quite tricky getting people to engage with money management type threads! As far as the cliche is old, I guess it's pretty much the problem of induction (David Hume? 1600 and something?) - "just because past futures resembled past pasts doesn't mean that future futures will". What about if we remove the grayer shades of mutual funds and Warren Buffet's returns? Suppose you had to keep your entire net worth in inflation-indexed fixed income government bonds (with no currency risk). So unless the issuing government goes bust, there is hypothetically no risk. Would you purchase the bonds of just one nation? Would you not try and diversify, imagining a scenario thirty years down the line where, say, the UK became economically unstable? That takes things off at a bit of a tangent, but then I started the thread, so . . . BlueHorseshoe -
Being able to estimate liquidity accurately is also a crucial part of what the HFTs do - otherwise the speed is useless. BlueHorseshoe
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Doh! Do you want me to drag the books down and make a list? How about Tom Baldwin, just off the top of my head? How about funds like RenTech, or the whole HFT industry? Early pioneers of this form of trading are featured in both books. BlueHorseshoe
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Position Sizing or Diversification?
BlueHorseshoe replied to BlueHorseshoe's topic in Risk & Money Management
A totally valid point but . . . at the critical, high volatlity times, does intermarket correlation increase? Are volatility and correlation . . . positively correlated? Look at the last crash - pretty much everything did the same thing at the same time - instruments that now trade again as though they don't know one another exit. Is strategy diversification rather than market diversification the answer? BlueHorseshoe -
Position Sizing or Diversification?
BlueHorseshoe replied to BlueHorseshoe's topic in Risk & Money Management
What if your chosen market suddenly starts to behave differently? You won't "blow up", but you might lose profitability. It's quite likely that this change of behaviour will happen; the probability that all markets in a non-correlated portfolio would start to behave differently all at the same time should be much lower. Or not? BlueHorseshoe -
Position Sizing or Diversification?
BlueHorseshoe replied to BlueHorseshoe's topic in Risk & Money Management
Because past results are not indicative of future performance? Whereas effective diversification could be indicative of reduced risk? BlueHorseshoe -
How to Deal with Large Sums of Money?
BlueHorseshoe replied to Trader J's topic in Risk & Money Management
What would you suggest as a minimum to make a living trading futures with normal retail leverage? BlueHorseshoe -
Unless you're swing trading, avoid the 'micro' (as opposed to 'mini') currency futures - they're not liquid enough to daytrade. BlueHorseshoe
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ForexTraderX's has given a very detailed and helpful explanation. The fundamental thing that you need to understand is order types - the difference between market orders (taking) and limit orders (making). All the different orders that you would use to enter, manage, or exit a position are variations or combinations of these two basic order types, and it is absolutely crucial that you fully understand them before you start trading. I hope that helps. BlueHorseshoe
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Hi Roztom - not used to seeing you about the forum too much these days . . . Please could you expand on this a little? Thanks, BlueHorseshoe
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Special Theory of Price Discovery (STOPD)
BlueHorseshoe replied to alibaba5055's topic in Trading Products and Services
People who are fortunate enough to work in the research departments of big financial institutions are compensated to the tune of hundreds of thousands (and sometimes millions) of dollars per year. Why would such a person therefore expend time and effort trying to pedal software or systems to retail traders like you or I for a few hundred dollars? It just doesn't make sense, does it? BlueHorseshoe -
Position Sizing or Diversification?
BlueHorseshoe replied to BlueHorseshoe's topic in Risk & Money Management
Assuming you were equally good (ie had a workable strategy) for a dozen instruments though . . . Do you try and spread risk across multiple strategies and markets through diversification, or do you try and compound your way to vast riches but remain totally at the mercy of one market and strategy? BlueHorseshoe -
DAVT, I advise you to set aside some of your winnings and invest in books on 'Marketing for Beginners' and suchlike. BlueHorseshoe
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Super Accurate Intraday Indicators
BlueHorseshoe replied to kingkongtracts's topic in Day Trading and Scalping
There are ways around that to a certain extent, aren't there - commodity pools etc, or just signing a load of waivers? BlueHorseshoe -
Special Theory of Price Discovery (STOPD)
BlueHorseshoe replied to alibaba5055's topic in Trading Products and Services
No, but I do know that many people waste lots of money on things like this. You may have an easier journey if you invest time and effort in a careful statistical study of the market you wish to trade rather than vendor products. BlueHorseshoe -
That's my favourite post in this thread to date!
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Suppose you have a limited amount of capital and trade one contract in one market. You're a good trader, and after a certain amount of time you have doubled the account. What's the best thing to do next . . . Increase your position size and trade two contracts? Diversify by trading a single contract in a second market and continuing to trade a single contract in the orignal market? In other words, if you don't have the luxury of a portfolio sized account to begin with, how do you subsequently reconcile the allocation of capital to secondary markets with position sizing in the first? BlueHorseshoe
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How Do You Determine Your Direction at the Start of the Day?
BlueHorseshoe replied to suby's topic in Technical Analysis
Hi Steve, Though I agree with what you say above in the context you provide, I think it's important to note that this can be market specific. The indices have a buy-side bias, as there are always a large number of participants who never actually short the underlying securities. In my experience this means that the indices tend to top out on low volume as buyers lose interest, and bottom on higher volume as buyers step in to take advantage of 'discounted' prices and thereby support the market. Active short sellers can almost be disregarded. What I describe can easily be seen on a daily chart of the ES without any need for over-involved data analysis. Simply mark a series of what you consider to be short term highs and lows on the chart, place a volume subpane below, and then start counting the number of highs that occurred with lower volume and the number of lows that occurred with higher volume. Last time I tested, the 'edge' was about 6%. Hope that's helpful. BlueHorseshoe -
How Do You Determine Your Direction at the Start of the Day?
BlueHorseshoe replied to suby's topic in Technical Analysis
Mean reversion is a function of stochastic behaviour in an essentially random time series. Such behaviour is more pronounced in lower timeframes (higher frequency sampled data), where price is very noisy. In higher timeframes trends can and do persist; once the intraday noise has cancelled itself out we are left with the net results of higher timeframe participants on a daily chart, for example. What does all this mean? It means that as a trader of reversions to the mean in lower timeframes, your edge can be greatly improved by employing a higher timeframe bias. Going into the trading day you would therefore identify the longer term trend, wait for the market to become overextended in the opposite direction, and then trade on the assumption that it will revert to its short term mean. Of all the markets I have examined, the ES is the one in which all of this is most clearly manifest. BlueHorseshoe -
Super Accurate Intraday Indicators
BlueHorseshoe replied to kingkongtracts's topic in Day Trading and Scalping
Just my very poor understanding of options trading then! I didn't realise it was possible to close out the sell side of an options trade - pressumably this is only possible if the broker can match you with someone long an identical option who wants to exercise at that time? BlueHorseshoe -
Super Accurate Intraday Indicators
BlueHorseshoe replied to kingkongtracts's topic in Day Trading and Scalping
As this thread seems to have strayed to the topic of "crooked behaviour", can anyone tell me why the following isn't possible: Write naked options in a quiet market using a corporate account, and keep banking the income. When things eventually go "niederhoffer" for you (as they surely will), declare the company insolvent and walk away, leaving the brokerage firm with the debt. I once asked this question on here before, but nobody gave a clear answer. Is the problem the margin that has to be put up in order to write the options? BlueHorseshoe -
Hi, Please would you post or PM me a link? Cheers, BlueHorseshoe
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I don't trade spot fx, but someone who does recently told me that some brokers keep the same spreads (roughly) as the futures contract trades with, but then charge a fixed commission - this would allow you to trade the cash without the hassle of massive spreads. BlueHorseshoe
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I totally agree - and I agree with what you say next - even with a profitable swing trading strategy the gaps between trades during a drawdown can be deeply un-nerving. I suppose a more accurate thing to say would have been that 'higher frequency' trading is more expensive than 'lower frequency' trading. If you do a couple of roundtrips per month as a swing trader, and your average profit per trade is $500 on a single contract, then deducting $25 for slippage and another $5 for commission is no big deal. If you do countless roundtrips per day then you have to be pretty sharp just to overcome costs. Costs also need to be taken into account when considering the equity curve for a daytrader - all the drawdowns become a little deeper, and all the peaks a little less high. When you consider the floor traders, some of the main advantages that they seem to have had included minimal exchange fees and commissions, and priority execution on limit orders. They were the natural 'daytraders' before direct access electronic trading. I think that profiatble daytrading is possible, and one of the main advantages would be the smoothing of the equity curve that you describe, but I think it's pretty difficult to achieve. Hope that explains what I meant a bit more clearly. BlueHorseshoe
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To do what you describe here it is not totally necessary to look at charts in multiple timeframes. For example, you could look at a 5min chart and see what the longer term trend on an hourly or daily chart would be. Why would you expect to be more profitable intraday than EOD? Trading intraday is expensive, whether or not you're profitable. With the infrequency and relative average excursion of EOD, all those costs become pretty negligible. And you can spend your day doing something else that provides a more consistent and dependable income. BlueHorseshoe