Don Millers Blog

[Frank 10]

http://donmillerjournal.blogspot.com/

 

Don has offered up his daily comments on his blog -- which I admittedly only started reading recently. This thread is to discuss/comment on topics from his trading journal.

[Frank 10]

One thing I have been trying to conceptualize is what very successful traders are doing in terms of: big leverage for small pieces of the market vs smaller leverage on larger pieces.

 

I am proposing this not as fact, just as a way to kick things off and to be thought about intelligently to hopefully get an understanding of how you are doing in terms of 'pace'.

 

Don admits 2008 performance may or may not be repeated -- but let's just discuss it for a second.

 

1. Don made $1.7 million net in 2008 (after commissions).

2. At 252 trading days, that is $6746 per day

3. Assuming he took 20 trading days off, that is $7328 per day

4. At $50 per point ($12.50 per tick), this would assume he made 146.55 total points per day

 

146.55 at 30 contracts per trade would be 4.9 ES points per day

146.55 at 25 contracts per trade would be 5.9 ES points per day

146.55 at 20 contracts per trade would be 7.3 ES points per day

 

-------------

 

This is just speculative at this point. But to continue to a logical point, even if the 'current' math is off --- then:

 

the average pit session range in 2008 was about 31 points -- with the median at 26 points per day.

 

Using the extremes, Don took as profit somewhere between 16% and 28% of the range of the market on average in 2008.

 

I am going to just say for now that a good 'benchmark' for very strong performance is when/if you are averaging 20% of the range offered by the market. So if market is offering 20 points a day, making 4 on average is a solid 'average' day. If market is offering 25 points a day, making 5 on average is an 'average' day in an overall 'very strong' performance pace.

 

Comments welcome of course.

Edited March 22, 2009 by Frank

[Harlequin 10]

It depends on trading style, size of stops, scalping or going for intraday swings etc. But as a rule of thumb I know a few ex-pit traders and they all quote capturing 30% of daily range as a realistic goal.

[Wes 10]

I thought Don made about one million in 2008 with a goal of 1.2 in 2009. ? Regardless, 1 or 1.2 or 1.7 are all impressive.

 

I've read elsewhere that Don trades size and that his average gain per contract is like $4. But he trades a crap-ton of them. I haven't read his blog long enough to know for sure, either, but just tossing that out there.

 

He made a how-to video around six years ago. I don't know if it's good or not.

[Frank 10]

Whether you make 15 trades a day or 1, you have a NET amount made -- you divide this by $50 ($12.50 per tick) and that is your total points made on the day. The reason I structured it like this was because it doesn't matter what your strategy is or how many contracts you trade. If you make a net 5 points, whether you traded 15 times or once, whether you traded 50 contracts or 1, you made a net 5 points per contract.

 

The reason I bring this up is because I have been in a lot of trades recently where I am up 3-4 points and have limits out for where I think price is 'highly likely' to go. But whether it hits my limits or not sometimes feels like luck -- and sometimes I miss my targets by very small margin and price then moves back sharply and I make a small amount on what was once a 5 point winner. So there is this tradeoff of nailing a big swing for 7-15 points vs taking that 'sure 4 points you have right now' and leaving big profits on the table when you nail the structure.

 

Another factor is that there are days when the market is doing strange things that you aren't in sync with and using larger size will hurt you -- whereas using smaller size (and implicitly targeting bigger wins) doesn't hurt as much. However, when you are in sync with the markets swings, you will be accumulating profits at very high percentage by using smaller targets --- and this seems to be Dons 'primary' method (I say primary because he does get big wins too -- its just that he has been in straight grinder mode lately and that is not a bad thing).

 

But this thread is not really about 'hitting singles' vs 'swinging for fences' styles. Its really about just thinking about setting reasonable goals (ie, 2-10 pts a day, averaging 4-5 pts) so that you aren't trying to do too much and sabotaging yourself along the way.

[Harlequin 10]

The reason I bring this up is because I have been in a lot of trades recently where I am up 3-4 points and have limits out for where I think price is 'highly likely' to go. But whether it hits my limits or not sometimes feels like luck -- and sometimes I miss my targets by very small margin and price then moves back sharply and I make a small amount on what was once a 5 point winner. So there is this tradeoff of nailing a big swing for 7-15 points vs taking that 'sure 4 points you have right now' and leaving big profits on the table when you nail the structure.

 

That's the point I'm making about styles. For a scalper it makes sense to have target for each trade and for the day. If you're trading for the swings the market has a habit of deciding how much you make. For example if you use an entry signal in the opposite direction as your exit then the market is telling you what it wants to give.

[BlowFish 10]

Frank logical post except for the final step. Without knowing the size he trades it is pretty hard to tell % of range. Not sure who the guy is or how he trades but it is quite likely that he would increase his size as account equity grew. I seem to recall a spreadsheet that shows taking one point a day, with one contract, and adding contracts to maintain the same risk as equity grows, gets your account to over a million in a year...might be off on the fine detail but compounding is a fearsome thing.

 

What I am trying to say is that it is much easier to make more by correct position sizing than eeking out a few more ticks here and there.

 

Having said that looking at return against range is an interesting concept. I think it was in one of Elders books I was first introduced to it. I guess if you want to push yourself in that direction it is handy but every single time I would go for less range and more consistency and let compounding do its job.

[omni2006 11]

I thought Don made about one million in 2008 with a goal of 1.2 in 2009. ? Regardless, 1 or 1.2 or 1.7 are all impressive.

his original 2008 goal was $1mm. when he reached that, he raised it to $1.25mm. he finished the year up roughly $1.6mm. he changed his goals a couple times for 2009, trying to get a good read on the market and his trading trends. initially he was going to cut back and just wanted to be green ... even up by $1 by the end of 2009 was to be considered successful. he then got his trading groove going and set a $1.2mm goal for 2009. since, he's adjusted it to a flat $1mm.

 

I've read elsewhere that Don trades size and that his average gain per contract is like $4. But he trades a crap-ton of them. I haven't read his blog long enough to know for sure, either, but just tossing that out there.

Don trades decent size (i think it is in chunks of 15, 30, and 60), but frequency is the standout here. Don is a seat-holding liquidity provider, so, yes, he does trade a crap-ton of contracts. it's not unusual for him to trade 2-4k contracts (so in a single session, 1-2k round turns).

 

Don spends a lot of time in the market, putting out feeler or probing trades. he has repeatedly pointed out that he is the type of trader who gets a better feel for the current by being in the water. if he makes money on his feeler bets, great, but he is testing the water for a bigger current he can ride.

 

also, keep in mind that Don doesn't get too wrapped up in daily averages and statistics. his intraday win-loss ratio and P/L per trade doesn't look too appealing. but he probably averages about $7-9k net per day. i'm sure that looks appealing to most people.

 

hope that helps.

[Frank 10]

Frank logical post except for the final step. Without knowing the size he trades it is pretty hard to tell % of range. Not sure who the guy is or how he trades but it is quite likely that he would increase his size as account equity grew.

 

we do have idea of size he trades -- he discusses it -- we can't be precise about the size --- this is why I did ranges. further, he has stated that he does not increase his size much with account growth, fwiw.

[BlowFish 10]

Ahh OK thanks for clarifying that Frank.

 

The fact remains that the easiest way (by far) to increase equity is by increasing size provided you have a consistent edge. The limit of course is the size you can trade without getting excessive slippage.

 

Having said that some traders never trades more than 2 cars and when thier account gets to a certain size they essentially start again. Most traders have psychological hurdles at certain sizes that can be problematic too.

 

The main point I am trying to make (and to answer the question in your first sentence) you can use small leverage and take small pieces of the market and still making massive returns without ever incurring extra risk (as a percentage of account equity) or needing excessive leverage. That is the wonder of compounding. Increasing leverage increases the risk of ruin so increase size whilst keeping leverage constant (or even reducing it slightly over time as your account grows).

[Frank 10]

Don Miller provided this screenshot of how he watches the market --- he watches 1 (yes one) monitor:

 

[brownsfan019 17]

That's incredible Frank. That guy is a machine. I'm sure it's like nothing to him now, but just glancing at that is making my head spin!