Actively Day Trading One Single Market VS Day Trading a Handful of Markets?

MightyMouse · August 3, 2010

But one should be able to say that "based on these facts, these are my conclusions," whereas you seem to be saying "these are the conclusions on which I base my facts."

In addition to trading, I run a real, bricks and mortar, trucks and equipment, doing trade belly to belly business. I do not manage my business for a "rate of return." I run it for maximum profitability. I do not know one business owner who manages his or her business in the manner you suggest as "Business 101." Sure, we each know our cost of doing business, costs of goods sold, our "breakeven points," etc. and so on. But that affects my pricing (i.e. what I charge my customers) and gross margins, and has nothing to do with a target annual rate of return or return on equity. The goal for me is always to maximize those numbers, not to be bound by them. I trade the same way. And truthfully, other than bucket shop trades, slippage and commissions have been of little impact on my trading. In fact, I wish I could get the gross margins in my business that I get from trading.

Unless you are willing to read and study those who think differently than you, you will never really be able to decide whether you are right or wrong in your current worldview. You may think you have chosen, but you really haven't, because you feel the "choice is between you view and wild-eyed cowboy rodeo clown trading, rather than a choice between trading for an income versus trading for speculative gain and maximum profit. You have not even allowed yourself truly to grasp the outlines of the view I propose.

I have been urging both you and MM to open your minds to another way of approaching the problem of making it (and what "making it") in trading means. You both seem to infer from what I have posted here and elsewhere at TL that I set an unreasonably high bar, or that I imply that this trading activity is easier than it is. I have several times suggested that a better place to explore the view that I espouse is Gerald Loeb's The Battle for Investment Survival. Loeb, far better than I, makes the case that your view actually sets one up for failure, or at least unsatisfactory results. I agree with nearly everything he says in his excellent book, including his opening statement:

"Nothing is more difficult , I truly believe, than consistently and fairly profiting in Wall Street. I know of nothing harder to learn."

Amen, brother, and I think that both you and MM would agree with Loeb's sentiment. But I, following Loeb, use that as my starting point, whereas you and MM and others who share your view of the limits of possible success take that as your end.

Loeb continues: "Any way one looks at it, nothing is more difficult than succeeding in Wall Street, yet nothing is attempted by such poorly equipped people or is considered as easy." I am sure that both you and MM would agree. So do I. But you view the difficulty as an inherent and insurmountable limit, whereas I, following Loeb view it not only as an obstacle that can be overcome, but as one which must be overcome if one's market operations are to be at all worth the effort and risk. Loeb continues, perhaps reading your mind, and asks that "This being the case, what can we do about it? What is the bright side, if such a gloomy picture has a bright side? What are the virtues of Wall Street? Is the subject worth studying at all?"

You seem to have recognized the difficulty and the questions, but your response is a rather gloomy judgement that "the best one can hope for is to make a "reasonable return on investment on an annulaize basis, and by reasonable I mean 10-30% tops." Loeb's answer (to which I wholeheartedly subscribe, is that such a goal as you formulate it ultimately must fail, because either your eventual (and certain) losses will consume much of your profit, or you will have earned an amount insufficient to both preserve your capital's current spending power as well as increasing it for future use.

You can keep reiterating you opinions concerning the limits of trading success, but until you are at least willing to learn and understand the counter position, we will simply be speaking at one another, rather than with one another. Again, Gerald Loeb's work is an inexpensive way to introduce oneself to what he calls the necessary "speculative attitude," an attitude that I prescribe, and which you proscribe.

No, you do not. The below statement shows how little clarity you possess concerning the issue at hand:

Trading is a general term that whereby one thing of value is exchanged for another thing of value. Trade is, to put it in terms you would understand, "Economics 101." Again, following Loeb, I suggest that one understand that "Investing" and "speculating," while each a form of "trade" or "trading", differ from one another fundamentally, as folows (again, quoting directly from Loeb):

Investment is fundamentally an effort to obtain, in addition, a rental from others for the temporary use of capital.

Speculation means using capital in such a manner that its spening power is not only preserved but also increased, through the realization of profits in the form of dividends, capital gains, or both.

You, as do 95% of those who try this game, conflate Trading, Investment, and Speculation - but you cannot grasp what it means to "trade for infinite yield," much less see its fundamental soundness as an approach, if you do not understand the difference between investment and speculation as set out above.

Best Wishes,

Thales

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

thalestrader · August 3, 2010

...The method one chooses, prudence or cowboy...

MM, you'll do yourself a big favor if you would get a hold of a copy of Loeb's Battle and give it an honest and thoughtful reading.

For what it's worth, Loeb believes that it is prudent to aim for a yearly double of your money while playing for a 6% or 10% annual return is a recipe for failure. Aren't you the slightest bit curious as to how he reaches that conclusion?

Best Wishes,

Thales

MightyMouse · August 3, 2010

MM, you'll do yourself a big favor if you would get a hold of a copy of Loeb's Battle and give it an honest and thoughtful reading.

For what it's worth, Loeb believes that it is prudent to aim for a yearly double of your money while playing for a 6% or 10% annual return is a recipe for failure. Aren't you the slightest bit curious as to how he reaches that conclusion?

Best Wishes,

Thales

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?

JohnnySDG · August 3, 2010

Thalestrader, your post illuminates your BS.

IF you are the "great trader" why do you still have a business?

Second, businesses do achieve a rate of return. How do you think people value them when they are bought and sold.

Look at penny stocks, they are not lying when they say something like a company has grown by 324% in one year. They probably did, they same way a guy with a $10k account can make $1500 one week. Not a realistic return with a big account. Just like the penny stock company with 324% annual growth. That company cannot be sold (other than by penny stock scammers) because they don't provide a return on investment to the buyer.

If you don't look at rate of return for your business then something is wrong. You don't look at your HR spending or marketing budget, advertising campaigns, equipment, etc. and look at the rate of return to see how they are working? Its called accounting and they reason for it is to see how much money you make relative to how much you spend. There is a term for that but I forgot.....Oh wait, I remember, its called rate of return.

By the way.....Did Loeb make more money from trading or writing is book?

Johnny

Edited August 3, 2010 by JohnnySDG

Soullfire · August 3, 2010

I registered just so I could chime in on this discussion....

The discussion is going back and forth between the feasibility of earning a living via day trading with modest account levels and the likelihood of being able to sustain a high continual rate of return on this modest account level.

As Thales has stated, apples and oranges are being compared here. Day Trading is NOT the same as long term investing and therefore one can't hold day trading to the same rate of return constraints as one would normally apply to long term investments.

For a better comparison, Day Trading is closer to Poker then it is to long term investing. No fundamentals are taken into consideration...just the short term information available in real time. So let's use a poker player as an example...

The very top poker players can earn millions in a year. Go down a few levels and the earnings are in the hundreds of thousands. Now entry into poker tournaments requires satisfying a buy in requirement. For this discussion, let's say the buy-in is $50,000. Now if an expert player consistently wins playing tournaments at this level to the point where his annual income average $200,000, does it make sense to apply long term investing rules to his earnings?

If we do that he would be generating a 400% return for which long term investing rules say is not sustainable and would lead to an infinite amount of money. However, that also assumes that the poker player is going to now enter tournaments that require a $200K buy-in, and then attempt to win $800K, which isn't the case at all. His $50K used to play is NOT an investment in the long term sense of the word. He is not compounding his winnings into bigger buy-ins, so there is no infinite return generation going on. So despite the modest buy in level, some people can make a great living from the game that far exceeds the buy-in amount, and do this on a consistent continual basis.

Now back to day trading. The "buy-in" for day trading is a minimum of $25K, for which you get 4X trading leverage- and an even higher multiplier if working at a prop firm. So for example, let's say a good day trader has $50K in their account. That gives them at least $200K buying power. If the day trader finds a good trading set up, they can easily buy a few hundred to a few thousand shares of most stocks to exploit the move. This means a good day trader should on average be able to make at least a few hundred dollars per day. There are several high beta stocks that move as much as over 4 points a day so this isn't a stretch by any means.

Obviously, being able to predict these moves based on real time information isn't simple and many fail at it, but the point is there are those that are able to do it.

Summing up, a day trader need not have a huge account to be able to generate a living income. The day trader only needs to be able to afford the "buy-in" to trade high beta stocks. Earning just an average of $200/day yields $52K/year.

Kiwi · August 3, 2010

You really waste your time casting pearls before swine Thales.

Some will never get it and all we can hope is that they actually do put some money into the market from time to time.

SIUYA · August 3, 2010

I would have thought 'rate of return' from investments is more a relative term related to 'efficiency of the money spent' and helps determine where to 1) spend the money in terms of a companies expenses, or 2) where to invest the money for the greatest rate of return.

If you are speculating the rate of return is a crappy marketing term used to suck in people.

I used to work on an options floor and when you had a good trade/day the joke was always "annualise that".

Speculating does not equal gambling does not equal investing. The terms applicable to each while many use interchangeably have different definitions and hence different conclusions.

This is an interesting thread as it incorporates a lot - beliefs, ideas, commitment to these - as well as definitions forming and/or resulting from those beliefs. As well as how the physc affects this. Its one of those things that I feel every one is correct in their own ways - but arguing two different points by trying to apply the same definitions to different things....and unfortunately is devolving into name calling. (while fun, is not necessary).

(I would happily take 15% annualized return on the bulk of my investments (this also is probably not achieved by 95% of investors), while I would also be happy to speculate wildly on a smaller percentage.)

Nothing is impossible, however improbable.

thalestrader · August 3, 2010

Thalestrader, your post illuminates your BS.

IF you are the "great trader" why do you still have a business?...

Folks of intelligence and experience would argue that your post fully illuminates the degree of your self-imposed ignorance concerning business and trading. It also shows that you are unwilling and thus currently incapable of moving beyond your current (lack of) understanding.

Thales

JohnnySDG · August 3, 2010

I would have thought 'rate of return' from investments is more a relative term related to 'efficiency of the money spent' and helps determine where to 1) spend the money in terms of a companies expenses, or 2) where to invest the money for the greatest rate of return.
If you are speculating the rate of return is a crappy marketing term used to suck in people.

I used to work on an options floor and when you had a good trade/day the joke was always "annualise that".

Speculating does not equal gambling does not equal investing. The terms applicable to each while many use interchangeably have different definitions and hence different conclusions.

This is an interesting thread as it incorporates a lot - beliefs, ideas, commitment to these - as well as definitions forming and/or resulting from those beliefs. As well as how the physc affects this. Its one of those things that I feel every one is correct in their own ways - but arguing two different points by trying to apply the same definitions to different things....and unfortunately is devolving into name calling. (while fun, is not necessary).

(I would happily take 15% annualized return on the bulk of my investments (this also is probably not achieved by 95% of investors), while I would also be happy to speculate wildly on a smaller percentage.)

Nothing is impossible, however improbable.

Siuya, as an options trader I agree with you 100% about some of those option tradesI . In any business those well above average profits (in any business) are called windfalls. I agree with you about speculating for superior returns in certain situations. In a previous post I discussed my ford purchase.

I agree that speculation is good on a smaller percentage of assets. My argument is that it is a foolish move when it is the sole trading plan.

Johnny

HighStakes · August 3, 2010

I will read that book, thalestrader. Great post.

If my prospect of annualized returns were merely 10-15%, I would never waste any time on trading. I`d rather work the extra hours with my current job and invest my savings in an index or similar.

If anyone is interested, I may upload an excel sheet I made with montecarlo simulations of a trading profile. Commissions, break even trades, win percentage, average winner, number of contracts as a function of margin, expectancy, etc. Every variable (within reason) is included.

It`s fun to play around with the variables and see what`s possible, how it`s possible, etc.

MadMarketScientist · August 3, 2010

This is a great thread with really a tremendous debate going back and forth. It's quite valuable what each of you say -- many could learn quite a bit just from reading this thread.

However, please let's not get personal with the attacks. I see some of the emotions and attacks creeping in here -- keep it on point, argue strong but let's try to keep it friendly.

Thanks guys/gals!

JohnnySDG · August 3, 2010

I will read that book, thalestrader. Great post.

If my prospect of annualized returns were merely 10-15%, I would never waste any time on trading. I`d rather work the extra hours with my current job and invest my savings in an index or similar.

If anyone is interested, I may upload an excel sheet I made with montecarlo simulations of a trading profile. Commissions, break even trades, win percentage, average winner, number of contracts as a function of margin, expectancy, etc. Every variable (within reason) is included.

It`s fun to play around with the variables and see what`s possible, how it`s possible, etc.

Yes, a spreadsheet! It will show you how to turn $1 into $1,000,000,000,000,000,000

Then you can do an infomercial!

MightyMouse · August 3, 2010

I will read that book, thalestrader. Great post.

If my prospect of annualized returns were merely 10-15%, I would never waste any time on trading. I`d rather work the extra hours with my current job and invest my savings in an index or similar.

If anyone is interested, I may upload an excel sheet I made with montecarlo simulations of a trading profile. Commissions, break even trades, win percentage, average winner, number of contracts as a function of margin, expectancy, etc. Every variable (within reason) is included.

It`s fun to play around with the variables and see what`s possible, how it`s possible, etc.

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.

Cory2679 · August 3, 2010

I will read that book, thalestrader.

Me, too! I'm running low on reading material these days.

If anyone's interested in a brief introduction to Gerald Loeb, there's a Wikipedia page on him here.

He was a founding partner of E.F. Hutton & Co...I read that Paul Tudor Jones worked there in his early years.

Cory

TMBTC · August 3, 2010

Yes, a spreadsheet! It will show you how to turn $1 into $1,000,000,000,000,000,000

Then you can do an infomercial!

I thought you of all people would have appreciated this! You're the one who keeps demanding people present "math."

Oh wait...I get it...if the "math" begins with assumptions that are different than yours, it's not math...it's BS. :rofl:

JohnnySDG · August 3, 2010

Me, too! I'm running low on reading material these days.

If anyone's interested in a brief introduction to Gerald Loeb, there's a Wikipedia page on him here.

He was a founding partner of E.F. Hutton & Co...I read that Paul Tudor Jones worked there in his early years.

Cory

Cool, the guy made his money on commissions and book sales!

JohnnySDG · August 3, 2010

I thought you of all people would have appreciated this! You're the one who keeps demanding people present "math."

Oh wait...I get it...if the "math" begins with assumptions that are different than yours, it's not math...it's BS. :rofl:

Real math, not spreadsheet geometry. The MLM con men can give me that.

Johnny

Cory2679 · August 3, 2010

Real math, not spreadsheet geometry. The MLM con men can give me that.

Johnny

You should give us an example of "real math."

-----

Anyways, you actually bring up a good example with multi-level-marketing...

You might read things like this...

The Times: "The Government investigation claims to have revealed that just 10 per cent of Amway's agents in Britain make any profit, with less than one in ten selling a single item of the group's products."

Scheibeler, a high level "Emerald" Amway member: "UK Justice Norris found in 2008 that out of an IBO [independent Business Owners] population of 33,000, 'only about 90 made sufficient incomes to cover the costs of actively building their business.' That's a 99.7 percent loss rate for investors."

Newsweek: based on Mona Vie's own 2007 income disclosure statement "fewer than 1 percent qualified for commissions and of those, only 10 percent made more than $100 a week."

Business Students Focus on Ethics: "In the USA, the average annual income from MLM for 90% MLM members is no more than US $5,000, which is far from being a sufficient means of making a living (San Lian Life Weekly 1998)"

USAToday: "While earning potential varies by company and sales ability, DSA says the median annual income for those in direct sales is $2,400."

HOWEVER, I have a good friend who sells Premier Design Jewelry (which would fit into the category of MLM)...she does awesome with it...I think she just really has a special talent for selling it, getting shows booked, networking, etc. She quickly broke even and has made thousands of dollars fairly quickly...and the momentum has not slowed.

Yet, she (and I) know of many who have tried and failed...they end up barely breaking even (if they do), trying to sell their remaining inventory, trying to get out.

So, if my friend had read all these bad statistics and had an attitude like some on this board, she would have never tried.

The same thing goes with trading!

I feel like the attitude here is sometimes "Trying is the first step toward failure."...the moral being, don't try anything because you might fail.

People don't become great by only taking paths in life with little-to-no risk.

:2c:

SIUYA · August 3, 2010

Johnny - "My argument is that it is a foolish move when it is the sole trading plan."

You may be correct from the point of view of offering an individual 'life advice' , but equally so, if someone sets their heart at something then just because something is difficult (or improbable) does not mean its impossible.

There are plenty of people who waste time and effort trying things throughout their life..... but so what?

and what is a small amount in terms of what they are risking. which is riskier or less advisable....taking a year or two off to focus on trading, risking $20,000 OR risking 5% of a lot of money and trying to trade part time, OR doing a 2 year degree coming out with a heap of debt and then changing your mind for what you want to do as a career?

who knows - it depends on the person and their situation.

Also if you can take a small amount and get lucky and make a larger amount then great, maybe you then get smart and manage to make this luck sustainable....

Point is you are right - its tough, its improbable, there are scammers who will promise the world charge for it and deliver crap, yet no-one appreciates being told something is wrong or impossible when others have shown it is not (maybe/maybe not people here but the mkt wizards)..... lets keep the dream alive !

JohnnySDG · August 3, 2010

Johnny - "My argument is that it is a foolish move when it is the sole trading plan."

You may be correct from the point of view of offering an individual 'life advice' , but equally so, if someone sets their heart at something then just because something is difficult (or improbable) does not mean its impossible.

There are plenty of people who waste time and effort trying things throughout their life..... but so what?

and what is a small amount in terms of what they are risking. which is riskier or less advisable....taking a year or two off to focus on trading, risking $20,000 OR risking 5% of a lot of money and trying to trade part time, OR doing a 2 year degree coming out with a heap of debt and then changing your mind for what you want to do as a career?

who knows - it depends on the person and their situation.

Also if you can take a small amount and get lucky and make a larger amount then great, maybe you then get smart and manage to make this luck sustainable....

Point is you are right - its tough, its improbable, there are scammers who will promise the world charge for it and deliver crap, yet no-one appreciates being told something is wrong or impossible when others have shown it is not (maybe/maybe not people here but the mkt wizards)..... lets keep the dream alive !

I see your point. You make sense.

My objective is to help people avoid the BS and scamers. I'm not saying that someone can't be successful trading. But, lets keep it realistic.

I believe you are saying the same thing.

Also, if you traded in the pits then you know that many guys make their money from commissions. And when they do trade it is often a hedge against their business.

Johnny

mktwzrd · August 3, 2010

just throwin this out there:

if you want to make a living as a trader starting with a small account

say a 15% return per year is the goal

trading a $1 mil account, the trader would make $150,000 per year...$105,000 after taxes (assuming a 30% tax)

if a trader makes 15% per year net profits and has to pay 30% of that in taxes (so the trader ends up with a 10.5% net profit after taxes)...

if the trader never makes a single withdrawal, and nets 10.5% per year after taxes, and the trader compounds every single year, it would take a trader 37 years to grow an account from $25,000 to over $1,000,000

starting with a $2,500 account, it would take 61 years

JohnnySDG · August 3, 2010

All true. But I'd like to also point out that a $2,500 account can go to $0 in 10 minutes.

Johnny

SIUYA · August 3, 2010

Johnny- "Also, if you traded in the pits then you know that many guys make their money from commissions. And when they do trade it is often a hedge against their business."

On this point and generally this is what I believe (Again just a matter of definitions) :2c:

- there are very few traders out there. Many people who claim to be traders are actually either market makers, brokers, or operators of other peoples orders.

- anybody with a good set of rules that they apply and are profitable could easily give away those rules/ teach others those rules and the other people still will not necessarily be profitable. This includes systemised computerised accounts.

- when it comes to courses and seminars etc; its buyer beware. No matter how many times people are told - if it sounds too good to be true then it probably is - they will always generally pay for something rather than receive the same information for free. For some reason they assign more value to something if they pay for it. Or is it that people think that paying for something will save them doing the work?

- nothing is impossible, even if its improbable.

- when something is improbable but it does work/come off, the payoff is usually huge

- personality is vital, so either fit the personality to the task, or change the personality

- context is king (everything is relative)

- luck plays a greater factor in everything than most of us give it credit for.

- luck is what you make of it.

Soullfire · August 3, 2010