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Broker: Advantage Futures, Ninja/TT and InvestorRT/IQFeed.
Trading: Treasury futures
Posts: 312 since Nov 2010
Thanks Given: 194
Thanks Received: 912
This is a good point and there is another related element as well. It is possible to make money in trending and volatile markets and it is also possible to make money in markets that are not moving much as long as there is some volume. A trader who either decides to make his/her living trading just one instrument or who is forced into it by the circumstance of being a market maker in just one instrument will learn to make significant money in either type of market. However when the market changes modes, as recently happened in Treasury futures, that trader will lose until he or she adjusts. One danger of having too much success early in one type of market is that you will absolutely get killed when the market switches. I knew a guy in a prop group who started trading the yield curve in a non-volatile period. He made about $600,000 his first year fading small moves. Then one day the market suddenly got volatile, and he lost $1 million on a single trade because he had never seen a market trend (seriously, it was that slow for that long!) and he just kept adding to his loser as the market trended, expecting the curve to come back to unchanged like it did almost every other day he traded.
The point is that it is not just trading a market that always goes in one direction that can make you a legend in your own mind, but also not having enough experience to know that the market can also change character, which will require a different style of trading.
I am trying to learn to watch and trade multiple markets at the same time so I can pick and choose the ones with the characteristics I want.
"You don't need a weatherman to know which way the wind blows..."
Broker: Advantage Futures, Ninja/TT and InvestorRT/IQFeed.
Trading: Treasury futures
Posts: 312 since Nov 2010
Thanks Given: 194
Thanks Received: 912
If possible, what you need to do is throw all of your trading earnings back into your account and increase your trade size proportionately to your account size. Do this net of expenses and taxes. DO NOT SPEND ANY OF THE MONEY YOU EARN TRADING, TRY TO LIVE ON YOUR WIFE'S INCOME. When you first start trading bigger you will probably experience a loss of performance. The toughest jump for me was going from being a one lot trader to a two lot trader, not so much because of the extra risk but because I got greedy. At twice the size, I thought I should make a FORTUNE, and I forgot to take profits. Where I had been making money consistently as a "one lot Louie", I started losing daily when I went to trading two lots. I wound up solving the problem by scaling out. If the trade was a winner, I would take a one tick profit on one of the two contracts every time until I became comfortable with the extra size.
One thing that happens if you make your trade size proportional to account size is that eventually you get accustomed to increasing your size. Also you trade just at the edge of discomfort, which I think makes you sharper.
"You don't need a weatherman to know which way the wind blows..."
Broker: Advantage Futures, Ninja/TT and InvestorRT/IQFeed.
Trading: Treasury futures
Posts: 312 since Nov 2010
Thanks Given: 194
Thanks Received: 912
I like this but I would add a step. Once you are confident in the skills you have developed sim trading, set yourself a sim money goal that will take a while to achieve from a specific start date, maybe a month or two. That start date should be after you have decided you are ready, not looking back to days when you took experimental trades. Trade the size you plan to trade live. When you have losing days, this will push back your "live" start date. Especially as you get close to trading live, my experience is that the sim trading will start to feel very real and the pressure of sim trading will feel like the pressure of live trading, because losing days in sim delay when you get to start making real money.
"You don't need a weatherman to know which way the wind blows..."
Broker: Advantage Futures, Ninja/TT and InvestorRT/IQFeed.
Trading: Treasury futures
Posts: 312 since Nov 2010
Thanks Given: 194
Thanks Received: 912
Absolutely terrific point! In addition to mini contracts which can sometimes be illiquid, there may also be something that correlates highly with the instrument you want to trade but is less volatile. For example, you may want to trade 30 year bonds but they are too volatile for your account size. A less volatile contract is the five year note, which usually but not always trades in the direction of the T bond but anyway has a dynamic all its own and is liquid and tradable.
"You don't need a weatherman to know which way the wind blows..."
Broker: Advantage Futures, Ninja/TT and InvestorRT/IQFeed.
Trading: Treasury futures
Posts: 312 since Nov 2010
Thanks Given: 194
Thanks Received: 912
How do you define "good trader" vs "great trader"? I would argue that in the end it comes down to the bottom line. Consider two traders:
Trader #1 has a winning methodology or methodologies, great risk/reward stats, great discipline, is capable of trading many markets and many different types of market, but uses his trading income to live and does not grow his account, so his income, while consistent, does not grow fast.
Trader #2, is a "one trick pony" who makes money consistently enough but not as consistently as trader #1. He lives with his Mom so he doesn't spend any money. Instead every time his account grows by $5000 he increases his size one contract. He reinvests all his money in his trading business rather than spending it, and winds up being a much larger and much more profitable trader on a dollar basis than trader #1.
Who is the better trader? Clearly trader #1, but I would argue it doesn't matter. The fact is that trader #2 has the better business plan and winds up making more money. I think if you look at trading as a business and set up a business plan that includes growth as part of the plan, you can do very well indeed even if you are just OK as a trader.
"You don't need a weatherman to know which way the wind blows..."
I would prefer to be Trader #3, who makes money consistently who has a winning methodology or methodologies, great risk/reward stats, great discipline. Who takes between 30% to 50% of equity growth for income and the remaining 50% to 70% stays in the business account and when my account grows by $5000 I increase my size one contract. I don't live with my mom, but have living expenses LOL!!!
Broker: Advantage Futures, Ninja/TT and InvestorRT/IQFeed.
Trading: Treasury futures
Posts: 312 since Nov 2010
Thanks Given: 194
Thanks Received: 912
In my opinion, what separates the ultra successful trader from the pack is the ability to trade size as though you were trading one lots. The kind of money we all aspire to earn comes from trading large size. If you can develop a winning methodology trading small and gradually increase you trading size as your account grows, the limit to your income is determined by the liquidity and depth of the markets you trade.
My posts on this subject are not aimed at the trader who has not yet figured out how to make money consistently and who has not learned to trade in a variety of market conditions from glacial to wild. You will blow yourself out if you trade larger than your capital and your skill set allow. My point is that as you build your trading business, growth needs to be part of the plan.
"You don't need a weatherman to know which way the wind blows..."
Broker: Advantage Futures, Ninja/TT and InvestorRT/IQFeed.
Trading: Treasury futures
Posts: 312 since Nov 2010
Thanks Given: 194
Thanks Received: 912
Love this post. IMO, "The next 10%" and "The last 10%" are really the same thing. Also, among the 95% who don't make it are many with the guts and the toughness but who lack adequate capital to take them through the learning curve. Some people simply do not have the freedom to live in Mom's basement. They have people depending on them who need to be fedtoday. Those people should not have started trading in the first place.
"You don't need a weatherman to know which way the wind blows..."