This post is a response to a question in another thread about switching from trading to investing. (hopefully Ill be forgiven here for being off topic.)
It’s just 1 persons experience – everybody else’s experience past or future may be different.
Minor ‘physical’ reasons (shares)
Market impact decreases the return (chasing volume to get things done in a reasonable time often pushes the market away from the trigger/reason to act)
Physical transaction time and associated bookkeeping increases (splitting orders to try and hide a bit)
I traded Aust shares and I'm sure some of the physical limitations to size could be addressed with other instruments (US shares, Interest rates, futures, FX)
But the more major issues for me were psychological. In addition to the ‘physical’ impact of size above – there were additional diminishing return because of psychological issue when I attempted to scale up.
Possible basis for those psychological issues:
Lack of belief in myself as a trader; Lack of belief in trading as a ‘sustainable’ pathway for increasing funds; Fear that I may have just been on the lucky side of the return distribution to date; Concern that I could keep adapting to the next market paradigm shift; Concern about correctly differentiating between a normal drawdown and a system failure etc etc.
All in all it was hard work (for me) staying good enough to make money in a game that is not loaded in my favour. Accumulating money has a diminishing marginal incentive to work hard.
Because of the above – and with the reality that what I could earn going forward was worth less to me then what I had accumulated and could lose meant I didn’t have the psychological ability to scale up without finding something more certain for myself.
My trading returns when working only at a comfortable scale didn’t justify ignoring the rest of my capital.
My search for methods that would allow me to scale brought me to business analysis investing. (ironically it has more volatility then short term trading) But I felt a firmer foundation for taking risk. Maybe more than anything I landed there because of my personal traits. The real world difficulties of size and work load are reduced but more importantly the psychological fit is much better.
The existence of prop shops during my time of transition may have made a difference. They seem like a very good way to leverage trading skills and alleviate some of the psychological pressures. (Though I’m just guessing because I have no experience of them) Trading your own capital in the range of ‘My family could retire on this if I don’t do anything risky’ is difficult – building your capital past this point without risk would be gold.
It’s just 1 persons experience – everybody else’s experience past or future may be different.
Minor ‘physical’ reasons (shares)
Market impact decreases the return (chasing volume to get things done in a reasonable time often pushes the market away from the trigger/reason to act)
Physical transaction time and associated bookkeeping increases (splitting orders to try and hide a bit)
I traded Aust shares and I'm sure some of the physical limitations to size could be addressed with other instruments (US shares, Interest rates, futures, FX)
But the more major issues for me were psychological. In addition to the ‘physical’ impact of size above – there were additional diminishing return because of psychological issue when I attempted to scale up.
Possible basis for those psychological issues:
Lack of belief in myself as a trader; Lack of belief in trading as a ‘sustainable’ pathway for increasing funds; Fear that I may have just been on the lucky side of the return distribution to date; Concern that I could keep adapting to the next market paradigm shift; Concern about correctly differentiating between a normal drawdown and a system failure etc etc.
All in all it was hard work (for me) staying good enough to make money in a game that is not loaded in my favour. Accumulating money has a diminishing marginal incentive to work hard.
Because of the above – and with the reality that what I could earn going forward was worth less to me then what I had accumulated and could lose meant I didn’t have the psychological ability to scale up without finding something more certain for myself.
My trading returns when working only at a comfortable scale didn’t justify ignoring the rest of my capital.
My search for methods that would allow me to scale brought me to business analysis investing. (ironically it has more volatility then short term trading) But I felt a firmer foundation for taking risk. Maybe more than anything I landed there because of my personal traits. The real world difficulties of size and work load are reduced but more importantly the psychological fit is much better.
The existence of prop shops during my time of transition may have made a difference. They seem like a very good way to leverage trading skills and alleviate some of the psychological pressures. (Though I’m just guessing because I have no experience of them) Trading your own capital in the range of ‘My family could retire on this if I don’t do anything risky’ is difficult – building your capital past this point without risk would be gold.