Retail Trading for a Living Milestone - "Feed my ego"/Thought sharing

[Newt]

You must be real nightowl Minwa trading the ES. Do your setups require you to be at the screen for hours on end, or do you have alerts or automation to assist you usually?

 

[minwa]

10% to 20% return per month is astounding along with a high win rate (possibly over 80%) and high reward to risk ratio. I have always believed this is possible (hence why am still around) but have never even come close. Inspirational stuff.

Nah it's more like 5 to 10% per month usually, I just bragged the good months .



That's March. I risk 0.25% per trade and the mean return is 0.59% with win rate 85%. A rather good month though. Longer term for day trading only Sharpe's probably about closer to 6, 75% win. I occasionally do other trades like swing trading futures & options positions in the same account so stats kinda messed. Too lazy to run my own records.

That's basically my trading "library" - what the top guys do and how to manage psychology. And yet I'm not ordering a new beema! Time to read them again, this time I might try reading between the lines as well.

Well don't place TOO MUCH faith in books..they help but you can't "get it" from books..

You must be real nightowl Minwa trading the ES. Do your setups require you to be at the screen for hours on end, or do you have alerts or automation to assist you usually?

Yeah always an been night owl, before trading as well. I concentrate better at night. My 2 main setups only occur within a 2 hours window, from CME pits open to an hour after stocks open. After that if no entry I can go sleep (I usually don't though..). If I enter then I can set limit order target and stops and go sleep if I am busy next day and need to wake early (most of time not). Don't have any automation, just alerts on levels and limit orders.

 

[skc]

Feb was a boring trading month, didn't trade much because of LNY. March was pretty good, not spectacular like Jan but still got close to 6 figures.

Nice one!

That's March. I risk 0.25% per trade and the mean return is 0.59% with win rate 85%. A rather good month though. Longer term for day trading only Sharpe's probably about closer to 6, 75% win.

I always thought my stats were pretty solid but this blows me out of the water.

Minwa, whenever someone makes big money like this, I wonder what stops the broker from exploiting the situation?

Your definition of big money needs recalibration. Minwa is doing very well... but still very much retail size.

I also reached a target profit earnings and have just ordered a BMW M2 Pure Editon . It won't be here until towards end of year though..very slow production

Not sure how financially sensible this decision will be..we will find out I guess. Live & learn.

This will be the most expensive car you'd ever drive. Why? Because...

Love the power of compound..Always surprise myself every time when totalling $ amount, even though I know my % , it gets easier and easier as your account grows.

Don't forget you need to pay tax (I assume) on your profits. So by the time that happens and you pay for the car, you are hurting your progress in compounding.

Then again... your profits so do as you see fit. And probably not the most expensive car you'd ever drive the way you are going.

Well done.

 

[DeepState]

What bro rate are you paying? If short selling, what is the total cost of finance and borrow you are paying?

Well done.

 

[Gringotts Bank]

Your definition of big money needs recalibration. Minwa is doing very well... but still very much retail size.

Recalibrate me! Do you know any retail traders making >100k/mo.?

 

[DeepState]

What bro rate are you paying? If short selling, what is the total cost of finance and borrow you are paying?

Well done.

Scrap my question. You trade ES for the most part.

 

[minwa]

Nice one!


Don't forget you need to pay tax (I assume) on your profits. So by the time that happens and you pay for the car, you are hurting your progress in compounding.

Then again... your profits so do as you see fit. And probably not the most expensive car you'd ever drive the way you are going.

Well done.

Thanks ! Yeah but at least I don't have to pay for the car until delivery (deposit is very small), and tax is only one lump a year unlike PAYG, so I get to use this funds to compound at least for time being.

 

[DeepState]

I'm not a trader (maybe I should be). Well done.

Given you've invited questions, can you help with the following?

You are trading a linear instrument. You are getting very high average returns for a given limit of loss. I have no idea what these limits look like relative to the gross position size and gross risk. Yet you are also achieving outsized hit rates.

If you were simply tossing a coin for the month of March alone, the chances of getting 17 trades in profit out of 20 trades is 0.02% or 2 in 10,000. That's for a single month. Obviously even more exponentially awesome for a track record extending into years. That's with no stop losses in place. As soon as stops get added, hit rates decline as the stops get tighter....all else equal. If Warren Buffett is a 6-sigma event, March alone was a 4-sigma event in just this respect.

The tighter the stops, the lower the hit rate and the higher the R:R (is that how you say it?). Tighter stops produce positive skews. Buffett doesn't have stops like this, which makes your 4-sigma more like 6-sigma on a Buffett equivalent measure. That's for one somewhat vanilla month and would leave Buffett in the dust if considered over three months alone.

High hit rates can be created via sales of put options or strategies which produce similar pay-offs (eg. pair trading, martingale...), but they produce negatively skewed outcomes.

How are you managing to produce statistically freakish hit rates whilst also producing balanced distribution outcomes? These types of outcomes are viable in arbitrage but you are trading ES on retail proprietary funds presumably without the funds to develop or assemble the hard and software, let alone access to the lines, to produce this.

Enjoy the car.

Maybe you should park outside Portland House in Collins St and get them to stake you for some real money.

 

[skc]

If you were simply tossing a coin for the month of March alone, the chances of getting 17 trades in profit out of 20 trades is 0.02% or 2 in 10,000.

His stats showed profitable in 17 out of 20 periods, not trades. He said he averaged 2 trades a day.... so the numbers are still freakish.

How are you managing to produce statistically freakish hit rates whilst also producing balanced distribution outcomes? These types of outcomes are viable in arbitrage but you are trading ES on retail proprietary funds presumably without the funds to develop or assemble the hard and software, let alone access to the lines, to produce this.

I have some vague theories on how it can be possible. I once achieved these numbers over a short period.

I have been trading a system using some MM ASX200 index products for about 4 months. Here are the results.

No. of trades 1200
Win rate 87%

Avg win 3.85 pts
Avg loss -2.12 pts

Largest win 24.4 pts
Largest loss -12.7 pts

The purpose of the post is simply to share my results and to show what is possible when you find an edge in the market. I have to say it was quite a successful system

Let's just say they were not achieved by reading price actions with 87% accuracy!

I do wish Minwa's strategy is far more robust, scalable and sustainable than mine.

Recalibrate me! Do you know any retail traders making >100k/mo.?

I was listening to an interview of Brett Steenbarger and he mentioned that he worked with an institutional trading desk where the guy with the SMALLEST account was $250m. They are probably trading debt instruments but Minwa is a retail trader.

http://chatwithtraders.com/ep-065-brett-steenbarger/

Here's a guy who's made >$100k/mo.

http://www.bloomberg.com/news/artic...-panicked-japanese-day-trader-made-34-million

 

[Modest]

minwa can you tell us what your thoughts are on DOM/ladders, whether you use em or not. If you do use it, why? if you don't why not?

I remember reading (I think it was TH) saying the DOMs are very difficult to use these days especially on super liquid indexes like the ES/FESX etc

Thanks

 

[minwa]

@DS, questions are very welcome, but not sure how to fully respond to yours. skc is correct in that they are days, not trades. Majority of my ES trades are closed out before the close so it's still a rather fair representation. I do not keep records myself and exact stats because I think it benefits me NOT to know, so I have no preconceived expectation of any individual trade. A series of trades is more important.

Never done arbitrage, used to sell options years ago when I only traded options, not really anymore. I only go long or short ES (main strategy), with the expectation to hold for at least 30 minutes to just before noon US time.

As for the R:R, I buy on down moves and sell on up moves. Only use limit order and wait for price to trade to my level. IMO that way is superior to break out trading, buying on stop orders on highs/shorts on lows - if it fits my intermediate time frame premise (daily chart).

Hit rate comes from synergy of time & price. I have an expectation of what should occur at what time, if it does and my setup is there I can consider taking it (I'm discretionary.) The same price action is DIFFERENT to me at 10am compared to 2pm. An extra layer of confirmation to the setup is provided by intraday treasuries bond yields.

I can describe my trading as tracking the big guys to where they will take price to stacks of orders - liquidity - to accumulate before sending price the other way. These guys move the market, they cannot buy on the way up, they have to buy on the way down.

Don't really understand this sigma thing you speak of . I'm not clear on exactly how Buffet made his wealth, a quick wikipedia read says he bought Berkshire in 1962 at $7 and it was worth $1310 in 1979. That's over 1000% return pa, but I have also read somewhere that Buffet's long term return is 25%. I don't think his investing can be compared to our forms of trading stats analysis.

As for statistics..well I wouldn't pay too much emphasis on them especially in something like trading. Statistics says average 20-40 yrs old male can do 20 something push ups. Well the world record is in the thousands, there'll be MANY in between who can do push ups in the hundreds too. Over the long term I only expect my returns to be half what they were in March.

@skc, it's a shame your system is not scalable, those stats looks awesome. I am not too worried about scalability yet, although I have noticed sometimes it takes a few seconds to fully fill my whole limit order. If my order only gets partially filled and the market moves, at least I have the consolation that I have caught the bottom tick . There's always the big brother spoos, the full sized s&p contract

 

[minwa]

minwa can you tell us what your thoughts are on DOM/ladders, whether you use em or not. If you do use it, why? if you don't why not?

I remember reading (I think it was TH) saying the DOMs are very difficult to use these days especially on super liquid indexes like the ES/FESX etc

Thanks

Not much of an opinion, I don't use them but don't dismiss them either. Haven't studied it enough. I assume it's more for scalping/very short term trading. I take a longer stance and I don't see how it will show anything past a few minutes. A chart prints all the levels I require.

 

[Modest]

Hit rate comes from synergy of time & price. I have an expectation of what should occur at what time, if it does and my setup is there I can consider taking it (I'm discretionary.) The same price action is DIFFERENT to me at 10am compared to 2pm. An extra layer of confirmation to the setup is provided by intraday treasuries bond yields.

Do you watch all three notes (2yr, 5yr and 10yr) or do you just watch one?

As for the R:R, I buy on down moves and sell on up moves. Only use limit order and wait for price to trade to my level.

I can describe my trading as tracking the big guys to where they will take price to stacks of orders - liquidity - to accumulate before sending price the other way. These guys move the market, they cannot buy on the way up, they have to buy on the way down.

This stuff is golden! I have been practising this type of approach to trading since I learned about VSA; what you write about is very similar to what I am trying to do with my disco strategy so it is very motivating to hear someone who is actually making mulla with a similar view of the markets.


Thanks for your patience minwa.

 

[Modest]

I just realised I was talking about the notes... So you watch 30yr US Treasury Bonds?


*starts researching*

 

[DeepState]

@DS, questions are very welcome,

Appreciate your response and openness. Keen to learn more.

Need to be careful of how to use stats for sure. However, I would be careful to dismiss a proper use of them in meaningful situations.

Thanks for outlining more of your approach. It is reversionary. You are confirming the presence of reversion via reference to the bond market. Solid concept. It is a form of market making which definitely can produce high hit rates and positive skew in certain markets. Usually that is for OTC markets. Which makes your outcomes very interesting. Your statement about finding levels to set limits where the big boys absorb liquidity was interesting. It implies that the really big boys are liquidity providers and you are riding off them. And yet you do not use DOM, so the limits are set without reference to screen volume.

ES will also arb vs SPX and this brings enormous effective volume into the ES market. Big insto doesn't need to trade in small contracts. SPX effective exposure changes vastly exceed the liquidity of the underlying market. So I find the liquidity argument unusual. The concept is fine....but on the ES/SPX? Market makers do well in markets like REITs and Bonds, naturally mean reverting.

Does the ES naturally mean revert at the 30 minute scale? Absolutely no evidence of this occurs. Knowledge of the past 30 minute return has no correlation to the next 30 minute returns or any subsequent 30 minute return over the next half of the day (plenty of time for liquidity to clear on a contract like ES.) The return distribution is much like currency...wide tails, narrow middle. Yes, I checked.

A random trade flicked on and held for a random number of periods will produce a random outcome, growing in size with time held.

This is what I would expect from a liquid market whose action is driven by crowd-effects.

Given ES and SPX are essentially fully capable of arbitrage, the basic performance of the ES at the time intervals you trade at and longer do not display the characteristics of one with market maker profits to be had...and the liquidity of the SPX is truly huge and any real volume trades get done in that market....how does all this make sense?

Please read the above as curiosity rather than cynical doubt.

 

[minwa]

I just realised I was talking about the notes... So you watch 30yr US Treasury Bonds?


*starts researching*

30yr bonds for longer term direction bias, 3yr & 5yr notes yields for intraday. You can add the 10 if you want, but I haven't found any use for it. Accumulation by big boys temporary disrupts correlation is what I look for. Don't get too sucked into it, like I said it's just an extra confirmation that's not always there.

 

[minwa]

Appreciate your response and openness. Keen to learn more.

Need to be careful of how to use stats for sure. However, I would be careful to dismiss a proper use of them in meaningful situations.

Thanks for outlining more of your approach. It is reversionary. You are confirming the presence of reversion via reference to the bond market. Solid concept. It is a form of market making which definitely can produce high hit rates and positive skew in certain markets. Usually that is for OTC markets. Which makes your outcomes very interesting. Your statement about finding levels to set limits where the big boys absorb liquidity was interesting. It implies that the really big boys are liquidity providers and you are riding off them. And yet you do not use DOM, so the limits are set without reference to screen volume.

ES will also arb vs SPX and this brings enormous effective volume into the ES market. Big insto doesn't need to trade in small contracts. SPX effective exposure changes vastly exceed the liquidity of the underlying market. So I find the liquidity argument unusual. The concept is fine....but on the ES/SPX? Market makers do well in markets like REITs and Bonds, naturally mean reverting.

Does the ES naturally mean revert at the 30 minute scale? Absolutely no evidence of this occurs. Knowledge of the past 30 minute return has no correlation to the next 30 minute returns or any subsequent 30 minute return over the next half of the day (plenty of time for liquidity to clear on a contract like ES.) The return distribution is much like currency...wide tails, narrow middle. Yes, I checked.

A random trade flicked on and held for a random number of periods will produce a random outcome, growing in size with time held.

This is what I would expect from a liquid market whose action is driven by crowd-effects.

Given ES and SPX are essentially fully capable of arbitrage, the basic performance of the ES at the time intervals you trade at and longer do not display the characteristics of one with market maker profits to be had...and the liquidity of the SPX is truly huge and any real volume trades get done in that market....how does all this make sense?

Please read the above as curiosity rather than cynical doubt.

Sorry most of what said is beyond me . Wish I could truly comprehend them for discussion.

I am probably wrong in this assumption please correct me but from what I understand you are saying that because the S&Ps are very liquid and arbitraged and therefore the resulting price should be all random ?

 

[DeepState]

Sorry most of what said is beyond me . Wish I could truly comprehend them for discussion.

I am probably wrong in this assumption please correct me but from what I understand you are saying that because the S&Ps are very liquid and arbitraged and therefore the resulting price should be all random ?

I can't understand my own stuff 50% of the time so you're way ahead.

As you succinctly put it, the ES should be super liquid by association with SPX. How does a strategy that seeks to profit from support from big traders supposed to work in this environment. The market behaves on accordance with what I would have thought. That makes what you have achieved thoroughly in the WTF territory.

How can you claim to be trading off liquidity support from the big boys in ES if the larger relative, SPX, is super liquid? Well, you can claim it...but how does it make sense?

Thanks! Fascinated.

 

[minwa]

I can't understand my own stuff 50% of the time so you're way ahead.

As you succinctly put it, the ES should be super liquid by association with SPX. How does a strategy that seeks to profit from support from big traders supposed to work in this environment. The market behaves on accordance with what I would have thought. That makes what you have achieved thoroughly in the WTF territory.

How can you claim to be trading off liquidity support from the big boys in ES if the larger relative, SPX, is super liquid? Well, you can claim it...but how does it make sense?

Thanks! Fascinated.

Thanks, that's much put simpler for me to understand and respond.

I think you may have misinterpreted my comments on liquidity & trading. I trade directional, with the expectation to make at least a few S&P handles in movement per trade. I am not profiting off some SPX/ES tiny flaw caused by liquidity. ES is my instrument of choice, solely because its contract size specs suits me. I could be trading the full size contract and it wouldn't make much of a difference to me. I could be trading SPY too and it would mostly turn out the same, at less leverage of course. I could chart the SPX cash index or SPY ETF, & trade on the ES, and shouldn't make much of a difference, just adjust the point differences.

My comments about liquidity were simply the way I was taught to view the markets, whether they actually happen or not I have no proof. I belief markets are manipulated to trade to penetrate levels where lots of orders are resting - say a recent swing low, where lots of sell stops (consisting of both protective sell stops on existing longs & pending short sells of break out traders) - only one trade/print is required at that level, ALL those pending orders become MARKET ORDERS -> with the big boys buying on the other side.

Of course in any S&P market these are all synthetic representation of the real buying that is in the underlying STOCKS themselves that move the S&P. Let's assume you're Goldman Sachs and want to purchase a new position into Apple share, we have none existing.

http://www.goldmansachs.com/gsam/do...rowthstrategyportfolio_700507_20130630_fc.pdf

They had $700bil AUM in 2013 let's assume we now have $1tril and they allocate 13.1% to their large cap equity value fund, let's just simplify it to 10%. Now we're managing $100bil to invest into large cap value equities. We wana put 5%, $5bil into Apple. On Friday Apple traded 26mil shares @ around $110. That's about $2.8 bil worth transacted. We require 5 $bil, so we could we have just bought everything up and be done with in the position in a few days ? No, impossible. There are also hundreds/thousands of other big institutions of similar size who may hold similar interest. It will take a long time to accumulate into these position. If everyone bought at same time with full order the price will explode. They don't want that - they want small bites at as low a price as possible of course.

Only way to do this is take price LOWER first, get the suckers/retail/sheep/crowd want to get out (and the uninformed speculators wanting to short) - thus providing the liquidity to be soaked up by the big guys. The losers collectively were a form of involuntary liquidity to the big guys. Only way for big money to get a good average price is to accumulate on the way down. No markets go up straight forever - deep pockets cant just pile on as the market rises and rises and be able to get out of their massive position at a higher level.

That's what I was taught and is my belief on what happens. It has served me well, whether its the truth or not. That's of course on a higher time frame over a longer term basis, but the same manipulation/accumulation process happens on an intraday basis.

This was Friday's action. A typical accumulation day. Notice I charted the S&P cash index. Could've used ES. Or SPY. Doesn't matter - I simply choose ES as my instrument of choice to trade. I think that's where I sense some confusion from the tone of your post you seem to suggest I found something of an edge in relationship with ES & SPX so I wanted to make that point clear.



Morning open, steep drop - everything looks like a rout, retail starts bailing. Sheep led to slaughter. Shake weak hands out. Wolves eat them up, takes their position. Your retired uncle who punts the market live calls his broker to get out of longs AND go short at market. Your neighbor who's a plumber who does DIY investing put a pending stop order at previous day's low to protect his long holdings in Apple. All these orders get tripped & bought up by the pros. After they're done - market propels higher. Notice the time where it stalls mid day - just before noon. I mentioned that in the previous post as a target.

I only go long or short ES (main strategy), with the expectation to hold for at least 30 minutes to just before noon US time.

Now let's look at where the real buying is going on. ES doesn't go up because S&P futures are being bought up. They go up because stocks (on average to the index) are being bought up.



Apple shares drop on the open, conveniently taking out all the intra day and daily lows of previous 2 days. What do most retail courses & books teach to put your stops on long positions ? Below the most recent swing low or two. Yeah..have fun being involuntary liquidity. No wonder lots of losers complain of the market turning in their favor just after taking their stops out.

Hopefully that clears some things up. I believe this concept is first introduced by George Douglass Taylor in a old text. I've never read it so I can't recommend it. Linda Raschke & Larry Williams builds on them. Larry buys after price retraces back to the open, a bit late in my opinion. Linda has a lot of fluff material (so does Larry) like indicators which I don't like - but sort through them and there are some good stuff inside.

 

[Gringotts Bank]

Hopefully that clears some things up. I believe this concept is first introduced by George Douglass Taylor in a old text. I've never read it so I can't recommend it. Linda Raschke & Larry Williams builds on them. Larry buys after price retraces back to the open, a bit late in my opinion. Linda has a lot of fluff material (so does Larry) like indicators which I don't like - but sort through them and there are some good stuff inside.

Thanks minwa. Do you scale into or out of positions?