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The brutal truth of day trading

  • #1,261
  • Jun 15, 2021 6:50pm Jun 15, 2021 6:50pm
The biggest fear for most of us is how safe are our funds we hold with our brokers.
I would ask how safe is your health if you drive on the roads everyday, probably a higher risk of injury that the risk to your funds in your brokers accounts.

I trade with three $50,000 accounts placed with three different brokers and taken out an insurance policy to cover for theft / insolvency of broker for these funds.

Therefore my risk to my funds is very low.

1.25% return a week is all I need to obtain a wage.

Are you good enough?
Trading thin liquidity at the boundary of the charts
  • #1,262
  • Jun 15, 2021 7:08pm Jun 15, 2021 7:08pm
Quoting GEfx
I've always thought of professional traders as those individuals with a Series 7 license who traded other people's money. So, those guys never want money withdrawn from accounts. But as a retail forex trader (I am just a filthy speculator) I move money out of my account all the time, for several reasons, including: I make money trading and have uses for that money in other places; keeping unneeded money with a retail forex broker increases your broker risk (you should try to mitigate broker risk and this is one way to do that); if I need more money...
Hi GEfx. You definition of professional trader is the correct one. They get paid money to trade. Their bonus is tied to how well they trade. It is tough for pure retail to understand that concept. Opportunity cost is also an advanced topic. A pure retail trader can make money with any kind of system as long as the traders equation (Al Brooks) is correct for them. The downside is that they will be working 16 hour days to do that. At 20, that is fine. At 50, not so much. It is definitely important run a longer term portfolio along side the day trading account. It is good that we have gotten back to concrete discussions about concrete issues in this thread.
If you are good at something, never do it for free--Joker
  • #1,263
  • Jun 15, 2021 7:10pm Jun 15, 2021 7:10pm
Quoting RickM
The biggest fear for most of us is how safe are our funds we hold with our brokers. I would ask how safe is your health if you drive on the roads everyday, probably a higher risk of injury that the risk to your funds in your brokers accounts. I trade with three $50,000 accounts placed with three different brokers and taken out an insurance policy to cover for theft / insolvency of broker for these funds. Therefore my risk to my funds is very low. 1.25% return a week is all I need to obtain a wage. Are you good enough?
"greed & fear"
  • #1,264
  • Jun 15, 2021 7:20pm Jun 15, 2021 7:20pm
Quoting GEfx
I've always thought of professional traders as those individuals with a Series 7 license who traded other people's money.
Yes, but then those other people would need to withdraw at some point...so no matter if he trades his accounts, other people's accounts or both, the accounts would show withdrawals at some point or regularly.
Everyone can see the chart, but only a few can actually read it.
  • #1,265
  • Jun 15, 2021 7:20pm Jun 15, 2021 7:20pm
Quoting jmn5611
Hi GEfx. You definition of professional trader is the correct one. They get paid money to trade. Their bonus is tied to how well they trade. It is tough for pure retail to understand that concept.
Yes, those too. No one is disagreeing on that.

Now, someone who trades for a living, gets paid by brokers in exchange for work (commissions and spreads), hence it becomes a profession involving specialization studying (even if autodidact quasi/self-taught).

Quote
Opportunity cost is also an advanced topic. A pure retail trader can make money with any kind of system as long as the traders equation (Al Brooks) is correct for them.

Mr. Al Brooks? Really? He's only a bunch of nicely sounding (maybe above average quality) extensive-redundant pseudo "complex" theory (or I would say hypothesis), subjective and discretionary.

Quote
The downside is that they will be working 16 hour days to do that. At 20, that is fine. At 50, not so much.

Many professional and/or constantly/sustainable profitable traders, have more than enough with 4-6h per day.

Quote
It is definitely important run a longer term portfolio along side the day trading account. It is good that we have gotten back to concrete discussions about concrete issues in this thread.

I totally agree with that
  • #1,266
  • Jun 15, 2021 7:37pm Jun 15, 2021 7:37pm
Quoting Viktory
{quote} You don't say! That's completely individual; everything's relative. {quote} Hedge Funds ≠ Retail Traders {quote} This can be true for some kind of strategies; but, there are different ones, along with distinct methods, time-horizons and styles... and markets. {quote} It's not as simple as that; the operation isn't the same. There are also diverse factors and metrics. {quote} Good analogy. Much easier said than done. {quote} You're right. Like many "averaging down" grid or martingale failed applications. --- Man, you're so full of assumptions...
Hi Viktory. You are quite right, my post is full of assumptions. Those assumptions are based on lived experience. I have encountered three black swans in my trading life.
I was very long MSTR and RMBS the morning the dot com bubble burst. I did not have the skill set to read the charts properly at that time, and I was too greedy to cut my positions. I had not read Jesse Livermore either. I was long CNXT when a plane hit the second tower. That is the morning I learned that correlations break down under extreme duress. I did not know back then about gaps and the filling of them. I was short USDCHF when the swiss bank decided to uncouple. I wish I was much bigger. FXCM and Alpari ceased to exist in the USA that day. My broker survived and even cleared unlucky accounts who were long. 2008 and the Covid crash were good to me because I knew much more.

Those lived experiences taught me to run a long/short portfolio over different time frames. We never know what will happen, even when we think we do. So, you are right, my view of things is very narrow. Most traders have not been trading very long, and they have opinions themselves. That is what is nice about these forums.
If you are good at something, never do it for free--Joker
  • #1,267
  • Jun 15, 2021 7:39pm Jun 15, 2021 7:39pm
Quoting jmn5611
{quote} Hi GEfx. You definition of professional trader is the correct one. They get paid money to trade. Their bonus is tied to how well they trade. It is tough for pure retail to understand that concept. Opportunity cost is also an advanced topic. A pure retail trader can make money with any kind of system as long as the traders equation (Al Brooks) is correct for them. The downside is that they will be working 16 hour days to do that. At 20, that is fine. At 50, not so much. It is definitely important run a longer term portfolio along side the...
Hi jmn5611

I invest in Australian bank stocks which pay me 5% a year in dividends and provides half my trading income.
I trade 5 EA’s on the forex market which proves 10% of my income.
I trade forex where I scalp liquidity inefficient’s which provides me 40% of my income.

So half of my income I do nothing.
10% of my income I just watch.
40% of my income I trade for 4-6 hours a night providing the markets tradable.

Trading isn’t hard work if you are disciplined.
’
Trading thin liquidity at the boundary of the charts
  • #1,268
  • Jun 15, 2021 8:06pm Jun 15, 2021 8:06pm
Quoting RickM
{quote} Hi jmn5611 I invest in Australian bank stocks which pay me 5% a year in dividends and provides half my trading income. I trade 5 EA’s on the forex market which proves 10% of my income. I trade forex where I scalp liquidity inefficient’s which provides me 40% of my income. So half of my income I do nothing. 10% of my income I just watch. 40% of my income I trade for 4-6 hours a night providing the markets tradable. Trading isn’t hard work if you are disciplined. ’
Hi Rick,

I am so glad you posted this. This is a brutal truth of day trading.

You have a large portfolio of dividend paying stocks. It is responsible for 50% of your income. I would also speculate that your property is secured, your cars are paid off, and your children, if any, are nearly self sufficient.

Why does this matter?

It matters because you can calmly analyze your market and take precision trades. In other words, you can go bird watching in lion country.

A lot of traders here think they can absolutely pay bills year after year with a 50K trading account, which is indeed possible in the developing world. I prefer to use the developed world as the metric, however. As Winston alluded to, New York city, or I would add the bay area in the US would be good to start.

If a trader has a bad day, gets slipped, gets gapped, or has fat fingers, they could go on tilt. You do not have this issue.

A brutal truth of day trading is that you should not solely depend on this activity to live.
If you are good at something, never do it for free--Joker
  • #1,269
  • Jun 15, 2021 9:25pm Jun 15, 2021 9:25pm
Quoting RickM
........................ I trade with three $50,000 accounts placed with three different brokers and taken out an insurance policy to cover for theft / insolvency of broker for these funds. ....................................
Hi Rick, you are in Australia and I am in NZ.

I had not thought about insuring my broking account. Are your broker accounts based in Australia? Mine (for futures trading) is US based.

What type of insurance poilcy/cover is this and is it provided by an Australian firm (insurance broker or underwriter)? If so which one?

Cheers
  • #1,270
  • Jun 15, 2021 10:32pm Jun 15, 2021 10:32pm
Quoting Viktory
{quote} Good brokers only take commissions. At least in regulated exchanges, you can be much surer (not 100% though).
I wish there are, maybe the worst are gone from futures brokers. I mean MF-GLobal and PFG Best. Those two cases show NFA "old boy networks"
So far if these banksters never get jail time, are out if they pay for goverment or SEC.
I hope they change that settlement practice and put all crooks to jail. I am bored how many times have to read which one of these big ones has done something every year.

In forex i don't know is there more than two decent brokers. ~2011 Open first fx account to dukascopy, you had to fund 10K for open account for them,and thinking I pick ok broker for beginning fx journey,i have check several brokers after dukascopy, i am still septic skeptic.

I forgot put some emojis for post, because i wasn't dead serious.
  • #1,271
  • Jun 15, 2021 10:36pm Jun 15, 2021 10:36pm
Quoting RickM
The biggest fear for most of us is how safe are our funds we hold with our brokers. I would ask how safe is your health if you drive on the roads everyday, probably a higher risk of injury that the risk to your funds in your brokers accounts. I trade with three $50,000 accounts placed with three different brokers and taken out an insurance policy to cover for theft / insolvency of broker for these funds. Therefore my risk to my funds is very low. 1.25% return a week is all I need to obtain a wage. Are you good enough?

Thank you for tip, about insurance policy, i have never thought it can be possible.
  • #1,272
  • Jun 15, 2021 10:37pm Jun 15, 2021 10:37pm
Quoting RickM
The biggest fear for most of us is how safe are our funds we hold with our brokers
[I have] taken out an insurance policy to cover for theft / insolvency of broker for these funds. Therefore my risk to my funds is very low.
I agree with this. Once you know what you are doing I believe the biggest risk of losing money in FX trading is your broker going bust - what I call broker risk - together with what is sometimes referred to as a black swan event like the Swiss National Bank fiasco in 2015.

Splitting up your accounts amongst different brokers is one obvious way to diversify broker risk but I was not aware that it was possible to insure against broker insolvency etc.

Are you willing or able to provide details of your insurer?

Regards
Tim
Don't Guess Test
  • #1,273
  • Jun 15, 2021 11:23pm Jun 15, 2021 11:23pm
If I can please chime in here ....

The more someone limits their definitions of things, the more they miss out on learning.

Eg -

For me ......

I do an average (!!!!) of 5-6 % per day that I trade. Now please keep in mind this is conservative and does not happen EVERY single day of the week. But I have found that this is doable at least 3-4 times per week on any given instrument. Once you understand the construct dynamics of any move, it is easier to determine what can be done. This is just my lingo but essentially = initial reversal then follow through then ending reversal phases.

If I was to "train" someone to day trade the present markets, I would say it is necessary to understand that the definition you give to something will set in motion what you think is important far into the future. Eg - A pro trader could literally be anybody, who understands what they're involved in and understands how to deal with what they're involved in. And then they proceed to do what they intend.

Next is rate of return on investment. 5%/month is extremely manageable and in terms of consistency, the more objectively your thinking is, the more you can procure the same kinds of directional setups over and over again. But only after you put aside notions of "stories". Stories create blindspots and blindspots destroy accounts and lives.

I personally, do not know the people others have been talking to , but if a F/T trader is not doing 5-10% per month (MINIMUM) then they need to reassess their understanding of their plan and probably the plan itself.

To take a $1000 account up to $50,000 is manageable but needs patience and tolerance. The mechanics of the activity need to be sturdy and remain true to what the market is and what it offers. So the %RORI technically "should not" change very much. Perhaps within a 1-2% break on a month to month basis. If it breaks this then you have a real problem. And you need to assess your plan and be objective about it. If it is YOU that has screwed up somewhere, you need to discipline yourself eg removing something you "like/love" eg beer night on Fridays. The negative impact of this means you draw attention to what can happen if you mess up AND then you introduce a stage where you look at what can be achieved if you excel at what you're doing. It's a mental wake up call. Conspicuous mistakes need to be punished then nurtured with the capable prosperous alternative/s so your psyche learns the difference AND appreciates which one it "enjoys more".

How one manages their accounts of course, naturally, is a personal choice. For me, I run many accounts. So for eg, if I am not getting the return with one broker, that I would usually get from that broker and other broker/s, then I have to ask some questions pertaining to this broker. If I view multiple broker's platform and data feed and I see anything particularly 'out of the ordinary' then I must determine why this broker is delineating a lower than average return despite its feed being basically on par with other broker's feeds. Yes there are other factors but this the starting point. Above and beyond this, I employed a 3 = 2 : 1 ratio of withdrawal for all active accounts. Each profit "dollar" amount into 3 parts. 1 for the account, 1 for me and one for the "next account" that will be setup. Doing this, I make 1 withdrawal per day, 5 withdrawals per week with each brokerage account. 2 types of withdrawals. Internal transfer between accounts and withdrawal from brokerage account to me personally.

So your RORI can be pretty consistent but only if you view the situation in all its parts and make a plan that's completely inline with your market of choice. Size of account should not be an issue re: RORI. You need to negotiate the terms of brokerage with that broker. It's not a drive thru car wash, your money and hard work is involved here.

Financial markets can only do a number of things before they have to repeat themselves. Hehehe, of course now we come into the discussion of "the chicken and the egg" and ideas of "self fulfilled prophecy" in regards to 'how the markets move round'.

In truth, I personally know traders who do 2 or 3 trade setups and that's it. They survey 3 views = 2 time based views and 1 Tick Totality chart that renders time a human factor and not a "market factor". They do a number of trades per day/week/month that meets their needs and goals and they're happy. They know them well and feel happily confident to trade them because they know that randomness cannot last forever and the markets were built on human civilization and not money or profits alone.

What I will say here next will offend some people's understanding of "trading" but nonetheless here goes ..... It is both possible and practical to assert a specific return basis to your trading despite not being too obsessed with Win SR% alone. The way this is done is by appreciating the basic construct of how trade orders are given life. I personally, am not in the habit of "hoping" that someone will fill my orders. So I use an approach that originally, was used to determine the quality and efficacy of a broker's demo : live market feed many years ago. People need to understand that the markets, any market feeds on a revolving door. In and out. I have spoken about it before. If your broker will not actively work to fill your order then there is a reason for this. But it's not always as simple as absence of liquidity or "bad broker". Sometimes it is one of these because of the other. While other times it is for some other reason entirely. However, a buy must fill with a sell and VV. Nothing happens normally without this.

A long time friend of mine, years and years ago, realized that the markets could be toyed with as more and more technology was introduced. It made perfect sense - technology is man made and therefore imperfect and so has flaws and faults that could be used and misused. (As a side note - Many do not understand that hedging is a natural part of trading. Of ANY business really. It's just good sense.) So ask yourself = what happens to all the breakout trade orders sent to market that get reversed on completely? Be it long or short, it is what it is. And unless there are special considerations and instructions eg (If-then) tied to it, what happens in that situation? A buy must become a sell and VV. I'll let you think about the rest for yourself. Some people will poo-poo this but it has been done for years and years and years. So maybe it's time to grow up and widen your gaze.

I suppose this is where the random : anticipatively predictive "nature" of trading need a note. Whichever stage of a tradable formation you choose to work with, one needs to keep their head and remember that markets rise and fall and they like doing what they do.


Peter
Real Trading is not gambling.
  • #1,274
  • Jun 15, 2021 11:46pm Jun 15, 2021 11:46pm
As to insurance, I cannot speak for RickM, but some brokers are insured by a larger entity eg a bank etc. Another route is what I tend to do, which is to counter trade using either insurance co's themselves or, treasuries. Of course I do this via a bank and not a spot broker. Another way I insure is to turn my money into something real eg 'learning to' or simply growing some foods that you can do at your home. A wealth of knowledge and delicious outcomes. More intelligent knowledge to pass on to family. Some things are worth more than money.

Peter
Real Trading is not gambling.
  • #1,275
  • Jun 16, 2021 12:36am Jun 16, 2021 12:36am
Futures vs Tick Data
Some further investigations

As promised I have carried out some further analysis of the relationship between FX futures volume and tick volume. These tests are much more robust than the first ones that I did. They use a week of recent Chicago Mutual Exchange (CME) futures data and test all the major currency pairs. Here is a table of the results.
Attached Image

As RickM correctly predicted the correlation of EURUSD futures volume with tick volume was stronger than that for GBPUSD which I tested previously but only by a little. On the other hand the correlation for USDCHF was pretty low and appears to be close to useless. It can also be seen that these correlations increase with higher time frames which could be expected due to the clustering effect of higher time frames.

We can quite easily see what these correlation numbers actually mean by looking at a plot of the data for both futures and tick volume. A perfect or 100% correlation would have exactly the same pattern. The only difference would be that the vertical scale may differ.
Attached Image


Visually comparing the futures and tick volume patterns for EURUSD which had a fairly high correlation of 69% , we can see that they are similar but by no means identical .
Attached Image


If we compare the charts for USDCHF which had a correlation of 42% we see far less similarity.

What does all this mean in practical terms?

I would theorise that these correlations are probably the result of FX futures traders as a group tending to sit in front of their trading terminals at about the same time each day doing much the same thing. Most of them are also probably looking at an FX spot price chart. Like any correlation, if this underlying behaviour changes, the correlation will also change. It may get stronger or it may get weaker. Humans tend to be creatures of habit but if I was relying on this information for my trading I would want to check these correlations regularly.

In regards to order flow, the question must be asked as to whether this is the optimal way to try and determine the order flow of the “big guys”. Maybe a strategy based around tick volume which appears to have a significantly stronger and probably more stable correlation with the overall spot market is a better option.

I honestly cant answer that question at this point in time. One of the regulars to this forum was kind enough to provide me with access to a CME data feed and platform for the purpose of further investigation.

My objective now is to try and discover the best and/or most cost effective tools to use for trading with order flow on the intraday forex spot market. This looks like being an interesting journey. In the goodness of time I will pass on my thoughts, discoveries, etc.

Regards

Tim
Don't Guess Test
  • #1,276
  • Edited 4:02am Jun 16, 2021 1:40am | Edited 4:02am
Quoting TraderTim125
Futures vs Tick Data Some further investigations As promised I have carried out some further analysis of the relationship between FX futures volume and tick volume. These tests are much more robust than the first ones that I did. They use a week of recent Chicago Mutual Exchange (CME) futures data and test all the major currency pairs. Here is a table of the results. {image} As RickM correctly predicted the correlation of EURUSD futures volume with tick volume was stronger than that for GBPUSD which I tested previously but only by a little. On the...
Keeping your and mine common.interest in statistics, I would suggest using only H4 frequencies of mt4 tick volume grouped in 10 slabs of 100 ticks to 1000 and correlated with ADR in H4 (ADR fixed at 1000 ticks volume) and distribution from the previous high and low of onne, or two or three or max four dayswill make your life easy. On a daily basis predict first open of H4 candle will go up or down or remains compressed. And use ADR of ticks as the TP or SL. I treat the internal forces of demand and supply happening in any auction market is not at all influenced by any other external.factors. So you only have to draw vertical timelines of known news events (without analysing any event). Treat each vertical line as open of H4 where you dont predict (market makers do) while for the open of first H4 you retain the right to.predict. And make a study the of how timelines triggers are used to accumulate or distribute H4 ticks volume.
Practice makes a person perfect
  • #1,277
  • Jun 16, 2021 4:08am Jun 16, 2021 4:08am
Quoting PeterCaleb
I do an average (!!!!) of 5-6 % per day that I trade.
Observer effect
  • #1,278
  • Edited 12:02pm Jun 16, 2021 4:18am | Edited 12:02pm
Quote
=simnz;13585270] I would suggest using only H4 frequencies of mt4 tick volume grouped in 10 slabs of 100 ticks to 1000 and correlated with ADR in H4

Hi Simnz.

I don't really understand what you are talking about here. Perhaps you can provide a more detailed explanation of what you are doing and your reasoning behind it.

What is your objective in correlating ADR with tick volume? If your bar is made up of a tick count (10, 100, 1000) then you are no longer working in time domain, you are working in frequency domain which is OK but it doesn't make sense to talk of 4 hour bars or any other form of time domain arrangement.

Before you start trying to use any mathematical process to solve a problem, you have to have a clear understanding of what the problem is and what you plan or hope to achieve. I have mentioned this to you before in regards to programming but the same principle applies to any field of mathematics. If you just start throwing numbers into processes or writing code without a clear vision of what you are trying to achieve, you will more than likely just finish up with "number soup" or crappy code that doesn't work as intended.

I appreciate that we all trade different time frames. For me the lower time frames, 15 Min and 30 Min, are where I focus most of my efforts these days with 1 Min and 5 Min for entry and exit. I only look at 4Hr and Daily charts to gain a relatively long term perspective of a market. That of course is just my personal preference.

Regards
Tim
Don't Guess Test
  • #1,279
  • Jun 16, 2021 4:52am Jun 16, 2021 4:52am
Quoting TraderTim125
{quote} Hi Simnz. I don't really understand what you are talking about here. Perhaps you can provide a more detailed explanation of what you are doing and your reasoning behind it. What is your objective in correlating ADR with tick volume? If your bar is made up of a tick count (10, 100, 1000) then you are no longer working in time domain, you are working in frequency domain which is OK but it doesn't make sense to talk of 4 hour bars or any other form of time domain arrangement. Before you start trying to use any mathematical process to solve...
May be RickM can explain it.
Practice makes a person perfect
  • #1,280
  • Jun 16, 2021 5:18am Jun 16, 2021 5:18am
Quoting PeterCaleb
I do an average (!!!!) of 5-6 % per day that I trade. Now please keep in mind this is conservative and does not happen EVERY single day of the week. But I have found that this is doable at least 3-4 times per week on any given instrument.
"average" with 4 exclamations...

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Peter... boy... little boy.... little conservative boy... you "have found".... o Peter Peter boy... now all clear. tnx Peter boy. this was funny
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