LET'S THINK ABOUT TRADING

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dgbones
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Postby dgbones » Tue Aug 21, 2007 4:52 pm

Interesting question and I want to answer before I read the answers of others. I managed a nasdaq desk for a few years and I also traded as a local on the floor of the CBOE before trading as a sole-prop upstairs.

From a professional institutional background you would always exit a trade the moment that the reason or premise for entering the trade was no longer true. If your basis for a position had three premise elements and one is no longer clear you exit the position. No exceptions can be made.

It does not matter if the trade is making or losing when the reasons to enter no longer exist neither does the trade. It is after all the conditions that caused the trade in the first place.

Do not try to evaluate the situation, look at the chart or the P/L...close the position. You do not know why it is on..no analysis necessary...close it and move to what is next.

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Patch
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Postby Patch » Thu Aug 23, 2007 2:36 pm

dgbones
I am a home grown, growing trader.
Thank you for your post Tue Aug 21, 2007 12:52 pm.
Patch
In VA
ENOUGH being a Yalie for me Back to the Sea. "What i can lose, i can win" "YES YOU CAN" - dragon33 -"Pick one method and one pair and stick with them until you master it. "The choice is yours - success or failure." TRO

dgbones
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Postby dgbones » Thu Aug 23, 2007 3:46 pm

You are welcome Patch.
I learned throug the years to always be able to answer that question. Why is this trade on? A nasdaq MM does not want a risk position...that is the role of the customer or the job of the fund manager. One thing that I think many retail traders get confused on is just exactly what trading is and what it is not.

IMHO trading is the simultanious opening and closing of a position...arbitrage if you will, or trading could be opening a position and hedging immediatly to lock in a small profit. For example a reversal or a conversion in the options market. Say buy puts on the bid, buy stiock on the bid and sell calls on the offer. This could be a long stock position and a "synthetic" short stock position that is delta neutral. The narrowing of spreads on all the markets make that nearly impossible to do now. In the past a market maker on the CBOE could make a half or five eigths of a point...and do it all day long. Now if you include expenses you will lose a couple cents on that arb play....unless you "leg" it. That means take a risk position for a longer period of time while you wait for the opportunity to complete the arb to present itself.

Position trading is more similar to investing. A scalper would only be interested in a very short risk exposure many times that is usually an intra-day timeframe. From reading posts it seems as though most retail professional traders are position traders working in various timeframes.

Personally, my timeframe seems like centuries compared to the way I traded as a MM...but for me this is the game now. I rely on a methodology that uses non-colinear indicators to "predict" high probability outcomes and I wait for trades that I think have "good legs". So relative to the question posed by TRO. If I did not or my methodology did not identify the trade entry, I'd close the position and keep the money. I will say though that random trade entries with calculated exits and an extreme trade discipline would appear to make money over time. So I would understand why or how some people would check things out to se if they could justify the risk position...I am just one that would not do that. Again, IMHO, what we are doing is trading but it is similar to very short term investing because there is a risk position or more than a couple seconds or minutes.

I do not think that people regularly make or keep ionvestments where there is no clear premise that points to favorable outcome...but I could be wrong.

Best to you patch and trade well! DB

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dbw451
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Postby dbw451 » Fri Aug 24, 2007 1:04 am

Thanks for your perspective dbjones. Many of us retail traders came from other occupations, moving into trading with long term investing as our initial knowledge base. I think most of us view trading as taking on risk for potential return. I don't think it would have even crossed my mind that arbitrage would be a primary definition of trading. It's all in the perspective and now that you've pointed out the institutional perspective, it makes sense.

Your question "Why is this trade on?" is excellent. I ask myself a similar question "Is this trade still valid?" when I have open positions. Same thing, different words...

I had to smile when I read your description of your methodology:

I rely on a methodology that uses non-colinear indicators to "predict" high probability outcomes and I wait for trades that I think have "good legs".


I've never seen a methodology described in that fashion before. It made me stop and think. Then I realized that most indicators are noncollinear (i.e. not straight lines). Price itself is noncollinear. I thought about "predicting" high probability outcomes and realized that is the purpose of all trade entry setups. Finally, waiting for trades with "good legs" sounds like what I would call a trend. Maybe I'm way off with my interpretation, but it was an interesting excercise trying coorelate your statement with my understandings as a retail trader. :)

Regards,

David

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Postby dgbones » Fri Aug 24, 2007 7:58 pm

dbw451

Thank you for your response.

You are right to understand many perspectives are at work in the marketplace. The cool thing is that with the right discipline I think they all have potential to reward the trader.

Why is this trade on is a guestion that I would ask maysel and the traders that I was responsible for at least fifty times a day...you better be prepared with a good answer to that one or you would lose your "deck". I think that the same question would apply to all participants. Don't you?

By non-colinear, I mean the indicators are derived from different math. For example a price indicator, a momentum indicator, a volatility indicator. If (mho) the indicators are not all price driven you get a clearer picture...especially when you start to notice how things work together on a specific security. Sort of like a defensive player in american football would watch film to pick up on tendancies of an opponent.

Volume or volatility or more specifically the change or rate those are changing might complement a price indicator like MA's...does that make sense?

By "good legs" I mean that I don't trade every set up. I wait for trades tha look exceptionally good based on something empirical...usually a combination of things that all seem to line up at once. I dont want every trade I want the good trades...ones that might go four or five times my stop loss. So "legs" would indicate ability to run. As you state a strong trend indication could be part of "legs".

Last...when I make the distinction "institutional" or "professional" trader those words do NOT indicate "good" or "successful". Your understanding of perspective should include that. Many retail traders have consistent and wonderful success and many firm traders do nothing more than fill a seat and take orders (both from the market and from their boss)

I take the time to post this stuff for two reasons. First because I find great value in the contributions of others. Second, because maybe I can say something valuable (usually learned by my own mistakes) that others could use in a positive way. I want people to make money trading.

Remember this: You dont get the results you want in life...you get the results you deserve.

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dbw451
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Postby dbw451 » Fri Aug 24, 2007 8:35 pm

dbgbones,

Thanks for sharing, your perspective is unique on forums of primarily independent traders (and want to be traders) such as this. Advice from those that already lived through mistakes is always valuable. Many times for an independent trader it's very difficult for us to identify our own issues and mistakes until it's pointed out by someone else. Reading about past problems of others and how they addressed them can be extremely enlightening.

Again, thanks for taking the time to reply. You're descriptions make perfect sense.

Regards,

David

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dbw451
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Postby dbw451 » Fri Aug 24, 2007 8:36 pm

dbgbones,

Thanks for sharing, your perspective is unique on forums of primarily independent traders (and want to be traders) such as this. Advice from those that already lived through mistakes is always valuable. Many times for an independent trader it's very difficult for us to identify our own issues and mistakes until it's pointed out by someone else. Reading about past problems of others and how they addressed them can be extremely enlightening.

Again, thanks for taking the time to reply. You're descriptions make perfect sense.

Regards,

David

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Postby jhtumblin » Sun Aug 26, 2007 8:22 am

I would close out the position, look to see how much was in the account they gave me, transfer the funds to my bank, buy island, drink beer.

casinoman
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Chomping at the bit to respond to this:

Postby casinoman » Sun Sep 02, 2007 12:48 am

I have read virtually every posting by TRO on TS until he was kicked. Have read virtually every posting here on kreslik. Guess it's time to stop lurking and contribute (value in eyes of beholder though).

"If I were given an open positioned account with a unknown amount of capital invested and an unknown position taken . . ."

I have read the numerous indepth answers involving assumptions or personal preconceived adaptations of what various people would do in addition to others requesting additional quantifying information other than that given in the original posed question.

The answer to the question posed is painfully simple!

Upon the very first tick one would know the position taken, whether long or short and the capital amount is irrelevant. At that point in time a line is drawn in the sand as to what "your" position is. Either the position moves against you and that calls for an immediate closing of the position; or, the position moves for you and that calls for staying put until the position begins to turn against you which is where the position is closed. Period - end of story!
"Technicians never die - they just chart away"
Trade like a Lemming but don't jump off the cliff like the others

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Postby dgbones » Sun Sep 02, 2007 1:26 am

So Casinoman, random entries with specific exit discipline would work over time. You definetly could convince me of that....but then why isnt everyone doing that?

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