Hi guys

So, I've been doing lots of trading in the last year or two. The number of executed trades is very high (I stopped counting long ago). From what I can tell based on my experience so far is that the flucuations during the trading day are pretty much random. Some times you might be lucky enough in the sense of "predicting" a particular future movement but overall I would define it as random (and yes, I know that's what most ABC books also state). 

Nevertheless, there are some "characteristics" for the different indices, countires and particular stocks. As if they all have their individual "personality". 

- Betting on a direction is hard, especially if you don't have unlimited funds. Doing some kind of a scheme where one allocates the stocks based on their mutual power relation seems to have a value trading wise and can be profitable (pair-trading strategies).

- Technical analysis is - overall - a no go. There might be something to gain wrt. support and resistance but aside from that the movements are simply too random. The shorter the holding period the larger scale of randomness. 

Currently I'm in a check (mate) position where I cannot get to the next level. I have tons of applied and unsuccesful experience but nothing that really gives me the edge and advantage. 

The reason I'm writing is to hear what you've done if you were ever in a similar position and maybe if I should focus on trading elements which I've completely overseen. So far I've primarily focused on day trading and short term trading (minutes, hours and sometimes up to a couple of days).

Is the best strategy simply just to buy an ETF or index tracker? I honestly find the statement less appealing as I believe that there are some good opportunities out there. Nevertheless my biggest weakness is that I tend to be in the market constantly or suffer from FOMO (not exacyly to be confused with "trigger happiness").

"Important money", such as retirement savings, should definitely be indexed in low cost funds, held for decades, and not traded. If you don't know the overwhelming evidence for this advice, read the many books by the late, great, Jack Bogle.

Some small amount of residual funds could be used for "trading for entertainment", going to Las Vegas, etc. Don't expect to "win", but maybe you can learn enough to "stay at the table". 

Successful proprietary trading firms seem more akin to market makers, 50+ employees, perhaps have exchange memberships, expensive infrastructure, large well-maintained databases, etc, etc. -- I don't see how an individual could compete with that. Plus, you can probably only learn their "edge(s)" by going to work for them.  

Not what you were looking for, but my two cents.

"Important money", such as retirement savings, should definitely be indexed in low cost funds, held for decades, and not traded. If you don't know the overwhelming evidence for this advice, read the many books by the late, great, Jack Bogle.

Some small amount of residual funds could be used for "trading for entertainment", going to Las Vegas, etc. Don't expect to "win", but maybe you can learn enough to "stay at the table". 

Successful proprietary trading firms seem more akin to market makers, 50+ employees, perhaps have exchange memberships, expensive infrastructure, large well-maintained databases, etc, etc. -- I don't see how an individual could compete with that. Plus, you can probably only learn their "edge(s)" by going to work for them.  

Not what you were looking for, but my two cents.

Hi Alan

Thanks for your view on the market and trading in general. 

Despite the fact that I hate to admit it I must agree on your conclusions. Both regarding the Index approach but also regarding the market edge. Trying to "beat the market" or even make money in the market by actively trading seems difficult to be honest. It bothers me in the sense that I've spent/invested a huge amount of time in the trading  just to come to the bitter conclusion and (perhaps) giving it all up. At least when it comes to actively trading. The randomness is simply too large of a component and playing the game with "randomized chess board" is simply too difficult. 

I'll most likely give pair-trading the last chance. Alternatively, building the shovels rather than using them is another approach which I might give a chance as well.

I've been doing spread trades in futures.  That has lower volatility, and there are some fundamentals that they follow.  I follow Wheat/corn it is wide now +200, by Jun it should be narrower, because that's when the wheat crop comes in that causes lower prices.

I've been doing spread trades in futures.  That has lower volatility, and there are some fundamentals that they follow.  I follow Wheat/corn it is wide now +200, by Jun it should be narrower, because that's when the wheat crop comes in that causes lower prices.

I've done some stock trading but mostly sticked to index futures as Nasdaq, S&P, DAX and FTSE. Overall I'm decent at predicting the stock movement but the problem lies in the fact that I'm constantly triggered on my stop loss. No matter which direction one takes the index moves in a range and is very likely going to trigger the stop loss. I know that I can do a wider spread on the stop loss but that would require some more muslces wrt. my money account. 

Perhaps a different approach/money management might help but I find it difficult at the moment. And the (often) "stationary flucuation" is what ruins my trading - the abrupt drops/spikes which come out of the blue just to revert back and continue where it left off. Then I can watch the train continue without me on board.  

Earlier I did some power trading (while eployee in the company) but the entry barrier for individuals to trade are just too large. And the fundamentals play a larger role. I've never looked into commodities like crops. Guess it's a bit too late to experiment on that one now...

The advantage to commodities, is that the "big guys" really can't do commodities, they are too big, and would just push the market around.  Additionally, there are position size restrictions.  I remember the Hunt brothers debacle in the early 80's.  Also, since a lot of the hedgers are farmers, ranchers, etc.  The CFTC frowns on outside players just pushing around the market, and lousing things up for serious but smaller traders.  CFTC even frowns on newsletters to retail investors in commodities.  Commodity spreads are a little too complicated to be "sold" to an uninformed retail investors.  So if you know what to look for there are some pricing items of interest.

The advantage to commodities, is that the "big guys" really can't do commodities, they are too big, and would just push the market around.  Additionally, there are position size restrictions.  Also, since a lot of the hedgers are farmers, ranchers, etc,  the CFTC frowns on outside players just pushing around the market, and lousing things up for serious but smaller traders.  CFTC even frowns on newsletters to retail investors in commodities.  Commodity spreads are a little too complicated to be "sold" to an uninformed retail investors.  So if you know what to look for there are some pricing items of interest.

Charts suggest ‘it’s going to be a very nice summer’ for stocks, Jim Cramer says

and the Legend said

Here is my two cents worth.

I assume that you are playing with money that you can afford to lose, etc.

Background: I am a momentum trader and I aim for a modest, but consistent outperformance with low volatility.  I stay on the sideline most of the time.  Frequent trading drains your account.

TA on its own is not an edge for 99% of traders.  I am not saying that it is impossible, but I have not seen a single person consistently make money from it alone.  

Without a doubt, momentum (drift) is important.  You try and ride the trend for as long as possible while keeping your risk low.  You need to forget the idea that you will be right most of the time, but being right even 30-40% of the time can be profitable if that profit is much larger than the amount you lose when you are wrong.  In my opinion, this is the single most important principle of successful trading.

This is more-or-less how Jesse Livermore made his fortune.  It's the same message that you'll read in Jack Schwager's Market Wizard series, Minervini, O'Neil, Tom Hougaard, Kullamägi, Paul Tudor-Jones...  In order to achieve it you need to use a stop-loss or have some other way to get out of a losing position before a small loss becomes a large one.  Have a read of The Art of Execution by Lee Freeman-Shor. 

One strategy that has some merit is Pyramiding Up, which means starting small on something which you believe is rising and buying more if you are right.  You are using the accumulated profit buffer to fund the extra risk.  You can gradually raise your stop in such a way that your dollar risk does not ever increase.  This strategy can result in a small, constant amount of risk, but an (exponentially) increasing position size providing the possibility of a large gain.   Make sure to cap your final position size in case there is slippage.  That is how you end up with occasional large profits, while still having loads of small losses.  That is how you skew the distribution in your favour.  You can add your own secret sauce in choosing that asset if you want.

Read all of the interviews in Hedge Fund Market Wizards from Jack Schwager.  There is a nice interview of Ed Thorp.

Are there no true Heretics of Finance here?

The Heretics of Finance: Conversations With the Leading Practioners of Technical Analysis

Technical analysis should not be used alone, but many big in particular macro traders use it as valuable additional tool.

In macro you have many big non profit maximising players, for example Central Banks! To study how Central Bank thinks (and how some of them not are able to think outside their current models) is valuable.

"Millionaires don't use astrology, billionaires do," J.P. Morgan

I have something about it in Wall Street Short Stories (also one story about Technical Analysis there)

I am open to the idea that some patterns of TA might be able to be reproduced from a behavioral model of feerful and greedy humans, but alas we don't even know how to model a bubble...let alone any particular pattern formation.  In the meantime, I avoid TA and stay with position sizing + risk-management + a guesstimate of direction.

there was a study in Journal of Finance many years ago showing the simple TA signals they looked at did not work in stock market, but indicated it could work in markets with sizeable non-profit maximising players, such as central banks: interest rates and fx.