About profitable systems

Jun 11, 2012 18:23

Fudomyo know your wave Member Since Apr 2009   1,874 Posts

I disagree that profitable systems are shared. Most of everything that appears on the internet has nothing to do with a profitable system.There's the illusion of profitable systems being shared. Like the Sam Seiden stuff, VSA, Market Profile. All of these are not profitable systems. They are glorified dart throwing. Dart throwing always comes with the disclaimer of psychology attached. A profitable system involves a completely different metric than slapping an indicator on a chart or supply demand levels or virgin points of control. A profitable system involves understanding what the actual machine is, the inefficiencies of the machine that are a constant, and how to exploit those inefficiencies as the machine interacts with fundamental forces. Once you understand the underlying mechanics, it isn't something that works or doesn't work under certain market conditions, it always works within an expanded metric of trends and a contracted metric of ranges. When people make statements that systems worked and stop working, it's because they're looking at a minute aspect of market functionality and using some type of historical averaging to guess what price will do next. This is an effect of limited knowledge. It's also is a pitfall of system building because often people spend vast amounts of time trying to perfect things that have limited functionality or trying to learn things that are too wishy washy (like Elliot Wave) For any system to be constantly profitable it needs to be built on constants that are irrefutable under any condition. When someone uncovers this, the logical response is to guard it and make boatloads of money with it. These traders aren't employed by some online school to do webinars like Sam Seiden or hawking software like Tom Williams. They didn't make their money forming institutes like Gann or Elliot, or publishing equally fuzzy tomes on Order Flow. Every business has it's inner workings. A few people who work hard enough to get to the core of it, and thousands more people set up tents around it to sell formulas and recipes. Separating the two is essential to finding the answer. __________________ Alpha is Zero Sum. http://www.forexfactory.com/showthread.php?p=5747681#post5747681

Day trading

The impact I've noticed in futures is not as much as seems to be the case in stocks, but it's enough that the "free money" from scalping is rapidly diminishing. Even if you can out-trade algos, competition from them reduces your execution edge. There is still the riskier money from trading intraday trends and reversals, but that is a lower quality (although more scalable) income stream.

Bottom line - you no longer have a free income boost per annum from picking off stale orders or sitting 1 tick inside the bid & offer. Now your income is *solely* your directional plays. That makes daytrading riskier and less profitable than it used to be.

Having said that, I'm having a decent year with my daytrading, just not as lucrative as before. There's a clear downward trend in the scalping opportunities out there. If you are an experienced trader with sufficient capital, it's probably now more profitable to focus 100% on speculating and investing. And you just improve each year at that, whereas as a daytrader you can't really get any better after say 3-4 years experience. Overnight stuff is easier to monitor, more interesting, and more scalable.

Given that the typical new daytrader does not have the skills or experience to make directional plays profitably, it will be much harder to enter. It normally takes 6-12 months to get decent at directional intraday trading. In the past, you could earn money for those first 1-2 years via scalping, and then directional punts would move up to become 50-70% of your earnings as you gained experience. Now, new traders faced 1-2 years of bleeding instead of steady profits before they pick it up. Most won't have the $$$ or will to survive that long.

Overall I would not recommend anyone go into daytrading now. Learn to invest or learn to position trade instead, those are immune to competition due to recurring flaws in human nature. Unfortunately for the lone wolf trader, it is virtually impossible to invest or speculate by yourself if you are small fry. Even the best can't do much with 10k, whereas in the past 10k was enough to make 1 mill+ in a few years as a good daytrader. So, you need to get into a trading firm nowadays as a noob IMO. That may be irritating, and more difficult to get into, but ultimately it's a faster learning curve to have mentors and colleagues than to go it solo.

Let's face it, scalping was like floor-trading, a profession with a structural edge that paid way more than the skills required to do it were truly worth. It was a perfect candidate for automation. It's not really "true" trading, more like a profitable video game. Overall I don't think I'll be shedding any tears for its slow demise.