Page 2 of 3

Posted: Fri Jan 09, 2004 11:27 am
by verec
William wrote:So i think how we deal with life's uncertainties and all of the emotions that come with it, seperates the winners from the losers
I wonder if this has to be a permanent state of life, or whether you reach a point where the problem is over.

Some traders in MW said that they didn't know any other funds than their own that they would trust with their money. So I guess those guys were pretty confident in their ability to control themselves in the long run ...

But some others like Jesse Livermore did set-up some kind of trust fund they couldn't get at, except for some kind of monthly payment or somesuch, with the express purpose of removing the trading drama: "if you ever go broke don't worry, you'll still have a roof and food on your plate".

Which brings me to the next point: when does a successful trader actually retire? I guess that if he loves the game for what it is, he will never ever consider quitting ... but if he is of the mind-set to build his fortune/empire/whatever and then pursue his real goal, trading then has just become one more step on his ladder to life ?

Finally, this recurrent theme, expressed under so many different forms, and mostly due to cultural/religious western beliefs, that "to succeed, you must somehow suffer", whether you suffer emotionnaly or financially ... but I don't see any cause to effect relationship! And I wonder whether those "emotions that over take us and make us underperform" are not just exactly the symptom of what Ed Seykota had already remarked: "Everybody gets what he wants in the market", emotions included ...

(2p, as usual)

Posted: Fri Jan 09, 2004 2:51 pm
by rs
Keep in mind that those geniuses at Yale, Princeton, and Harvard are just now getting around to the idea that the market might not be composed of rational decision makers.
Excellent point c.f.! I am studying at Business School right now and the philosophy here is that markets are efficient and you can't beat them. My school has only just introduced a behavioural finance course and it is not that popular.

But I still think that even though people are beginning to grasp the basics of how human behaviour affects trading in markets, I don't think they really get it and how it can be used to make money. Of course, neither do I, otherwise I wouldn't be climbing out of a 50% drawdown right now! But I am learning and have an open mind. Many people that I know just refuse to entertain the notion of for example, technical trading, being a valid way of trading the markets.

As far as the people who attend Business Schools, it is difficult to generalize as there are many kinds of people there. But it is worth noting that people who may harbour a dream of being independent traders and have the correct mindset to ultimately succeed but do not have the financial backing, may still go to Business School as they realize that it may be a way of making it in the "conventional" world while building up skills, experience and capital to go it alone as an independent trader.

There are many different ways of reaching the same goal, I think.


Business Schools

Posted: Fri Jan 09, 2004 7:53 pm
by bagherra
One good reason to attend business school is that if you see your classmates starting hedge funds after graduation, it's easier to imagine yourself doing the same thing. However, this is an expensive way to develop confidence. As Bruce Lee said, 'If you want to learn to kick...kick!' Going to school for networking purposes, another common reason for attending business school, was a much better idea forty years ago than now, since there are fewer jobs today, so there's less anyone can do for you even if they really like you and think you're smart.

As for the original question, should you read a lot or not, I think it's a matter of personal preference as long as what you read and what you do teaches you to respect the risk. Respecting the risk you take is really the most important thing. Read the Larry Hite interview in 'Market Wizards', and get a grip on this one concept. I really believe that, if you respect the risk and keep your powder dry, eventually a market will come your way that will make you wealthy, even if you're just trading for your own account.

More encouragement needed...

Posted: Fri Jan 09, 2004 9:04 pm
by kalitka
Well, if anyone can classify market participants in quantitative manner, that would really help.

And I am still not convinced by the discussion. :( Ivy League smarts or simply geniuses are needed for generating bright ideas, finding market inefficiencies and developing monstrous software - not for actual trading, which everyone and his mom knows can be done in mechanical fashion. Please do not tell me human judgment is still a factor - I understand that.
Still, I do not think psychology and human weaknesses are paramount factors within computerized institutional trading. Even if they still are, the significance of fear, greed and hope may be soon obliterated, unless there is huge amount of unsophisticated retail participants. That is why I would really need to know who is on the other side of my trade.

Hey, computers can beat Kasparov now, I'm sure many of you can appreciate the grandiosity of this achievement. :)

Posted: Fri Jan 09, 2004 9:47 pm
by Kiwi

What you are doing might be fun. Its like doing crosswords or some such. But I dont believe it has a strong likelihood of improving your trading.

This is a little like a behaviourist vs cognitive psych issue. IMO if you can observe the markets behaviour and determine a combination of entry, management and exit that is profitable then there is no need to understand the underlying players. And it doesnt matter how smart they are either.

It doesnt matter whether they are computers, mbas, doctors, dentists or other liquidity providers; if the pattern exists and repeats then it is tradable.

All of my best approaches are very dumb, even boring and in each case I am aware of what type of change is taking place in its profitability over time so that I can stop using it if it fails. Then I can recommence again when it comes back. It may well be that there was a shortage of doctors (they had lost their money and gone back to medicine) driving the pattern failure but it doesnt matter as long as the market behaviour is observable.

One opinion and one approach of course.


I want some numbers !

Posted: Fri Jan 09, 2004 10:38 pm
by kalitka

No argument here - if one can recognize a tradeable pattern - trade it, no matter against whom. This doesn't deter me from being interested (not preoccupied!) with my question on markets' particpant classification. This interest is not steered to improve my trading, but rather to satisfy my curiosity and possibly add to my understanding of the markets. There's gotta be some research of lates (i want some numbers!) that somebody could point me to. Another question relates to the common wisdom stating that 90% of futures traders go bust.
An introductory Todd Lofton's book on Futures Markets referred to a study that confirmed the overall 90% number and also stated that discounting come-and-go traders would have brought the numbers to 40% winners - 60% losers.
Many of this forum participants are trading client's accounts. May be you guys could share your observations and comment on this statistics.


Posted: Sat Jan 10, 2004 2:18 am
by verec

1. 67.1307% of all statistics are made on the fly by whoever utters them
2. many things need to be seen to be believed, most things need to be believed to be seen. -- Anton Ertl

Posted: Sat Jan 10, 2004 5:48 am
by kalitka

I asked a question. You don't have an answer. Why post ?

Posted: Sat Jan 10, 2004 6:42 am
by verec
kalitka wrote:I asked a question. You don't have an answer. Why post ?
Wouldn't it be more accurate to say that you didn't understand the answer?

So, after a bit of a blunt, no so subtle translation:

Your insistance at finding numbers to get convinced of whatever it is that is your current fear is not such an issue probably demonstrates that you are not asking the right question, nor are you asking it to the right people. IMHO.

Do you want me to elaborate, or is simply quoting from your own posts enough of an evidence?
kalitka wrote:Hey, computers can beat Kasparov now
And if we all wait long enough, we all be dead.
kalitka wrote:Still, I do not think psychology and human weaknesses are paramount factors within computerized institutional trading
Opinion. Where are the facts? What do you know of computerized institutional trading ?
kalitka wrote:the significance of fear, greed and hope may be soon obliterated, unless there is huge amount of unsophisticated retail participants
Unless one talks about your very own fear which is behind everyone of your questions.
kalitka wrote: That is why I would really need to know who is on the other side of my trade
Hey! I'd aslo like to know:
- whether Bush will win the next election (I hope not! :lol:)
- whether I will be profitable this year
- whether it will rain tomorrow, and where the hell is my over-coat
kalitka wrote:Another question relates to the common wisdom stating that 90% of futures traders go bust
Can you be serious and honest once? This is not your question. You know that the market is a looser game and that most participants loose money. And that is precisely why the game can be rewarding! Your only question is really to yourself and is something like "I wish I belong to the 10% of the winners"

Sorry for the directness/rudeness of my answer, but I felt it had to be told. :twisted:

Posted: Sat Jan 10, 2004 7:55 am
by rs

Since I am at B-school I obviously disagree with your analysis of the benefits achieved from going there. But, you are entitled to your opinion.

As for seeing my classmates setting up hedge funds and deciding to do the same, that is certainly not the case for me. I am one of the very few people on campus who is actually interested in setting up or joining a hedge fund. Most people would rather join a Goldman or Merrill as a salesman or market maker...

In the conventional world, in my opinion and it is only my opinion, I think having an MBA from a good school helps you get into hedge funds or proprietary trading and also helps you to raise funds for your own hedge fund. However flawed it might be(and I do believe it is very flawed) one perception out there is that MBAs from good schools must know what they are doing and therefore can inspire confidence in investors.

Again, just my opinion and one way of looking at it. And I agree that one can become wealthy trading one's own account as well. Like I said, there are different ways of reaching the same goal.



Posted: Sat Jan 10, 2004 8:38 am
by William

I agree with many of your points. And my answer only comes through the experience of a few friends who are in business schools looking for jobs. So, my experience may be very different than the norm. Many if not all of the jobs that my friends are seeing are exactly what you makers or salesman on the instiutional side. However, in terms of prop trading, while it may help a little to have an MBA, i get the impression from friends who have tried to get those spots is that you need to be very highly specialized in a particular field, such as a PhD in math to get those spots. So, i think they are looking for very specialized individuals in a few particular fields. MBA's from what i gather, give you a broad skill set, preparing the individual to do something and then continue the learning on the job.

For example, if you KNEW that you wanted to be a securities analyts, it makes more sense to get your CFA then an MBA. However, the skills you learn in b-school, will certainly help you pass the CFA and in particular level 1.

Now, whether a PhD has the make up to trade any system he builds is another story. Math PhD's trading remind me of the movie "Pi", a rather off beat movie but interesting nonetheless.

Posted: Sat Jan 10, 2004 11:45 am
by damian
rs wrote:Bagherra,
I think having an MBA from a good school helps you get into hedge funds or proprietary trading and also helps you to raise funds for your own hedge fund.
I can't comment on hedge fund entry or fund raising, but I certainly have not met many bank PT's that have MBA's.... many didn't even go to university. This of course depends on what product is being traded. Some type of hybrid convert arb confusing book is usually traded by educated people. However more common and less complicated directional or spreading trading books are usually traded by people whos first skill is what makes them a good trader.... and education is seldom one of them. Note that I am focusing on classic prop trading here, ie, doing what we do at home except for a bank/securities co.

One caveat is that I am talking about traders in their late 30's and early 40's. Education was not such a topic when they enetered the market. I know 40yr old FX prop traders that are quite simply not very clever people (not intended to sound rude). These days one needs quite a deal of education just to get an interview. So conventional education probably will not make you a better trader, but it will help get the job that will allow you to show that you can trade.

One final point is that education certainly helps in the area of system research.... but there is still a gap between that and actually trading month in month out for years and making money whilst living a good life.

Anyone noticed that this thread requires a lot of reading?

Posted: Sat Jan 10, 2004 11:52 am
by verec
damian wrote:Anyone noticed that this thread requires a lot of reading?

Business School

Posted: Sat Jan 10, 2004 2:18 pm
by bagherra
Dear RS,

I'm sorry if I came off as knocking business school. It was a great experience for me(I finished nine years ago), full of wonderful teachers and fellow students, and I learned a lot about many subjects. My friends from business school who went into the hedge fund business--and there were quite a number--worked for some of the largest and best known funds and then went out on their own. So far, some have gotten mildly rich in the process, but there have been no huge enduring successes in terms of their percentage results, and some very conspicuous disasters. In my opinion, the disasters were the result of not respecting the risk, and might have been avoided had these admittedly brilliant people been a little more risk averse.

I might add that only a few of my classmates found work immediately. Most were looking for a year or two before they got their first jobs. The jobs have often been brief once they got them, and the time in between jobs has been significant for most. Naturally, nobody points this out, but it is a major factor in the reality that most people gravitate to starting their own funds after a few jobs in the hedge fund business.

I think you are correct in thinking that an MBA from a good school (whatever that is: they all teach the same academic finance) helps one to raise money. The question is: are the people whom the gold plated MBA impresses the sort you want to have in your fund? They might also be the quickest to leave when you have a bad month.

Posted: Sat Jan 10, 2004 3:01 pm
by Sebastian
kalitka, I don't think there's any data available to answer your question because it would be impossible to gather and analyze. Also, at the end of the day it wouldn't be useful.

Consider what you would need to answer your question of "skill?" or "random chance?". In order to determine whether a trader's success is based on skill or luck, you would need full access to that trader's methods and rules (and his specific trades, too), which is where you run into your first major obstacle: How many traders trade systematically with a fixed set of rules in the first place?

Let's try something easier. :twisted: So, every member here on the board post a precise description of each of your trading methods, along with every trade you've made for the last 20 years. There are about 600 or so members on the board so far (I'm making the assumption that all of us trade systematically and monitor our progress), so in order to get a representative sampling you would need, what, only another 400 traders/investors to do the same thing? :D

No other way around this, that I can see. You have to know why a trade is taken before you can classify it "skill" or "luck" and the only way you can do this is to examine the "why" behind all those trades.

But even so, I'm guessing that the traders who actually follow fixed rules and analyse their performance are a minority of traders, so you can't really make any generalizations about "all" traders from that data, even assuming you could get it. Another significant obstacle.

Are you starting to understand what you're asking for?:)))

Then there's this problem: How would you categorize a situation like c.f.', a systematic trader who monitors his performance, makes his money, then QUITS trading for years to pursue other interests? "Skillful" or "lucky?" How can you tell?

Or the situation of the "Market Wizard" (I don't recall his name) who was a LOSING trader for the first TEN YEARS, then learned his lessons and has been profitable ever since. "Skillful" or "lucky?"

I know where you're coming from. I've always wondered about Peter Lynch's stock-picking reputation. Magellan had a fabulous run under his management, but he took over in the late seventies after the biggest bear market of his generation. Brains or a bull market?

Anyway, "Presume not God to scan, the proper study of Mankind is Man." Paraphrased, the proper study of a trader is himself. The best we can do is to try to make certain that OUR OWN trading success is a result of skill and not random chance.



Posted: Sat Jan 10, 2004 6:23 pm
by verec
sebastian wrote:kalitka, I don't think there's any data available to answer your question because it would be impossible to gather and analyze
I wish I could have replied in such a constructive manner myself. :oops:

You're hitting the nail on its head there. Well done.

To put it even more clearly, I think there is a time for questions when you have done yourself your own homework, and there is time to perform your own research whatever the next guy says, thinks, believes or publishes.

In my view, a forum like this one is best served when everyone has done a minimum amount of personal work towards answering himself his own questions.

If you come just asking: So and so, said this and this, but some other thinks otherwise what can you expect as an answer except rebutals telling you, one way or another: "Think for yourself, first. When you hit a roadblock that you can't see a way around, you're then welcome to ask for help, but not before."

Otherwise, it sounds too much like those teen-agers, poping in every newsgroup and asking the others to perform their class assignments for them. There Isn't Such Thing As A Free Lunch or TISTAAFL as Robert Heinlein wrote in "The Moon is a harsh Mistress" 8)

Posted: Sun Jan 11, 2004 2:56 pm
by kalitka
Verec and Sebastian,

You are free to praise each other's wisdom if you enjoy it. To me your revelations are nothing more then collection of platitudes. "Do your own homework", "No free lunch" - how profound indeed. Now, I would gratefully accept patronizing attitude from many members of this forum. Paradoxically, those very members would never allow themselves this kind of patronizing.
verec wrote:
your very own fear which is behind everyone of your questions
verec, I never asked you to analyze my emotions. Again, you are free to do so, but I doubt anyone would be interested in your findings. I'm certainly not.
Sebastian, I has never asked anything regarding "skill" or "random chance". I asked very specific questions realizing quite well, that there could hardly exist reliable statistics on market participants profile. Yet, I'm sure, there has to be some research on the subject. I wanted somebody to point me to such a research. Then depending on what I see, I will draw my own conclusions. As to computerized institutional trading I happened to know something. For instance, I know that 700+ traders in just one division of a major institution very successfully exercized a speculative system trading program in stock market derivatives for several years. Were those traders susceptible to much fear, greed, hope? I doubt that (yes, verec, this is my opinion). They do what they are told to do with the money they do not own and under supervision of their risk managers. I even have some idea on the volume they traded. Yet, I know very little.
Somebody does know much more, and that somebody I want to hear from.

Posted: Sun Jan 11, 2004 3:17 pm
by verec
Fair enough.

Assuming that somebody actually wants to answer you! With all the superior, first-hand knowledge you do exhibit, they might fear being dwarfed!

Posted: Sun Jan 11, 2004 6:37 pm
by Forum Mgmnt

verec started this thread, and you joined a discussion he started, please keep that in mind.

Try to keep a polite tone. This forum is different than most places because we all try very hard to keep things civil and not make personal attacks. If you don't like what's being discussed then stop reading the topic rather than attacking other participants.


try not to be drawn into exchanges of negative comments, it doesn't help the forum.

- Forum Mgmnt

Posted: Sun Jan 11, 2004 6:39 pm
by Sebastian
kalitka, my sincere apologies. :oops: Somehow I seemed to have mis-directed a response to a different poster to you, instead.

I haven't got a clue who you're trading against, and wouldn't even know how to find out. In fact, based on your last post it sounds like you've got more information than anyone else.

Speaking solely for myself, "who I'm trading against" isn't an issue because certain trading situations affect everyone equally regardless of size.

For example, if a futures contract breaks an uptrend and hits a 55-day break-out to the downside the signal will be the same for a Goldman trader using a Turtle system variation moving 1,000 contracts as for an independent out in Peoria with just a couple.

Also, large size doesn't make a trade the correct one. If a small speculator is on the right side of the trend and a large institutional trader is on the wrong side, why should the small speculator be concerned?

Or reverse this situation: The small speculator is on the wrong side of the trend and the large institutional trader is on the right side. But the small speculator (who did his homework better) has sized his position more conservatively in terms of how much risk he's taking and can sit still until conditions are more favorable for him. The institutional trader is trading too large for the volatility of the contract and gets stopped-out on a random swing at a big loss.

FWIW. I hope you find what you're looking for, and sorry for the mis-placed post.