Saturday, July 2, 2011

Reality

My cousin broke the news to me yesterday that he's quitting trading and going back to work soon, after a friend recommended him a job. I was a little surprised but supported his decision since he is not getting anywhere after being a trader for 2 years.

He broke even on his seventh month of trading, that was quite remarkable for a newbie who didn't know a thing about trading, confused even over bid and offer in the beginning. Last year was good and he improved tremendously with consistent profit every month though on the average, still below his last drawn salary. He enjoyed the freedom of being a trader.

The last six month was lousy, he got hit a few times shaking his confidence. Volatility shrank and scalping became very tough with the coming of the Algos, his profit came down, so was mine. After some serious consideration, he felt that it's better to go back for a more stable income, CPF, year end bonuses and medical benefits.

I'm glad that he made money trading, didn't burn a big hole in his pocket like others we heard so often. He took a 2 year break from his career, gained plenty of experience as a financial futures trader and most important he has given himself a chance, an opportunity to become a trader after hearing so many glamorous stories of successful traders. There is no regret.

8022 just told me that he is quitting too and looking for a job. I admire his perseverance to stay on for another 5 years as a electronic trader after the trading floor closed in 2005. I can imagine his suffering without income for 5 years and using up his savings on daily expenditures for the family.

The hardest part for a trader is when they get too old to get re-employed, when they are in their late 40s and the only thing they know best is trading and not making money.

Reality sets in, only the best traders make it and that's less than 10%.

Scalping is getting very tough, very tiring especially when many of your opponents are powerful machines with plenty of muscle to push the market in their favour. The machines distort the scalpers with their speed in putting and pulling out orders, sometimes huge orders to bully the small traders. Trading hours are long now, thus making the lives of short term traders more miserable. Volatility reduces as the Exchanges extend the trading hours and traders trade more incurring more comm.

I spoke to my brother about the challenges we are facing now as an electronic trader in a non level playing field, where Exchanges are embracing Algo traders with open arms giving them better comm rebates and speed. Change! that's what we need to do. The machines are now the scalpers, they are like the FT (Foreign Talent) in our country, it's difficult to compete with them, we are now left with the crumbs.

I have to change the strategy of trading, that's what I'm slowly adapting, trying to avoid heavy scalping to reduce the comm. It's hard for an old dog to learn new tricks after 25 years as a scalper, it's a challenge.

28 comments:

sm@ll.fry said...

Hi Patrick,

Wow, what an impactful post! Makes newbies like me pause for a second and question my judgement to want to change career. I do not deny that blind belief that "grass is greener on the other side" was a huge factor in my aspiration to want to become a trader.

"Change is the only constant in life". I'm sure new challenges will bring new rewards to you. All the Best!

Bala said...
This comment has been removed by the author.
Bala said...

yes, hard reality to accept. Wish your cousin and 8022, my best wishes for their bright future.

Fxtrader said...

hi Patrick,I hope you still remember me. I came to phillip futures for interview to join Mr Jac Lau's trading team 2 months back in April. I am a full time FX daytrader for almost 1 and a half years now. To tell you the truth, I have been struggling for the past one year,suffering from huge gains and consecutive losses (even from proper money management).

I have been lucky enough not to bust my account. Till date, my account is down 30%. Only in the last 3 months, i truly realised that having a structure (daily trading plan, rules and several concrete and tested trading strategies) in trading is crucial for consistent profits daily. When i fully follow my trading plan, i have a high probability of having a profitable day.

However, for this week, i also realised that by following my trading plan I will have heavy losses too. That is when i have to stop and reflect what have i done wrong. I came to a conclusion. Markets are changing everyday. My strategies which works for several months is not working anymore. I must adapt and fine tune my basket of strategies or DIE.

I truly agree with your blog posts. The reality of trading is just so unforgiving. The ultimate thing is 'Either you adapt OR DIe'. Just from my humble opinion.

I truly hope we can keep in contact and exchange ideas. I am very keen to learn your trading philosophy and ideas even though i am not a scalper.

My email is fxtrader.live@gmail.com

Fat88Trader said...

Yes, you are right, Fxtrader, "The reality of trading is just so unforgiving." The opposite party that you trade with might be your good friend having an opposing view.

Yes, markets and players are changing every day, traders need to adapt or die, they need to find their own edge in trading.

Trading is getting tough, the competition stiff, it's not as rewarding as it used to be. But... there are still a handful of successful traders around.

For those thinking of having a change in career, consider it carefully before taking the plunge and have a Plan B standby.

Just like my cousin, he did the right thing and made a U turn. Trading is not for everyone, when you find yourself not making money, you are simply repeating the mistakes again and again, going around in circles.

Being human, we hate to admit our mistakes, tried not to let anybody know how stupid we are and angry when others call us stubborn, it's so natural. I know it hurts when I tell some traders how stubborn they are because I don't want them to burn a big hole in their pocket.

I'm stubborn too because it has taken me too long to get out of my comfort zone, maybe the fire is no longer in me anymore.

Fat88Trader said...

Hi Fxtrader, we can share and exchange ideas here with the rest of the readers with my good friend, COCONUT offering his wise opinion.

With more readers participating, it will motivate us further to share our thoughts and views.

sm@ll.fry said...

"I'm stubborn too because it has taken me too long to get out of my comfort zone, maybe the fire is no longer in me anymore."

Dear Patrick,

I sense some feeling of jadedness in your recent post. My journey in trading has been short, but yourself and the other seniors and peers that I met though AFACT have been huge inspiration and aspiration to me.

"When the tough gets going, the going gets tough!" I'm sure you'll find your edge again.

Best Wishes,

Fat88Trader said...

Thank you Alvin!

It's just a little bit of frustration with the difficult market condition.

I'm looking into other contracts to diversify.

Singapore Man Of Leisure said...

Hello Fat88Trader,

I've learnt and gotten a lot of insights from your postings.

This post on "Reality" struck a chord as it reminded me when I first blew up my nest-egg... And have to change strategy by refocusing on my career to rebuild my capital from zero.

Now I am more aware of my failings and investing/trading edge (time and patience).

Do keep on posting and I like your friend Coconut's comments a lot too! They complement your postings.

Kerry Wilcock & Anna Tsang said...

yes, have almost stopped scalping these days, volume traded is proabblay half of what I used to trade and just trading certian times of the days..

coconut said...

i have gone through worst than that! and i can't even stay at a job for 3 months.

yes same old word, don't be afraid to try new things, new method, change here and there to see if its work. even new "product" like the CFDs (equity DMA only), just make sure you don't lose a lot of money doing it.

i recommend that is becos you can go long and short. conditions are right to trade with cost coming down a lot. don't trade shares if you can't short (you invest long term)

if discipline is of any use, than be discipline and force, i mean really force yourself to change. so that your mind becomes very flexible, flexible in adjusting to any kind of market condition. markets and its condition will never ever stay the same, never.

haha thats my 2 cents.

coconut said...

this year also sees myself rocking left and right, make many changes to my portfolio (long to short)and trading system.

i spend the last few weeks restrueture my spreed sheet due to the changes in SGX spread which afacting some of my counters. tighter spread also increase my risk exposure for market making but make more efficient for spread trading and hedging, hence reducing my risk, good and bad.

the basic struture of my trading system, (counter trend, trend following and spread) remain the same but i constantly change the number (size and spread) to suit the market condition to as close as possible.

thats what i like to do all the time, i like to agree with fat that i also trade for money, but i don't think i really do. maybe i can say it now but i don't recall i really care about money so long i can control my risk exposure.

this year so far is flat on equity dispite all the hard work and long hours, do i get upset, hell no.

coconut said...

i wonder why i wrote "Rocking" left and right, haha thats my all time favourate

http://www.youtube.com/watch?v=0vIr19aoHQI

coconut said...

i think to conclude, there are actually many good traders like fat cousin who have quit trading. the reason is not he cannot make money, but is unable to sustent as a trader.

beside the need for an income, the emotional and physical sufferring. he eventually give up.

even one can make a few thousand a month trading, how long can he last if he is not enjoying what he is doing. he will soon find excuses like trading badly so as to escape trading.

i think i will still be trading if i can only make a few hundred, no i will still watch the market even if i cannot make money, see also good.

sm@ll.fry said...

Hi Patrick, don't mind I reach out to coconut through your space here.

Hi coconut,

I've been following your comments through Patrick's blog and have gain a great deal of insights from your sharing. Thank you for sharing.

"the basic struture of my trading system, (counter trend, trend following and spread)" I realise what you are doing seems to be the direction that I am aiming towards, though I'm miles away. But I look forward to learning more from your insights. Just hope that I can last that long.

Cheers,

coconut said...

thanks smallfry, trading is a never perfect and never ending game, i'm still learning too.

i'll spell the basic idealogy of my trading, mainly applies to position trading.

counter trend, my left wing, trend following my right wing. in order for me to fry at ease, i need to balance this 2 wings of mine. it does not matter the wing is big or small as long as its airo dynamic but most important the opposite/mirror of each other.

put it simple, most traders have but only one system, try fail and find others and keep on changing.

with the 2 system into 1, i can switch from one to another depends on market condition, no need to find other system, just need to fine tune every now and than.

it sound easy but take a long time to even get used to it. its very unatural. my whole trading idea is to balance both my left and my right side, what ever it is.

coconut said...

i'm not sure how other define the 2 but this is how i see it,

- counter trend, catching a falling knife directly, not after it rebound.

- trend following, follow absolutely blindly, no question ask.

coconut said...

if work together in hamony, it compliment each other, cover each other back side.

the only problem is you can only use one at a time, for short term trading, is as good as slapping yourself with both hands. but for long term trading, well you still slap yourself once in a while but its not painful.

coconut said...

oh spread trade, since i'm in a frying mode, "spread trading" is like a little engine i add onto my wings. a propeller one, not the super jet engine.

with the market condition and the reducing of cost, it make sense to up the power of my engine just a little, still a propeller one.

but i have to consider my body mass (equity size), i have to drop the size of my wings or face danger of crashing.

up my spread volume and down my market making model and stay as flat as possible for overall portfolio.

i'm not too sure it will work well but the begining results looks poor but take time to be sure.

haha frying, seem quite unstable.

coconut said...

back to "reality" (very free haha)

reality is that if one wants to be a trader, he is facing a hill that is worst than averest.

he trade becos he is thinking of making money and it is the market that will take your money away. unless you love the market to death, you are going to give up sooner or later.

not so good news for the experience traders like me too, after endure the hardship of learning, with a life that they call no life, you still got to continue learning.

if it is not that i love the market so so badly, i would have gone too.

coconut said...

please differentiate between the addiction for trading and addiction for (winning) money, the more you serperate them, the easier your climb will be.

coconut said...

my buddy always throwing at me, "you want to earn so much money for f..k? don't know how to enjoy life!"

i have no answer to him except throwing him back some "sweets".

coconut said...

a good trade and a bad trade.

2 trader make 10k trading the same stock, bought $1.00 and exit $2.00. both man are happy. but one make a good trade but other a bad trade.

here's why, trader A bought when it drop to $1.00 and exit when it when to $2.00, a counter trend swing trade well done. he is a counter trend trader.

trader B however is a trend follower, after he exit the stock when up to $10.00 non stop. why would he be happy? thats a very bad trade.

so next time don't be too happy when you make some money, see if its a good or bad trade.

Singapore Man Of Leisure said...

Wow! I've learnt a lot Coconut!

Especially on flying with 2 wings aproach you mentioned - counter-trend and trend following. Interesting!

You had me going back to my long forgotten sec 1 and 2 physics ;)

Spread trading is a bit beyond me at the moment. Will find out more about it this weekend. I think I may have confused it with spread betting in UK.

coconut said...

"cam sia" SMOL, technically speaking, mine are not spread trading. more like "relative trade".

i use "spread trading" for easy understanding. i suggest you forget about spread trading for the moment unless you are trading more than full time.

coconut said...

the 2 wings approach is simple but almost impossible to do, not in our daily lives.

if you hate something, you will not going to accept it. example like losses, enemy...

in trading, same, you have to learn what you don't like to do, with your money down!

Singapore Man Of Leisure said...

Thanks Coconut!

Studied what is spread trading and got even more confused...

You are right. I'll stick with "simpler" to understand and execute swing trading for now.

Cheers!

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