Does anyone really make money trading futures?

Does anyone really make money trading futures?

I am just wondering.

I know I don't. I have tried all the indicators and the chat room gurus, and none of them make money.

I have a suspicion that a lot of the chat rooms for emini trading are just for hobbyists and market enthusiasts and not for serious traders trying to make a business out of trading.

For any new traders out there please be very cautious of paying anyone to mentor you or signing up for training or a chat room. From what I have seen the only people making money in these deals is the mentor, the chat room owner or the author of the training manual.

I would love to hear from you if you are a successful trader making 20% off your account or better over the past year. I know only 5 to 10 percent of traders are supposed to be successful, but I am beginning to think that zero percent of traders are successful over the long haul. Certainly anyone can have a streak of luck and rack up a few good months where they dramatically increase their account size, but these people are normally big risk takers and eventually they blow out their accounts by taking the exact same risks that help double their accounts in the first place.

Thanks in advance for any response.

Awesome, PT. Very respectable numbers. There's something you could do that I would love to see, if you have the energy to do it. I'd really like to see that same analysis above divided into two groups, one for each style. Since you don't do as many of the positional trades, you might need to do this for a two-week period to have enough on the positional to approach minimal statistical validity. I would be really interested to see how the two techniques compare, and to see if it supports my conjecture and experience of the expected value being about the same. If you have the time and energy... :-)

Just thinking about you guys crunching your numbers, I was thinking that if one made $500 a day (after commissions), it would translate to 2500 a week which results in 2500 x 52 = 130k. That is not bad for a living! And to think that is by making 500 a day, which from the sounds of it over here, is not that unrealistic. It is very interesting to see that 100 dollars a day makes such a big difference over the long run.

It's easy to extrapolate annual numbers from a days performance but the reality is that trading doesn't tend to work like that. There are periods when, if you are mentally able to let it, the market will give you much more than $500 per day, (per contract whatever your measure...) But then there are the periods when you don't see things quite as clearly and losses develop/accumulate. If you can realize this and reduce size until your focus gets more in tune, then the rewards may well average out in your favour.

Last week, Monday was my down day with the others being great. So I can relate to PT's experience.

Unfortunately more bad news for the random walk crowd this week...

Five more winning days with Monday and Thursday being the best days. This week's performance advances this win streak to 14 positive winning days in a row. Taking the last 4 weeks into account, introduces 1 losing day out of 20 for a daily win% of 95%.

Raw stat's this week...(all results are per contract):

Avg. Trade = $ 51
Avg. Win = $ 104
Avg. Loss = - 58
Avg. W/L ratio = 1.79
Win% = 67%

Max Win = $ 295
Max Loss = - 117

Avg MFE = $ 91
Avg MAE = - 58
Max MAE = - 113
Max MFE = $ 300



Jim - sorry I have not had any free time to cull back through the trades and sort them into the two bins. This weeks trading was primarily focused on the quicker style, with no big positional trades as you can see from the small Max win value. The quicker style also lead to lower average win and slightly improved win% as would be expected.

Great results . You know, according to some, you're just a random trader who is obviously on a lucky streak. At least, that's how they will probably try to rationalize it to themselves.

In general I might agree with the idea of a lucky streak. Except, the results I have posted here this month are below my normal performance level. Last week for example, my win% was 49% for the 5 days of trading. There is nothing particularly "lucky" implied by a 49% win rate, in fact it could be used to support the "everyone's a loser" theory proposed by mmartinez. As noted in my weekly discussions, I have not been trading particularly well through the period and many days in April were a real struggle to keep my head above water, so if I am on a lucky streak it sure doesn't feel like one to me.

in daily trading, it's too difficult to see whether your results are from chance or not. One week's worth of trading wouldn't support my or anyone's theory. Too few iterations. Everyone has winning weeks, everyone has losing weeks. The only thing that matters is the final outcome when your trading career is over and done with.

This is the reason I recommend programming your method into a system and running it through practice. you can simulate years of trading without risking real money, and the outcome is exactly what the outcome would be if you had traded for real.

quote:

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Originally posted by pt_emini

In general I might agree with the idea of a lucky streak. Except, the results I have posted here this month are below my normal performance level. Last week for example, my win% was 49% for the 5 days of trading. There is nothing particularly "lucky" implied by a 49% win rate, in fact it could be used to support the "everyone's a loser" theory proposed by mmartinez. As noted in my weekly discussions, I have not been trading particularly well through the period and many days in April were a real struggle to keep my head above water, so if I am on a lucky streak it sure doesn't feel like one to me.

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you know, you could have a years' worth of winning months, think you're doing great, and then see it all disappear in two weeks, without changing your trading method at all. Not an uncommon occurrnce among professional traders.

Hey PT, haven't you been successful at about this rate for like a decade? Isn't that true for VO and Kool, too? Another thing to note is when traders, like many hedge fund guys, take very big risks they frequently blow up, give it all back in a very short period. This is because they are way overleveraged and not following anything reasonable, mathematically, as far as risk management, such as not risking more than 0.5% or 1.0% of the account size per trade. They frequently leverage up to 30 to 1 and risk everything on one trade, or a few trades. Unfortunately, that is the standard model for most of them, in my opinion. This leads to misleading statistics as far as trading, and has zero to do with what we are looking at here.

When one is daytrading like PT, the daily risk is small, and the trading profits are very slow and steady. Many traders, for example, have a stop out on the day for maximum lost for a given day, and that amount is a very, very small amount of the trading account size. So, for example, if one had a daily stop out amount (the maximum drawdown for a given day, then trading stops for the day, something all traders should have in place), of 3% of account value (if one were more conservative and used a maximum per trade risk of 0.5% and three stops drawdown cutoff then it would be 1.5%), then it would take 151 trading days of hitting that stop every single day to reduce the account to a 99% loss. I can't recall ever seeing that daily cut off stop hit more than two, maybe three days in a row, no less 151 trading days in a row (it's 305 trading days at the 1.5% maximum). And even then, the account wouldn't be zero. The only way to reduce a full account in ten trading days (two calendar weeks) to 1% left, if done evenly, would be to risk 63% per day of the balance on that day and lose all ten days in a row! What steady, intraday scalper daytrader would do that? None. Only crazy hedge fund guys taking big gambles would do that.

As an aside, until you reach the level where the account balance was too small to do any further trades (or subdivide it further because a penny is the smallest increment), you actually can't reduce a trading account to zero if you risk say 0.5% or 1.0% per trade because the amount is always calculated on the remaining balance. Most, if not almost literally all of trading account blowouts (and surely essentially all blowouts in a short period of time) are nothing more than completely inappropriate risk management, and have almost nothing to do with whether the trading technique is viable or not.

Here's a made up example. Traders A and B have an options strategy that hits, say, 50% of the time. Let's say they make 300% when it plays out, and risk it all when it it doesn't play out, for a nice 3 to 1 reward/risk. Trader A risks no more than 1% of his trading capital per trade. Over time, mathematically, he does quite well. Slow and steady, though, not making a great fortune by any stretch. Trader B is a 'risk taker' and wants to make a quick fortune. I knew many real people in the late 90's who took this latter approach, and every one busted out. He bets his entire account on one play. He catches a streak, maybe five in a row. He's up huge. Next play, long 'overdue', is a loser. Oops, account is zero, gave it all back fast. Double or nothing eventually gets you nothing, and the huge edge that this scenario has is more than nullified by the totally asinine risk management plan used with it. Anything in the middle (risking 50%, 25%, 10% per trade, etc.) will lead to the same consequences in almost every case, it will just take a bit longer.

The maximum amount of risk per trade is crucial, and is overlooked by most aspiring traders, leading to account blowouts. It's not trading that blows accounts out, it is trader stupidity. Short of a market shock event that catches a trader at the exact wrong time and place (and understand that mathematically this is essentially a neutral event over time because the event may go for or against you, and if you use limited risk strategies with options and appropriate management it still can't blow you out), it is almost impossible, mathematically, to 'blow out' an account (quickly lose essentially the entire account) using a rule like the 0.5% or 1% rule.

Here's the thing, though, about all of what I wrote. We are right back where we started. I was given a lot of positive feedback on my explanations posted previously. I was contacted by e-mail and given positive feedback. I spoke on the phone with a few people who said they gained a lot from the information, and thought my explanations were very logical and well supported. But I know, for a positive fact (they say there are no sure things in this world, but this is an exception), that none of this matters. I will get the same response back as before, and the whole thing will start over again. I am preaching to the choir here. Those that commented positively on my posts already grasp what I am saying here. Those determined to not see the mathematics of the discussion will not change no matter what. So, except for the mathematically interesting aspects I have added here, like how long it takes to actually grind an account down, there is little point to any back and forth discussion.

One thing I know is when to stop out of a trade. I moved my stop once on this trade last time, something I would only rarely do, because I thought I saw some promise. I was wrong, so I did what I should have done in the first place, and stopped out of that trade. I am not back in the trade here, I'm not moving my stop again, I'm not playing that game anymore here. I am just presenting some math for those that enjoy it, that's it. The math is the math, it doesn't change whether it is applied to trading or anything else. All I'm showing is what it takes to draw down an account with some more realistic money management rules in place.

quote:

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Originally posted by mmartinez

you know, you could have a years' worth of winning months, think you're doing great, and then see it all disappear in two weeks, without changing your trading method at all. Not an uncommon occurrnce among professional traders.

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Hey you know... you can have a job for years then get fired and where are you ? What occupation would you advise these professional traders to take up then?

I consistently profit from futures/futures options, but it took me a long time to figure out the best way for me to do so.

While a set of trading rules is very important, I have found that it is just as, maybe even MORE important, to develop "trading callouses" from getting your butt handed to you repeatedly along the way.

Here's the thing: Any set of rules will only work until they don't. It is normal human psychology that there will come a time (again and again) where you deviate from the rules because A) you have had a string of losses, B) you have had a string of wins and now you have a loss and can't believe you're really supposed to "lose this one," C) you get greedy, D) you get scared for whatever reason, or E) any one of a thousand other things that will cause you to screw up.

I had ups and downs for many years until I thought I had it figured out and had a couple of years of really solid profits. I had my own private island picked out :) (not really, but I did have a condo in mind O/N an island). Then came the financial crisis of 2008 and I learned that while I had a generally good strategy, because times were good I had not developed an appropriate risk control system.

Hundreds of thousands of dollars later... (and that didn't take long at all!) I learned the hard way that my strategy was woefully inadequate when the unexpected happened. It took me a while to brush myself off, but eventually I did.

Since sometime in 2009 my cumulative returns are somewhere around 450%. Over the past 9 years I've found that proper risk control continues to be where I tend to fall short, so I've had some choppiness during this time. About two years ago I tightened things up some more to try to make for a smoother equity curve... this mean that, theoretically, my losing months should NOT be as large as in the past, but my winning months will also not be as large as they were in the past.

That's okay though -- even my cumulative success over the past 9-10 years, when averaged out by month, comes to < 2% a month. I suspect that 2% a month, long term, is about where I'll stay, but the ride should just be smoother along the way.

A return like that may or may not be enough for a particular person--it is for me--but keep in mind if you want to shoot for the stars there's a really good chance you're going to eventually crash land back on earth. It really does come down to being adequately capitalized and having a reasonable return be "enough" for you. By all means, trade even with a small account, because you need that experience to get to the point where you'll know what you're doing when you have the larger account. Just don't expect to turn a tiny account into a massive one along the way or you will probably be disappointed.

-PDG