Trading financials for a living

[Euler]

Returns on equities are lognormally distributed over the long term, but very short term, i.e. a day, less so. Commodites have underlying seasonal trends but are more or less equally distributed. Forex is much more evenly distributed with decade long trends but I found it much harder to predict direction and kept getting caught on short spikes.

If you trade any at very high frequency then it becomes much less of an issue. So I'd say trading style is very important as well.

TBH, As you know, I settled on long term investing rather than short term stuff so these are what I find but everybody is different, and has different styles etc. etc. cavet inserted.

[Iron]

Hi Peter

If you're trading the daily timeframe, you don't need to predict the direction of the trend. All you need to do is to respond to the market, and use the 'cut losses/let profits run' principle.

You may be right about normal distribution, but based on the records of trend followers, I would say that there is a fat right tail for trends lengths for instruments of all types on the daily timeframe.

On the topic of distribution, you might find this link interesting: http://www.trendfollowing.com/whitepaper/mauboussin.pdf

If the charts on pages 2 and 3 apply approximately to markets generally, it suggests that:

A. Longer trends occur more often than normal distrubution suggests is the case

B. Trends of roughly average length are far more common than normal distribution would suggest. I wonder whether this might be due to mean reversion. Perhaps you often get a move in one direction, and people are frightened that they've moved too far away from where the price has been for a while, so they push the market back to where it was.

So maybe one of the constantancies of markets of all type, ranging or trending, is conformity. When a market is trending, people often jump over each other to keep up with the pack and avoid being left behind, and when the market is ranging, people are possibly often reluctant to stray too far from the perceived safety of the prices where money has recently been matched.

What do you think?

Jeff

Returns on equities are lognormally distributed over the long term, but very short term, i.e. a day, less so. Commodites have underlying seasonal trends but are more or less equally distributed. Forex is much more evenly distributed with decade long trends but I found it much harder to predict direction and kept getting caught on short spikes.

[superfrank]

it's all down to hard work in my opinion. There is no shortcut. You can dabble, but even what we have learned from betfair is that to be successful you need to be better than average.

I couldn't agree more with that statement. If you work hard enough at anything, and have a genuine interest in it, then you'll get good at it (within reason obviously).

When I was 18 I bullsh1tted my way into a trainee programmer job - I'd never owned a computer and didn't know anything about computing, I just went to the library and found out what programming was all about and then said the right things in the interview. I struggled like hell for the first few weeks (I thought there's no way I can do this) but I stuck at it and soon it all fell into place.

I think trading is more difficult than most jobs because you have to constantly adapt to market conditions and modify your approach accordingly. Accept that there is no holy grail, only opportunities, and work hard, and you'll get exactly what you deserve from the markets.

[superfrank]

btw, you really need to keep an eye on scheduled news events.

Oil inventories came in much higher than expected... http://www.forexfactory.com/calendar.ph ... 1-8-17&c=2 (Eastern time)

[superfrank]

this is the trade that sparked today's carnage (1800 contracts on FDAX)...



because it snapped back so quickly I thought it might have been a fat finger trade, but obviously someone (bank) wanted to get short of the market (or panicked out of a long position) this morning at any cost.

[Iron]

Are those UK times?

I'd have expected the biggest drop of the day to be at 15:00 London time, when it was announced that (to quote Nouriel Roubini): "Philly Fed at -30.7 is off-the-scale bad. Lowest forecast was -10! (consensus +3.7)"

Jeff

[superfrank]

Yeah UK times.

[superfrank]

Over the last few weeks I've gradually made the switch to financials. I only intend to trade the nags at weekends now and maybe some Fridays if the financial markets are slow.

It's a shame what's happened to sports trading because of Betfair - I liked trading the nags because I love horse racing, but it's not viable as a job now.

The weekday horse racing markets are just a battle between traders. Maybe they always were, but with XM for profit skimming off the top and the PC (and the increased manipulation since 18/7) it's just not worth the effort for me.

[jimrobo]

thats great superfrank!

Are you finding it is paying off ok already? thats awesome stuff!

[superfrank]

I've done well so far, but it's far too early to draw any conclusions. ask me again in 6 months!

the reason I post about financials on here is really to encourage others to give it a go. there are some great sports traders (far better than me) who could apply their skills to other markets.

I'm looking to trade strategies that utilise the skills I've learned from trading horse racing markets - it's not necessarily the sea change that people seem to think it is.

[Iron]

IMHO, you can't look at one financial instrument to work out what another is going to do next, in the way that some people are able to look at what's happening with one horse and use that information to make predictions about another horse. However, some financial instruments are correlated.

If the pound falls significantly against the euro, and didn't drop against the US dollar, then an arbster could buy pounds with his euros, and then use those Euros to buy dollars for less than he's being offered in the EUR/USD market!

But that aside, the Betfair and financial markets are very similar (particularly with Level II, where you get to see the WOM). If I presented a Betfair trader with 5 second candlestick charts from Betfair, and 5 minute candlestick charts from Forex, I bet they wouldn't be able to work out which was which...

Jeff

I'm looking to trade strategies that utilise the skills I've learned from trading horse racing markets - it's not necessarily the sea change that people seem to think it is.

[superfrank]

one thing I can guarantee is that I won't be trading any strategies that rely on WoM or whatever it's called. 'completely useless in most markets and too easily manipulated as we know from Betfair.

[Iron]

I think blindly following WOM doesn't work. As you say, it's easily manipulated. But I think that it can show you where momentum might be building, and you can use the rather unsubtle WOM distortions caused by spoofers to your advantage.

Jeff

one thing I can guarantee is that I won't be trading any strategies that reply on WoM or whatever it's called. 'completely useless in most markets and too easily manipulated as we know from Betfair.

[jimrobo]

you can forget WOM in futures markets!

I know an algo company and they said their response time is 6 ms!!

[superfrank]

you can forget WOM in futures markets!

I know an algo company and they said their response time is 6 ms!!

yes, don't entertain any thoughts of scalping in seconds - you're up against extreme technology and will get killed. any timescales above a that present opportunities where technology doesn't have the same edge, and can indeed present opportunities because of the volatility it creates.