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.

as your bookie I would never give you 3-1 for a coin toss. Same thing on Wall Street. Nobody there's giving each other - much less you and me - any odds like that. They're not giving any odds that are beneficial to you, period.

As I said, take your trading method, run it a few thousand times against price data, and you'll see what I'm talking about. It's pointless to speculate. You gotta run the numbers.

quote:

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Originally posted by pt_emini
Since you like large sample sizes and random outcomes, lets do a simple test of 1,000,000 coin tosses. Starting with $1,000, for each head that appears give yourself $3 and for each tail that appears remove $1. If at any time your balance falls to zero you lose. Repeat this test 1,000,000 times. What is your probability of failure ?

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Hi MMartinez
If you dont mind me asking, what is your background in Maths and/or stastistics ? How much have you studied either /or and have you worked on projects that use either ?
Thanks

All the Best
John

quote:

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Originally posted by mmartinez

as your bookie I would never give you 3-1 for a coin toss.

I don't gamble and I never trade with a gambler's mindset, so your assertion is not relevant to my comments.

Same thing on Wall Street. Nobody there's giving each other - much less you and me - any odds like that. They're not giving any odds that are beneficial to you, period.

I 100% disagree with your statement and assumption.

The markets are not a casino, they are a price discovery mechanism. The carefully designed rules that restrict your actions and probable outcomes in a casino do not exist in the free market. In trading, you are free to enter or exit your trade anytime you so choose. Thus you are confronted with the reality that you are responsible for your actions and the results that your actions precipitate.

I define my reward:risk ratio for each trade I enter, no one defines it for me. I am in control of this aspect of my trading method. In many of my trades my reward:risk ratio is much higher than 3:1, I selected 3:1 as a reasonable long term average for short term trading in the futures markets. If you feel you cannot achieve that long term average, then choose 2:1 for your math simulation, and you will have the same positive outcome. If you feel you cannot achieve a long term average reward:risk ratio of 2:1, then you should not be trading in the first place (... finally a point we agree on!).

As I said, take your trading method, run it a few thousand times against price data, and you'll see what I'm talking about. It's pointless to speculate. You gotta run the numbers.

I don't have to run hypothetical simulation numbers because I calculated the numbers from my actual trading results for last month and generously posted the numbers pertinent to this discussion for you in this thread. I don't need to run hypothetical backtests because I have no need to change the method I am using. I don't need to change my method because it works for me, and I believe in the "if it ain't broke don't fix it" school of though. (Plus, as VO likes to remind me on a regular basis, I am old now and set in my ways :)

quote:

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Originally posted by pt_emini
Since you like large sample sizes and random outcomes, lets do a simple test of 1,000,000 coin tosses. Starting with $1,000, for each head that appears give yourself $3 and for each tail that appears remove $1. If at any time your balance falls to zero you lose. Repeat this test 1,000,000 times. What is your probability of failure ?

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I got my Bachelor of science in Applied Math from the New Mexico School of Mines, did some grad school in applied math (perturbation methods), work in the computer field as an SA.

The background helps, but anyone without it can run the simulation tests to see the results of their own trading methods, which is why I recommend it whether you're a math/cs guy or not.

quote:

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Originally posted by JBWTrader

Hi MMartinez
If you dont mind me asking, what is your background in Maths and/or stastistics ? How much have you studied either /or and have you worked on projects that use either ?
Thanks

All the Best
John

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Thanks for that background information.Interesting journey.

If you also dont mind me asking are you making money from trading ? I know this is a personal Question on a public forum. I will understand if you dont want to answer it either.

Personally I believe Pt emini , Jim Kane and Bruce M have found consistent tradable systems/setups.
I also believe that your hardened experiences on the market are also true for you and no doubt other people.
I guess at the end of the day it doesnt matter who thinks he/she is right or wrong, one just keeps on doing what one finds to be working or changes what isnt. Profit/loss is the only benchmark that matters and hence one's longegivity. There are many who do live a long life in this game and many more who do not. We all know this fact. I liken the whole process to an Alchemists approach to extract gold from lead...its ironic that even though there is a physical component that is obvious to all, there is also a psychological component that is even bigger and more difficult to find/acknowledge and comprehend.

All the Best
John

quote:

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Originally posted by pt_emini

[quote]Originally posted by mmartinez

as your bookie I would never give you 3-1 for a coin toss.

I don't gamble and I never trade with a gambler's mindset, so your assertion is not relevant to my comments.

The issue here is that you're saying a random walk can be beaten by setting up a coin toss game that gives you a lopsided reward. The problem is you'll never find this to be the case.

Same thing on Wall Street. Nobody there's giving each other - much less you and me - any odds like that. They're not giving any odds that are beneficial to you, period.
[blue][b]
I 100% disagree with your statement and assumption.

The markets are not a casino, they are a price discovery mechanism. The carefully designed rules that restrict your actions and probable outcomes in a casino do not exist in the free market.

The free market means that the prices are random and unpredictable. The amount of risk you take is equivalent across the board no matter what your strategy is, whether you just buy and sell futures or you short sell stocks or you use options. Nobody's telling you that if you buy long, and only buy long, they'll give you three dollars every time the price goes up and they'll take away one dollar if the price goes down. Nobody's giving you odds like this. They're not giving away free money! Do you understand what I'm saying?

For you and me, the situation is even worse if you trade options. Have you ever wondered why options are priced the way they are? Options do not float on the free market the way stock and oil futures do. Options are entirely contrived and artificial. People create them and in a very deliberate manner construct them with very specific odds in order to maximize their income from selling them and minimize the consumers (yours) income from buying them.

I define my reward:risk ratio for each trade I enter, no one defines it for me.

Therein lies the problem. No one can possibly know what that ratio could be without conducting a large number of trade iterations. A lot of people think their reward:risk is good because they say they will exit their trade with a $1 stop loss and a $3 profit target. But happens when they repeat this strategy 100 times? 1000 times? 10,000 times? They get stopped out 3x as often as they hit their profit.

I am in control of this aspect of my trading method. In many of my trades my reward:risk ratio is much higher than 3:1, I selected 3:1 as a reasonable long term average for short term trading in the futures markets. If you feel you cannot achieve that long term average, then choose 2:1 for your math simulation, and you will have the same positive outcome.

you're free to choose whatever number your want. The real one doesn't care.

[blue][b]I don't have to run hypothetical simulation numbers because I calculated the numbers from my actual trading results for last month and generously posted the numbers pertinent to this discussion for you in this thread.

How many round trip trades did you do last month?

I don't need to run hypothetical backtests because I have no need to change the method I am using. I don't need to change my method because it works for me,

you can't be sure if you're using an insignificant sample size (ie. number of trades)

and I believe in the "if it ain't broke don't fix it" school of though.

big mistake because it "actually is broke" (based on incorrect asumptions)

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re: reward:risk ratio 3:1?
I just read Robert Miner, the 20-year trading veteran, lastest book.
Here is what he thought about R:R ratio, BOGUS!!!

"Just when you think you are out, they pull you back in..." I've never let myself get sucked in like this before, into a total no win, losing game. Maybe mmartinez' goal is to show we will all lose because eventually we will deviate from our plans and do things we know have no 'edge', like this discussion. But, I must continue...

mmartinez, here's what I don't get. Above, again, you use the random walk theory as support for your statements. We already addressed that. The random walk theory has been refuted by the Andrew Lo and Craig MacKinlay studies, as far back as the 80's. Here's a link to some of his work:

http://web.mit.edu/alo/www/articles.html

He has a background you can appreciate. So, why do you keep citing work that is no longer considered valid to make your point? I could prove just about any point, even that the sun revolves around the earth, if you let me cite old literature. Once you accept the market is not random, there isn't much left to the point you are pursuing.

You mention, again, needing lots of iterations. I mentioned I know traders who do 500 round turns a day, for years and years on end, and are consistently profitable, yet you keep mentioning number of iterations. These guys are doing over 100,000 trades a year. No one will argue that is not enough iterations. Instead of saying those that are actually making money shouldn't accept they are for any reasons except random effects because they haven't traded enough (even if they haven't had a losing month in ten years), you should focus on the traders I mention, with the 100,000 iterations per year ten or more years running. Don't try to address those who can't be statistically studied, tell us all why the ones I know with over 1,000,000 iterations total and net postive outcome can't actually be happening. And don't say 'random walk' or we are back to point one, where you won't accept that has been refuted. With all your math background you can surely completely understand all the math in his work and see it is very clearly refuted.

You say 'it is broke?' and he just doesn't know it? Look, a guy makes money nearly every day, has almost no losing weeks in ten years, has low drawdown, never has a losing month in ten years, buys a house, cars, puts lots away in the bank, and lives a great lifestyle, and you are telling him he can't do what he is doing, his approach is broke, he's a fool to keep doing it? You're great at math, calculate out the statistical odds that what he is doing is random. Seriously, run the numbers on that and tell me what they actually are. Now I will show you ten guys like that. Run the numbers (not figuratively, but really run them and post them here) what the odds are I know ten guys doing that, and it's all random. Now tell me, by Occam's razor, which hypothesis holds: they truly have developed skills to make money in the market, or it's random.

Next, your entire argument is based on the idea that the market is 100% efficient, or if not 100%, there are very few edges to be gained, they are small, and they don't last. I think this is completely false. I agree that for computers and programs there are few, but not for the human brain. Did all I posted about that just go by the wayside? The market has limited resources. It cannot put out a million joules of energy on an input of a hundred joules. And it can't develop and evolve, like any living organism, to protect itself from every threat with 100% perfection.

You are saying we have discovered perpetual motion, broken the law of conservation of energy? This system, whether it be the market or a living creature or a computer system, has evolved to the point it can resist all attacks from everything, with near 100% efficiency? It has evolved ways to defend itself from rapidly evolving and changing theats every day, and it has no lag time? It sees everything coming, or 'fixes' itself and adapts so quickly that only a small amount can ever be extracted for a short while?

One thing evolution has shown, there has never been a strain of bacteria that we can't find an antibiotic to kill it on an individual basis. And no strain has not been able to adapt to any given antibiotic. No radar gun can't be beat by a radar detector, and then no radar can't be built to beat that detector, and so on. It's always an evolving arms race. Always has, always will be, in every area of life. The market is no different.

We have to adjust and adapt as traders, but the process is slow, and we seek to keep a few steps ahead as we see things slowly change. You're saying the market, made up of living things, does not follow this process? It has an infinite energy source it taps in to, to evolve such that it can defend against all assaults from the tens of thousands who try novel new things daily on it? And if one little trader working a relatively tiny amount of money starts to make anything from it, and tells no one what he is doing, it 'senses' this and adapts almost immediately?

All I can say is, if this is so, not only is it the perfect organism, in shades of 'The Terminator', 'The Matrix', and others, if this thing, hooked up to all those computers, every gains self-awareness, we are all dead. It would adapt to anything we could throw at it instantly, and it's all over for the human race which would be trying to stop it. It's too perfect.

Now back to what I think is happening. It's made up of human beings. I look at all the people I know, and the way they act, the irrationality that they use to make decisions, and the market, composed of those people, is anything but effecient, rational, and so on. If the market was efficient, it would trade in gaps. It would sit at one price until new information came out, then it would instantly gap to the new, 'correct' price. There it would sit.

But people find out at different times the new information. Some are at work, some take time to digest the news, some have no idea how to interpret the ramifications of the news. That's why price moves slowly from one equilibium point to another many times. I don't see how anyone can argue when we have a climax sell-off, and prices drop a huge amount, and then it does a V bottom and it springs right back up to where it was that that is 'efficient'. That is irrational people in total panic selling to 'strong hands'. Maybe it's an efficient transfer of wealth, but it's far from an efficient market. There are opportunites all over the place to exploit those conditions.

And here's one last argument. Let's say in this fictitious world everything you say is true. The market needs liquidity (and here I don't refer to the strictest definition of the term, where you must have an order in off the market to be a 'liquidity provider', and market orders are 'liquidity drainers'). It is willing to pay for that. Imagine your broker goes to sell your mutual fund stocks and there is almost no one there to take the other side. Talk about a market that isn't efficient. Part of what is factored in by the market is the cost of a more efficient market by paying a group of people to play middleman. Without them, get ready to take almost zero when you need to sell your stocks.

Now, this is a great job, and many young men (and women) want this job. So, they have let's say 1,000 openings for this. But, 500,000 applicants show up. It's a high skill job, though, with little or no training available. Yet the 500,000 don't care, they want the job anyway. So, Mr. Market, being the shrewd businessman that he is, notices something. He can not pay anything for his liquidity providers. He has an idea. He can make it a zero sum game among them. He'll hire all of them, and tell them they use their own capital on the job, and they keep a 'commission' for doing the job well, for doing it properly. Mr. Market warns them that if they do it badly, they will lose their own capital. And then he sets them out to 'work', pitting them against each other.

They aren't battling the market makers, the specialists, the 'smart money' or anything else, they are battling each other. When the capital is gone for the poorest ones, they drop out, but more come in to take their place. They never stop coming. I figured this out because of a previous business I was in. Let me explain. In this business I had need of a 'manufactured item'. I found plenty of suppliers for this item. But they never lasted long. Six months, a year, maybe a little longer and they were gone.

I just wanted to get a single supplier, and be done with that, instead of constantly switching suppliers. Finally, I dug into that business. The first thing I noticed was that every last supplier was a guy in his twenties, or very early thirties. I ran some numbers, and found out that at the current prices the business wasn't profitable. But it was a stay at home business that appealed to a group of young guys who had some capital, and wanted to get out of the work world. So, they jumped in.

They soon went broke because the business wasn't viable. The main reason was the prices were too low because of all the competition. They were selling below cost of production. But this worked because so many dreamed of this lucrative stay at home business, they just kept coming, and kept the prices down. In a way, the price we paid for the product was subsidized by the bankrolls of the endless stream of guys who just kept coming. That should be enough of a story right there for the point, that there is a select group of people who will always try to have a stay at home business, will take a shot at it without doing the research, and without having the skills.

I also noticed after a time in the business a few guys that didn't drop out. I went to visit their facilities. They were sleek and streamlined, they had figured out ways to shave costs everywhere by fractions, and they had figured out ways to produce for just a bit less than the going sales price. They made a little on every unit, but plugged away every day. The business never made them zillions because prices were held down by the endless stream of people willing to sell under cost on the dream of the home-based business, but with skill they found a way to make solid money.

Back to the market. The few that learn how to effectively provide liquidity can make very solid money, in my opinion. And the market, being so near perfect, found a way to pay for the liquidity it needs to be 'efficient' by letting the unskilled providers compete with the skilled providers, and the most skilled keep the money. This doesn't actually extract any money 'from the market'. Even if it did, like insurance, every fund, every stock buyer, every participant would be willing to pay a tiny fraction per share for the assurance there would be lots of people to take the other side of the trade when needed.

Imagine if, since the market is supposed to be 100% rational and efficient, what would happen if a news item came out on a stock, and everyone wanted to sell, because, after all, if everyone is rational they would all conclude the exact same thing at the exact same time, and there would be no one on the bid. Zero bid, stock price zero. Not good.

The bottom line is this is an argument that the market clearly needs 'liquidity providers', and they are mostly 'short-term traders', but that they needn't be paid, and all will have to pay for the priviledge of having the job. Although that may have been partially true with the item I mentioned above, a market as big as this one surely wouldn't expect that kind of contribution and absolutely no one gets paid. It's just not realistic. The market is happy to let the handful of highly skilled providers make money, it's a service provided to the market, and the market expects to pay for it. And hence the skilled handful make money.

Lastly, what you say about options is not mathematically feasible at all. I wrote this up in a free article on my website here:

http://www.kanetrading.com/free_art/options.html

The options model does not in any way favor sellers over buyers. If it did, as explained in the article, all money would flow from one side to the other, and the game would end because one side would have all the money (kind of like our trade imbalance with China if they didn't turn it back over and buy our bonds). It is a symmetrical model (plot it out and that is obvious), the expected value for both sides is the same. This is mathematically necessary, or the system would be unstable and would degrade. I also have a graduate background in mathematics, including perturbation theory, so I know you should be able to mathematically understand the concepts in my article, and the concept that it is a 'balanced' equation. It's completely a myth that sellers have an advantage. So, again, I am not sure why, with such an impressive mathematical background, you make so many arguments that aren't supported by the mathematics, and continue to state evidence that isn't supported.

Again, I'm back to this is a totally losing discussion. The point of this forum is to try to help people new to this to get on a solid path so they can learn and not waste too much time, and also for the higher level traders to discuss new ideas and push against each other for our mutual benefit. Although this is a fascinating thread, and I'm pleasantly surprised at the participation, it is going nowhere.

It is exactly like many religious discussions I have had throughout the years. In order to not offend anyone, I won't say which side I took. Point is, over many, many years and many discussions the one thing I will say is, no matter what I said, no matter what evidence I presented, not one single person changed what they thought by one single iota. Nothing I said or showed mattered, or could matter. They only repeated the same things, over and over. I realized it was pointless. It is the same here.

I make some good points here, mmartinez will come back and reiterate random walk and the sample size isn't big enough, and that we can't be making money no way no how, that we will give it all back, and so on. I could offer other evidence, he'll come back and repeat what he said, can't be done, sample size not big enough, and the endless loop goes on. That's why I said I was done. But interesting points kept getting made, so I got sucked back in. If this is actually a test to see how easily I could get pulled off my 'game plan' I better be extra careful tomorrow, because my confidence that I can stay with my plan just dropped a notch... :-)

Keeping in mind I'm on the side of practical trading and not academics, here a link for Lo's paper 'The Adaptive Markets Hypothesis, Market efficiency from an evolutionary perspective'. In here he equates the concepts of evolution with markets, as we have been discussing, and also refers to many of the outmoded notions on the random walk. It is worth reading for anyone interested in what we have been discussing.

http://web.mit.edu/alo/www/Papers/JPM2004_Pub.pdf

Here's another thought I had. With the random walk theory put to bed with the above material, I don't want to go on about how money can be made in random situations since this is now irrelevant to the discussion, but this is still worth mentioning. How do top professional poker players make money? You notice the same guys are always in there, making outlandish money? No way I think Doyle Brunson has been making money for over fifty years now and it is 'luck', or that Phil Hellmuth has won 11 WSOP bracelets because he is 'lucky', and so on. Yet poker is 100% random (unless the dealer is cheating). The cards are shuffled, and what each card will be is totally unknowable (since there is never a situation where 51 of the 52 cards are dealt and shown to all, hence we would know the last card).

A 100% totally random endeavor, yet the rewards are not evenly distributed amongst all the players, they are overwhelmingly distributed to the top grouping, based on for the most part, a repeatable skill at finding times when, and amounts to, bet so as to consistently profit handsomely from a totally random endeavor. Hmmm, sounds utterly impossible, yet we all know it to be so. The line of reasoning presented on this forum would have us believe these players are 'lucky', they will give it all back, that they can't be doing what they are doing, and so on. And this game is for sure random. Add in that the evidence shows the market is not random, and you have a scenario that may be better than poker, yet no trader can ever expect to be profitable over time?

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