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.

Andrew Lo et al absolutely did not refute that asset prices are unpredictable. To the contrary, they state that prices cannot be predicted. What they were doing with their studies was looking into the assumptions behind market efficiency. They said that their results have no practical value. They were (and are) mathematicians who spent effort trying to find whether there are non random elements, and determined that if there are, there is no way to take advantage of it.

What this means to you and me: attempts at pattern guessing are futile. Prices are unpredictable. In any and all time frames. It doesn't matter if you're trying to predict tomorrow's opening or next year's price.

Please refrain from saying you "know traders who are consistently profitable". Hearsay means nothing.

The only people making money from financial markets are the people at the source of the money. There's many ways they do this, trading is not a factor. These are the "skilled people" you refer to. Everyone else - including you and I - are the "unskilled." The reason you are unskilled is not because you are unlearned or uneducated or stupid.
It is because you're not at the source of the money. You're not the one making the rules. you're not an insider. You're not the smart money and never will be unless you move to Wall Street and fight your way up. No amount of real-time quotes and Bloomberg and dedicated link from your house to the Exchange will change this fact.

About options: options and derivatives are products designed by investment banks who create them specifically to give the best odds to themselves. Once they unload these things onto the market, they don't care what happens to them. You and I can trade them, but there's no particularly good reason to. (As an interesting side note: random walk theory is used in pricing derivatives. In fact that's why the random walk math exists. It does the job better than any other pricing model).
Good job. You win. I'm going back to trading GLOBEX right now instead of posting any more. I hope I can keep a streak going long enough to retire. I'd rather be lucky than skilled anyway. Bye. Enjoy the forum. See the rest of you in the other threads. And thanks to those who posted positive comments and enjoyed what I showed.
Jim, thank you for taking time to post your thoughts on the subject, I always enjoy your insights.

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.

This is your opinion. My experience proves otherwise. I am not real big on theory or simulations, so you will have to grant me the flexibility to approach this problem from my real-world experience.

Mathematically, in this game (using real market data), there exists a probability associated with each possible reward and loss. This will create a normal frequency distribution centered at zero. This tells us that my "lopsided" reward of $3 will occur more frequently than a $4 reward and less frequently than a $1 reward. Conversely a $1 loss will occur more frequently than a $3 loss. The more "lopsided" the reward, the less frequently the reward will occur. Likewise, the closer to zero we move the reward, the more frequently the reward will occur. Also, a $1 loss is no more likely to occur than a $ 1 reward, both will occur with the same frequency. Thus, in our game a $ 3 reward will occur at a lower frequency than a $1 loss. Out of this we will produce a win% and loss%. From this we can calculate a minimum win% required to break-even, above which the equity curve rises and below which the equity curve declines. This is not my opinion or your opinion, it is the mathematical basis underlying the free market.

This construct is flawed however, because it assumes the market is range bound in price. When price moves in a sustained trend, the trend introduces a directional bias into the frequency table. Meaning, in a trend, the frequency graph skews away from the center line in the direction of the trend. So in an uptrend, the frequencies skew to the plus side of zero, and likewise in a downtrend the frequencies skew to the minus side of zero. In our example, if we only took trades from the long side, and prices are moving in a sustained downtrend, then the frequency of losses will be higher than would be if there was no trend in prices. This is the mathematical reason why trading signals generated by price oscillators blow up in a sustained price trend. For example, in a price downtrend, the price oscillator emits an unusually high frequency of buy signals, but the frequency histogram of outcomes at that moment is skewed negatively, leading to a series of small losses in a row. In this case, the frequency of buy signals is higher than normal, but the probability of a $ 3 win is much lower than normal, and the probability of a $1 loss is very high. This distorts the loss% and win% and leads to an equity curve drawdown event. Which introduces the point Jim made in his earlier posting: traders adapt. Understanding this frequency histogram bias (either consciously or intuitively), an adaptable trader learns to avoid "fighting the trend", and not enter new long trades in a sustained down trend. Instead, the nimble trader will exploit the skewed frequency histogram, entering new short trades on sell signals and exiting them on the buy signals. Suddenly (all be it temporarily), the probability of a $ 3 win is actually higher than the probability of a $ 1 loss ! In my recommended test, I was purposefully being generous in granting you a 50/50 outcome. In my real world trading experience of exploiting the skewed frequency histogram associated with a sustained price trend, the probability of a $ 3 win is in the range of 60 to 70%.

I have to say this is a very interesting forum, but I would like to address mr m martinez post.You maye be right thaT markets are random and therefore unpredictable from a science perspective. However to say based on that comment that no one can make money trading thew is without doubt absolute rubbish.

The markets may not be able to be predicted what can be predicted though is human behavior toward the information provided within the markets and the reaction to these news events, its called emotional content fear and greed look at your charts they are people like you and me trying to trade these markets emotion drives markets and I know several top top traders who make not money but fortunes from pure trading and they work very hard at techniques to read these markets I have never heard so much negativity yes the markets are predominately talked up by bubblevision and ceos and goverments, what is our jobs as traders is to compute that info and then compute how the markets participants compute it before you take a trade its based on what you belive and dont beleive but the self negative talk about I can never win the mkts are unbeatable is I am sry my opinion absolute rubbish I trade mine s and ps everyday and make money so I am none one special Ihave just worked at it try spending your energy on wrking at it rather than wrking at excuses as to why so many fail.
I will give you that answer is an easy statement I go to many seminars and meet doctors lawyers and more proffesions that want to do the hardest job in the world agst the brighestest quants and hedgefunds in tghe world and they want someone to tell them how to do it for a few hours a week and make a fortune. Thats why the mkts is full of stories of failure if you went to a weekend seminar and trained to be a crimnal lawyer for 2 days and turned up to represent a criminal agst a seasoned pro, who lived and breathed the law, not only would you be laughed at you would be torn to shreds to think you could attend a weekend seminar and pass yourself of as a a criminal Lawyer. The same rule applys to anyone who thinks he can trade without the proper dedication. I respect your view but have to respectfly disagree. CHECK THESE SITES WWW.HARMONICTRADER.COM AND KANETRADING.COM and you will meet 2 people who blow everything you said away they are the real deal I know because I trade with them everyday.
Originally posted by pt_emini

Jim, thank you for taking time to post your thoughts on the subject, I always enjoy your insights.

I appreciate that, PT. I always enjoy anything you post.
Just so no one else feels slighted, BruceM, CharterJoe, JBWTrader, thanks for the great feedback.
Trading (intra-day) this week was choppy. As happens occasionally I did post a losing day on Monday, but managed to eek out a profitable week

All of which leads to a little lesson in reality and a testament to the power of persistence in the face of less than ideal conditions. The discipline to stick with the method and trading plan through the inevitable rough patches is necessary, sometimes you just have to have faith in your method, keep your losses small and press forward.

Anyways, here is a summary of my results for the week (all results are per contract):

Avg Win = $ 104
Avg Loss = - $ 64
Avg W/L ratio = 1.6
Avg. Trade = $ 25

Max Win = $ 259
Max Loss = - $ 118

Avg MAE $ 52
Avg MFE $ 74
Max MAE $ 150
Max MFE $ 288

Win % = 53 %
Thanks for posting that. Not many traders are willing to show their numbers when it was a tough week (or whatever period) for them. My own personal belief is that one of the key aspects that separates the long-term professional trader from the rest is the ability to stay cool under fire, to just remain calm and steady in the face of adversity. Take periods of drawdown (the more one is a trend trader the more one will experience drawdown, and the more one 'scalps' the more it will tend to be a flat, choppy curve during tough times, in my experience) in stride without gettting off the plan.

The 'expected value' for your series is what you have labeled as Avg. trade, the $25. So, you know how to calculate expected value. For everyone else, it looks like this here:

.53*$104 + .47*(-$64) = $25.04

This is what can be expected, over time, per trade, if the sample series is representative. As discussed in the other topic I referred to in a previous post, notice the size of the profit per trade. In this case (admittedly a tough week PT said), it's $25 per contract, or 1/2 a point. What prompted that other thread was all this talk of 20, 30, 50 point winners that were easy to catch. I wanted to show what I considered 'real' professional stay at home trading to actually be like. An average of 1/2 to 1 point can be quite outstanding.

Assume the person trades ten times a day, reusing the same margin, of course. They would then net $250 per day, per contract. To make the example easier, say they used $2,500 margin (much lower is available). If you use higher margin, or your broker requires higher margin, just recalcualte this with your own numbers. And keep in mind I am not recommending a specific margin here, just playing fun math games. Then in this situation the return per day is 10%. Without compounding, it would be about 2,500% per year, per contract. This number is not affected by the number of contracts traded, beyond liquidity and fill issues.

So, how does all this help a struggling trader reading this? Personally, I think PT is one of the very top professionals at this forum. Although he admitted this was a tough week, and those are tough stats, he was still in the range of 10% profit per day, which is nothing short of sensational in my opinion, he also did this averaging 1/2 point per trade. I have found the money is made just like this example shows, in small average increments. Exploiting an edge that, across all the winners and losers, is small, but adds up nicely in trade after trade.

So, when trying to devise a plan and make adjustments, if what you are striving for, what is making you make adjustments, is unrealistic, you won't likely make good decisions. If you see how other professionals are doing it, you can devise something that fits things as they are, or at the least as they are for someone who has been at the game for a long time.

Finally, the thing I think is curious is the MFE is only $288. That speaks to the 'chop week'. Look at the previous post PT made, and the biggest winner he listed there. I think it would be great if you could redo this after a better than average week, PT, so everyone can see the range of what one might experience. Thanks for the stats, I love to crunch stats out for people.

As an aside, most people in here are 'scalpers' in the sense of low confirmation entries right in the area, quick profit targets before momentum fades (or fades very much). That what I call a 'scalper', just my own working definition. I am on the other end, as a trend trader, albeit an intraday trend trader, too, when it comes to ES. I look for plenty of confirmation, and I let moves play out in full, and then let the market come back in and tell me when it is over. I look for about 3-4 setups per average day. I think PT is somewhere in the middle, or actually does both, because with that big winner in his previous post I know he isn't just scalping. He can comment on his style if he wants to elaborate for everyone.

Here's my point. In comparing the 'scalping' and a style like mine, I find that although the latter catchs some 'monster' runs, the average trade, the 'expected value', is usually pretty close to the same, unless a small sequence is looked at when a streak happens. If one catches three winners on day one and three winners on day two and no losers, the average will be very large. But over time, taking into account streaks the other way and drawdowns (trend traders live in almost perpetual drawdown, it's the way it works, with big pops here and there), the average is pretty similar. I would say it is about the same as what PT would find on a larger series of his trades.

Again, the point is, scalping for a few handles or catching and holding the big runners, the money is still made the same way, keeping the small difference between the sum of the winners and the sum of the losers, net overall. That's the edge, and except for rare circumstances, it's pretty small, and that's fine. Picking up nickels in front of bulldozers. I hope this helps.
Jim - Thanks for your detailed analysis !

In answer to your question of trading style. I employ two basic strategies: one is a faster short term technique and the other is more positional within the larger intra-day trend. For the quicker strategy I exit at a single profit target, and in the positional strategy I usually exit at 2 or more profit targets. I am not so concerned with the time spent in a trade, instead I am focused on the price targets I am aiming for. Obviously close targets are hit a lot faster than targets further away from the entry. In terms of trading frequency, I am averaging around 6-8 trades a day, with one or two positional trades a day on average.

This week, I had a couple of good days, one of which (Wednesday) I had no losing trades. Monday was a slow starter (got behind early in the morning and spent the remainder of the day climbing out of that hole). Each day ended with a profit, so no losing day's. Overall another slightly below average week in terms of performance, unfortunately no big runner this week (sorry Jim, I was hoping for one)...

Avg. Trade = $ 34
Avg. Win = $ 148
Avg. Loss = - 76
Avg. W/L ratio = 1.95
Win% = 49%

Max Win = $ 345.0
Max Loss = - 142.5

Avg MFE = $ 108
Avg MAE = - 64
Max MAE = - 137.5
Max MFE = $ 362.5

(all results are per contract).
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.