New to trading futures contracts -- input needed ?

[WDCRob]

Re: New to trading futures contracts -- input needed ?

Here's the thing. There is someone better at every aspect of ... trading than I...

I'm with Grape in that I know I just don't have a skill for that sort of high-pressure, detail-oriented work. I'm good at strategy and seeing the big picture, but I'm mid-pack at tactical level and short time horizon decisions. So a trader I'll never be and I try to hire people who are better at those things than I am in the workplace.

But, I've been wanting to ask this Q for a long time....do any of the serious investors here believe that ANYONE can "trade" (and I mean daily or hourly) and consistently beat the market for a period of decades and across all market conditions?

[Spartacus]

Re: New to trading futures contracts -- input needed ?

Hourly trading at a profit? Probably impossible.

High frequency trading, even if you make high profits at it, generates high transaction fees - your expenses wipe you out.

Lots of trading systems are advertised as money makers, but these almost always lose money if you account for trading fees.

But, I've been wanting to ask this Q for a long time....do any of the serious investors here believe that ANYONE can "trade" (and I mean daily or hourly) and consistently beat the market for a period of decades and across all market conditions?

[grapejelly]

Re: New to trading futures contracts -- input needed ?

do any of the serious investors here believe that ANYONE can "trade" (and I mean daily or hourly) and consistently beat the market for a period of decades and across all market conditions?

It isn't easy to answer this question, due to survivorship bias. Nassim Taleb in Fooled By Randomness explores this in detail and I highly recommend this book -- it changed my life.

Here is a thought experiment that shows this: imagine 1000 investment advisors on year 1. 500 say "buy x" and 500 say "sell x". At the end of the year, 500 will be right. Year 2, 250 of these say "buy x" and 250 say "sell x" and again, 250 will be right. Year 3, 125 of the remaining 250 say "buy x" and 125 say "buy y". Leaves 125 right, and the next year, year 4, 62 say "buy x" and 62 say "buy y" and 62 are right for year five, when 31 say "buy x" and 31 say "buy y".

Now still standing, year 6, are 31 incredible, amazing investment advisors who have been right year after year!

If you look at the 31 and ignore the other 969, you are victim of survivorship bias.

So, the issue is, that out of many thousands of traders, some traders will be successful year after year after year, just by the survivorship bias.

How do you know that a given trader who is in this successful group really knows her stuff, or if she is merely lucky?

So another ingredient besides track record is needed: an explanatory theory that they are operating under. If you can examine this theory, say a trading system that can be evaluated, and if this is sound, then you can be more sure they can repeat their performance.

I do believe there are people like this, but not many.

Further, there are people who in a Darwinian sense are very suited for a given financial environment, but when that changes, like the dinosaurs they will die out. For instance, people who are perpetual bulls and buy stocks on dips, did very well in general from 1981-2000. But when things changed, they stopped doing so well.
The classic example of this is Victor Niederhofer, who made a lot of money selling volatility -- selling extreme out-of-the-money S&P puts I believe. That makes a little bit of money per transaction. It does so 99.999% of the time. But that one time, the Black Swan event, happens (it is much more likely to happen than the mathematical models say, fat tails and so forth) and Victor gets wiped out, and loses hundreds of millions of dollars.

LTCM is another example -- vacuuming up nickels as they said -- until one day, events that can never in all probility happen in billions of years of investing happen, and they get wiped out. The Nobel prize winner strategist at LTCM were suited in a Darwinian sense for uncorrelated markets. When things changed, their strategy was found wanting.

So the answer to this is a subtle thing. I tend to believe more in investing through long term fundamentals, but I do believe some traders can make consistent money over decades in many different markets. Identifying these people is beyond my abilities.

[bart]

Re: New to trading futures contracts -- input needed ?

Since Bart is too modest to mention it, I will ... you might check out his site ... NowAndFutures.

My two cents: Be careful! As GJ notes, margin is the big risk. Leverage can wipe you out, even leave you with less than your original investment.

It's a seductive thing, because when you enter a contract, you usually only have to put up a small percentage of the notional value. But that "small percentage" is NOT your investment, it's just a security deposit. You are financially exposed for the entire value of the contract.

I would urge anyone considering futures to start out without margin. Remember the margin requirement is only a minimum. You can always post more, and limit your exposure to the equity in your account if you wish. Then as you gain experience, maybe consider, say 50% margin or 2:1 leverage. Whatever you do though, never enter into positions whose aggregate value exceeds the amount you are willing to lose, even though the required margin is much less.

Thanks Fin and good advice, especially for someone just starting out with futures. I generally seldom post on threads involving futures, even though I've been trading them for many years, because of being perceived as promoting them.

It's a rough game and most lose at it. I did put up a page on them with some hopefully helpful data here.

[bart]

Re: New to trading futures contracts -- input needed ?

It isn't easy to answer this question, due to survivorship bias. Nassim Taleb in Fooled By Randomness explores this in detail and I highly recommend this book -- it changed my life.

Here is a thought experiment that shows this: imagine 1000 investment advisors on year 1. 500 say "buy x" and 500 say "sell x". At the end of the year, 500 will be right. Year 2, 250 of these say "buy x" and 250 say "sell x" and again, 250 will be right. Year 3, 125 of the remaining 250 say "buy x" and 125 say "buy y". Leaves 125 right, and the next year, year 4, 62 say "buy x" and 62 say "buy y" and 62 are right for year five, when 31 say "buy x" and 31 say "buy y".

Although many of Taleb's points are good and helpful, I don't care for his approach or analysis. Not only is he down on TA (technical analysis) which works for many, but there is an implied "box" that mathematical analysis like his will put one in.

As always though, if it works for one to help make higher returns then use it.

[fightthepower]

Re: New to trading futures contracts -- input needed ?

Going to toss my hat in the ring trading futures contracts. I have read up what information I can find online and in my Jim Rogers book. Looked about setting up an account on Interactive brokers site or Lind Waldock.


I 've got my arse covered with bullion and bonars and have a stable secure job.

Input folks ????? Currencies, PM's grains ?????

I see the best value in Cotton.