Monday, 16 August 2010

Reality Check

I had a comment in the EL Trader Training blog that really belongs here. I've reproduced it in full except  for a couple of lines where the OP is giving some incorrect legal advice.

There are a number of points raised that I would like to answer as answering them gives readers some good information. The OP's comments are italicised and mine are in red.
EL, I've read your description of the mathematics on which trading lies.  Seventy percent seems to be an awfully high standard can you demonstrate that you have the ability to achieve this?
 Yes I can. A large percentage of the attendees at the marathon training are now hitting the 70% to 80% win rate AND are profitable (some in SIM and some live).  Also, the DVDs of the training show me trading live while I am passing on the techniques to trade the pictures I trade.
If you didn't have the occasional runner would you be successful?
My methodology has a high win rate and profitability even without having a runner. Not all traders scale out. Some are all in, all out.
What is something unexpected happens? Even exchanges go down upon occasion.  Do you have a plan; e.g. hedging with options, etc?
Every trader should have a drop dead stop and targets in the market immediately after the position is put on. In fact, most broker front ends are designed to do this.
I simple see a risk:reward ration that doesn't allow for much error, where the left side is higher than the right (1:2) rather than a more comfortable (2 or better):1.
After stage 1 which is a break even stage, traders learn how to optimise their exits. The 70% plus win rate is critical to high profitability. It's clearly shown in the DVDs.
I've seen very few who can demonstrate that they earn a living by trading (please follow with the usual excuses,thank you). Gary Smith published his statement.  I've seen traders exposed as phonies, frauds, and occasionally thieves, and talked with brokers who've held accounts for other "big time" traders.
Yes, it's said that 90% of traders lose. Yes, there are phonies in every sphere of activity. I'd be surprised if brokers spoke to you or to anyone about any clients' profitability, especially high profile ones.
  I do not think that your method can be proved statistically over time especially if you are trading with an account where your risk exceeds %1;
 It has been proven statistically by computer back testing to be both profitable and have a high win rate. Also, students are proving the same thing every week with their own testing and trading.
about $40k for ES (3 lots). Your adjustable stops are a convenient tool for fuzzy logic logic and bad trading when your edge is a razor's edge.  When you bail early and dodge the bullet, and when you let it ride, become arbitrary and lead to losing trading. Sorry, but I make the rounds once in a while and I use MP so I see your blog mentioned.  The reason I take the time to write is legitimate I think: I really would like to see if you could be profitable.  It helps me think about your method and decide again that I doubt it's for me.  Also, How many students jumped on board? Do they know the details of brokerages and exchanges and how stops are held?  Do they have other accounts and escape from catastrophe plans?  Do they realize that they will have no legal recourse with a broker or exchange because only God has enough attorney to seek legal council for said purpose?
 Shepton, I feel your pain. Having individual failures as a trader is the usual. You are part of the 90% but if you develop the skills, discipline and the right mental attitude, put in the hours and hours of hard work, things can change. It requires a structured and systematic approach to the learning. Using building blocks to build a strong financial and mental structure.
And your student, do they have and extra $25k or so to lose as they learn.  Sorry, I don't have the citation but I believe the average successful trader spends in the area of $100k before reaching profitability?
My students are taught to perfect their trade in SIM. By the time they have progressed through the 7 or so Trading Plans, they are experienced and Consistently Profitable in SIM. All that is then required is to take the next step to Live. Traders do not risk ONE CENT before they KNOW that they can trade profitably. This is the beauty of SIM. It's not perfect but it's obvious to a trader that he can trade profitably. After SIM, it's easier to only have to resolve that issue of going LIVE than to try and resolve trading issues which we resolve in SIM.
................ I think there was a second daughter coming into the scene? That's where I thought this is a little um, too neat.  The training program was to be short and sweet, not a career? New training website? Hope I'm wrong.  ** This is strictly meant as a "buyer beware" message " -- part opinion but without accusation of wrong doing by me -- As with trading the consumer of any like service should be fully aware of the arrangement into which they enter.  Seek advice. Visit http;// as a matter of routine.*** I suppose you won't post this message but I may look for some posting of students elsewhere to see what they have to say. 
Why are you so angry about me teaching. If there were no teachers then people would find it hard to gain knowledge.  I have 4 grown kids. I love them all and help as much as is needed. When C. told me she wanted to go into the trader education business after she had helped me getting my marathon training going, I had to say "yes". That's what Dads do.  Besides, I found that I really liked to teach and felt I was making a difference. I am looking forward to teaching a short class 3 or 4 times a year. Additionally as cliche as it sounds, it also keeps my own trading sharp.

I realize that you sell the perfect method and people would still lose money.  We aren't in general good as seeing our own faults. - Shepton

Shepton, don't ever under-estimate the amount of time and effort that is required to become a consistently profitable trader. The competition out in the market is huge. You are trading against banks, quants, computers and lots of smart people. As I often quote: " the harder I work, the luckier I get".  As a final analogy, I'll end this blog entry with this story. One of my nieces just graduated from a Big 10 college in the U.S.  She had to attend summer school to take one final class that she couldn't seem to get her head around for the fourth time. It took her that many goes to "get it". Her mother paid four times for her to do that same course. Without her hard work and determination she would not have finally succeeded. This the least that is required to become a consistently profitable trader.

Todays's chart: Euro FX future, good trading market again today. FX volumes remain high as business carries on.


  1. Hi EL,

    You mentioned several times the time that each bar takes to complete. This period of time is very usefull as you said. The shorter the period of time, which each bar needs to take to complete, the more momentum there is in the market. The longer this time, the more choppy the market is. This period of time indicates the activity. I wonder whether you use this period of time. Can you include it in your charts as an indicator? Is this period of time for completion of a range bar a criteria to take a trade for you?

    Thanks a lot!

    Best regards,

  2. EL: how do you decide which market to trade every day?

    I've seen you mention ES, ESTX50, CL, 6E, BD and you typically post one chart per day, but I'm curious to know..
    - if you pick one contract to trade in the morning and stick to it all day? or just the morning then switch to something else in the afternoon (london time),
    - do you have several trades going on in parallel?
    - do you have one preferred contract for each time of day? (based on typical activity)

    Is it all based on anticipated volatility/activity or is there something more fancy to it? Thanks!


  3. J, I usually have a look what happened in Asia overnight and also what the "tone" of the day's news is and what "numbers" are due. I usually only trade 1 market at a time but sometimes I make the mistake of trading 2. Typically, I'll look for a trade in the ESTX50 and then switch to the ES a couple of hours after the open.

  4. Hi EL,

    I've been looking at my interpretation/derivative of your method on ES & EuroFX. I find the EuroFX is a bit too whippy for 5-6 tic R bars - for me. This is only based on eye-ball back tests.

    Do you have different range bars for different markets? I was under the impression they were all 5 tick range bars. Correct me if I'm wrong.



  5. EL: Thanks for your reply.

    Btw, what system do you use to enter your trades?
    TWS? or brackettrader? Thanks.


  6. Nick, the longer the bar, the larger the stops. Try 9 ticks on the 6E. It works well for me too. I use different range bars for different markets. eg, for CL it's 0.2. I want smooth vertical development without too much overlap and as little noise as possible.

  7. EL,

    As someone who has been following your blog from the beginning, I believe you've been very clear that your trading methods are not purely mechanically. I have not seen this as a weakness of your system, just a characteristic, but it might be a weakness for this particular writer. That's not a judgment; it's why we must each define trading plans that fit our personality.

    After much preparation, I've recently shifted to part-time trading after 20 years in software development. I fully intend to SIM trade until I'm consistently profitable and confident in my own plan. Thanks for all of your words on these subjects.

  8. EL - You were to nice to Shelton...from another "successful" trader to another...Shelton does not stand a chance in trading...He is looking for the perfect trading world. It doesn't exist!! He doesn't have the fortitude and the understanding of what it takes to make it in this or any other business...which leads to the high failure rate. But this business is no different than any other...there is a high failure rate in any business...or any endeavor you wish to pursue. Shelton, if you are currently trading, I want to thank you for filling my account...I appreciate it. And, oh, may want to keep your "job" until you understand that to get over that imaginary wall you will have to scrape, dig, claw and fight your way over it...and when you get there (which I hope you get to experience someday) prepared to take on the doubters concerning your success, even if you show them your statements to prove it. Let me leave you with this...The definition of success is "the willingness to bear pain, over come the the challenging thoughts that enter your mind and stay focused on the outcome"! Unfortunately most can't get past the "pain" thing. Best of luck.


  9. Samer, yes, how long a range bar takes to complete is very significant. I don't use an indicator to track but they aren't hard to construct.
    J, depends on which broker I'm using. I do like bracketrader for IB. Infinity's front end is good too.

  10. Yes, best of luck to you all. I'm afraid I got over the "pain thing" about 15 years ago. I trade longer term. I found that out on the floor of the CBOT. This is what Pros do in good part; i've met more brokers who were former traders. Yes the broker told me of one well known hoodlum. A couple new companies have come to light and are public knowledge. One, at least is still in business (I realized that the worst have no shame). There are many who have rooms and are well intentioned (even a 13 year old who learned to trade from a reputable firm).

    Does everyone here know that servers at the CBOT used to go down? OCO's are not held on them anyway. I use a remote connection (less than 1 ms bandwidth on their end). Yesterday a fiber cable on the east coast was cut and Zenfire feeds were dropping outside NYC.

    Oh, I do know someone who makes a lot of money scalping...his initials are GS and I just happen to know a programmer (now VP). I'm old enough to know and have dined with a VP at Lazard in his 5th Ave apt. (not far from the Met Museum), or his son's girlfriend who's father, another Investment Banker, who's 4 story townhome was a short cab ride away (mum and pop lived in Paris and commuted to London). He didn't scalp. He made it the old fashioned way, he moved around a lot of money.

    I actually look in on El because I still find it interesting but would adapt it for my own use. I felt a bit uncomfortable as his story unfolded. First time I read the blog it was "free", then a small class (one time only?), now a small university is it? Good stories draw people in.

    I realized that over time trading is part of my investing plan, AND I feel more comfortable in this market than the stock market. BUT if you don't have a comfortable pension set aside and a few hundred thousand locked up, I would consider your position.

    I have resigned myself to not making $20-50k per week. That's not what this is about. I like trading and I have another life, family, home, etc.

    Oh, just be mindful of what you're doing for Pete's sake. Some people can teach, most can't. I played the best game of golf (which I don't really aspire to) when my mother watched and instructed me. She couldn't play to save her life.

    SHEPTON (as in the OE, Scaep + tun, or sheep enclosure you ninnies). Shepton Mallet, Somerset, ring any bells?

  11. Is Shepton on drugs?

    I don't see what his fantasy friends have to do with this. How do you get from OCO orders to commuting from Paris in 5 sentences?

    Pass the joint Shepton, you've had it tooooo long!