Wednesday, 31 October 2018

You Only Need to be Smart Once

When I started this blog back in 2009 I started talking more about order flow. In those days seeing order flow was more difficult so we used indicators to see order flow's footprints. Then things got better as technology improved and we can now see raw order flow, measure it and analyse it. This was a quantum leap.

During the last 20 years or so the algos have become more pervasive. To many, this has been a bad thing as the algos took away the edge they had, especially the guys in the pits. On the other hand, we electronic locals have thrived if we embraced the so=called new normal.

The next evolution was the Big Bull Market that came out of the crisis of 20072008. Interest rates became zero and stocks became the only game in town.

All change. We now live in an environment of divisiveness
  • USA v China tariffs and more
  • United Kingdom v EEC (Brexit)
  • Zero Interest Rates v Growing Interest Rates
  • Trump v anti-Trump
  • Republican v Democrat (not the same as above)
  • racist v anti-racist
  • and more
The product of all this divisiveness is volatility. We can live or die by the tweet, at lest as far as daily P&L is concerned. The daily and intra-day charts show how this is playing out.

Retail traders/customers have long been the cannon fodder of the Wall Streeters. This has changed for a lot of us as we use technology to put ourselves on an even playing field with "them".

So what has the medicine been?

There are two ways of making money as retail short term traders:
  1. Be very good at reading and trading order flow. Sit at our workstations for a session and be highly focused and take what the market gives us. Be smart every day, every hour. This is doable. Very doable and if you have learned your craft very well, have the right technology and even just a modest amount of capital then there is money to be made, and,
  2. Be smart once and develop an algo that just keeps on giving with a modest amount of gardening.
Wall Street had the same choices. Banks have/had huge trading floors with rows and rows of desks full of traders each trading his bit of the book. Every 8 hours the book was passed forward to the next time zone.

That has changed.

The banks have gone the technology route and so have I, mostly. Quants are the Kings of Wall Street.
I trade as a discretionary trader just on hour or two a day and not every day now. But my fleet of algos trade almost 24 x 6. How do you eat a cow? Just one bite at a time. For example, one of my ES algos just made this one trade yesterday.

That trade made $200 per contract less fees. Now multiply that by 20 or 30 algos or more, each working almost 24 x 6, and on any one day some making money, some losing money and some not trading. If Ive been smart once then the math works for me and I can harvest good profits every month with about an hour and half of effort every day at a time of my choosing.

We can all be electronic locals, just like the big banks.

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