I am glad that my post on futures trading is getting some attention. Over on Tyro Trader’s blog, John asked, legitimately, where did CalTrader tell people they should quit their job?. And, he’s right, CalTrader did not come out and say: Quit your job and make a living off a $5k stake. But, I could tell from the waves that $8k/hour story was making that it was capturing people’s imagination. And, that’s dangerous to people that don’t know better.
Check out this comment I found on the Fly on WallSt. blog
I just tried to trade the futures for the first time and lost 20 points on the DowEmini. Little did I know that each tick was more than 1$ and I had bought 20 contracts. So my account was officially cut in half. Damnit why the hell does everyone make it seem so easy. Every f**king guru is making money but I lose thousands. F**k it.
… and the post was in reference to the enthusiastic futures-trading comments that CalTrader has been leaving around. I don’t hold CalTrader or anyone else responsible for this person’s obvious, let’s say, terrible judgement. But, it’s a sad effect of too much hype, and I’d like to counterbalance it anyway I can. After all, the whole purpose of Move the Markets is to help beginning traders succeed.
I see that Ugly agrees with me on the dangers of stirring up unwarranted excitement:
I am sure many blog readers will lose all their money because of the futures trading hype that has been going around recently, despite the warnings. That is a shame.
But Let Me Be Clear
I am not saying that futures trading is too hard, or cannot be done responsibly. I also have nothing against Cal Trader, and hope he succeeds, and blogs about it. I’ll be right there, reading it and learning what I can from it. But if there’s one thing that Fooled by Randomness taught me, it’s that you have to be very careful when separating out luck and skill. It’s hard to do. Here’s one reason why:
They make it look so easy!
Consider two hypothetical traders with blogs in late July. One says “I’m going to show you how I can easily double my money trading options,” and loads up his account with SPY puts. The other says “I’m going to show you how I can easily double my money trading options,” and loads up his account with SPY calls. Neither of them says much about their risk of ruin, beyond some fine print about how some risk-averse people might not be comfortable trading that many contracts.
A month later, the trader with the calls announces victory, and suddenly there is a lot of interest in his “strategy” and market timing ability. The other trader takes down his blog and everyone forgets about him. So, later when some wannabe who hates his day job does web searches, he only finds the “successful” options trader. It’s like a speculator version of the survivorship bias. It puts stars in people’s eyes. It’s what makes people go to hollywood and try to get in movies… they don’t see the 200 waitresses for every actress who manages to get a bit part.
Did that successful blogger tell the newbie to quit his job, and do I blame the successful blogger for spreading misinformation? No on both counts. The successful one may not even know about good risk management, so it would be silly for me to expect him to explain that information to others. But big talk coupled with big gains == an undeniable influence.
Summary
When someone is succeeding despite taking on too much risk, that doesn’t make them good; that makes them lucky.
I’m not saying anything about CalTrader’s skill or prospects for success… I don’t know anything about that. In fact, I’d love to know more about it… I would be first in line (and kicking down anyone in my way) to make 20% a day if there’s a sane plan behind it. :-)
December 20th, 2006 at 8:14 pm
I think a lot of people are ragging on Cal because his post made it seem like he was beating his chest and it also sort of reeked of spam (just like all that spam email I get about 100% returns guaranteed).
I, for one, am with you on this one. If Cal can post great gains and great trading days, then fantastic! In fact, I hope he does…but when you haven’t proven a thing yet, the general public tends to think it’s just a bunch of hot air.
Let’s hope Cal posts daily and show us his progress…otherwise he’ll be another “I told you so” cases…
December 20th, 2006 at 9:29 pm
I can’t comment on Cal now. Like what J.C has commented, I hope to read his trades (if he intended to post!) later. I am not judging him, I would be very interested in knowing about his way of earning big in futures trading. :)
Before that, everything is just a hype.
December 21st, 2006 at 6:50 am
great post richard
December 21st, 2006 at 7:30 am
I agree with Richard. Cal is writing his blog for himself and sharing it with us. Every trader worth his salt should know his own risk/reward and comfort level in taking the risk.
December 21st, 2006 at 7:36 am
richard: after reading the fly’s site, wouldn’t it be funny if this was actually a master plan to generate subscribers to a teaching service…i didn’t really think about it until i saw what the fly said…it almost looks like spam
December 21st, 2006 at 7:46 am
@john: that would explain why it reads the way it does. Seems like a lot of trouble to go to, when you can make a perfectly good living by just throwing a few ads on a site. ;-) I just hope the comment I quoted was actually a joke from ‘anonymous’
December 21st, 2006 at 8:02 am
richard: i was talking about cal, not the comment…i linked to what i thought was a futures blog, but did a search, and he spammed everyone — he was also selling his sure fire methods…it appears the fly thinks that is what cal is doing
December 21st, 2006 at 8:05 am
I’m happy for Cal.
I have to remember that I’m living proof even a blind hog can find slop occasionally, so I don’t begrudge anyone their gains, lucky or otherwise. I can’t comment specifically on Cal’s strategies since I don’t know them.
I do know that there is a precise relationship between Position Size, Margin, Stop Loss, and Risk of Ruin. Will expound on this tonight when I have more time.
December 21st, 2006 at 8:05 am
yeah, I got what you were talking about–I was changing the subject with the sentence about the comment.
December 21st, 2006 at 8:40 am
Aw, it’s easy to make a small fortune trading futures. It’s just you have to start with a large fortune.
December 21st, 2006 at 9:19 am
gururu: lol
December 21st, 2006 at 2:15 pm
IF YOU CAN’T QUANTIFY YOUR RISK AND THE PROBABILITY OF RUIN BEFORE YOU TRADE THEN YOU ARE SIMPLY GAMBLING.
I TAKE ANYBODY’S REPORT OF PROFITS/LOSSES SIMPLY AS ENTERTAINMENT UNTIL PROVEN.
FEW IF ANY WILL ACTUALLY PRODUCE AN AUDITED REPORT OF TRADING RESULTS. DAN ZANGER DID IT A FEW YEARS BACK. HE IS THE REAL DEAL.
December 21st, 2006 at 3:33 pm
@GX, well, keep that risk in check and maybe one day you will be able to afford lowercase keys. It’s unusual, but you appear to be overcapitalized.
Hey, maybe DAN ZANGER can front you the money for a complete keyboard, so the rest of us don’t have to suffer in the meantime?
December 21st, 2006 at 6:02 pm
LMAO @ ‘Overcapitalized!!!’
December 21st, 2006 at 6:21 pm
CalTrader said:
“The Chicago Mercantile Exchange just enacted a new rule allowing a person/institution to trade a maximum of 10,000 contracts. If you scalped 1 point on 10,000 contracts, that’s a profit of $1,000,000.”
What about a potential loss of 1,000,000? I wonder if the guy ever thought about the fact that the trade might very well go against him.
I remember reading somewhere: “the pros always think about their risk first (and have a plan to control it), while newbies tend to think only in terms of “potential” profit.”
When I first started trading, and made a few lucky first trades, I had the same thought: if only I had maximized the number of shares I could have won big. The thought that the trades might go against me never seemed to occur. Only after a few big losses that I started to realize risk control is the most important part of trading.
December 22nd, 2006 at 3:50 am
Hey, anybody remember “Market Monk” from last year? The guy was printing money — $1000’s of dollars a day. I forget what his goal was — something like “make $1,000,000 trading futures by December.” Hehe. On paper, he did it in less than 4 months. I actually archived his blog using Onfolio because, in spite of the hype, he did seem to have some interesting things to say in his daily analysis. Lots of folks were trying to figure out who this guy was and, of course, whether or not he was legit.
Then the other shoe dropped. Near the end, after “showing” how he had turned a pittance into millions, he threw out his offer to teach anyone his strategy if they were willing to put up something like $5,000 or $10,000 and sit at his trading station every day.
Needless to say, he seems to have disappeared (along with his blog). I read on some other board that there was speculation he was some guy from Tampa who had been associated with some other guy in LA (who, supposedly, wasn’t on the up-and-up). Go figure.
Ah, yes. I just found the link discussing Market Monk on Elite Trader:
http://www.elitetrader.com/vb/showthread.php?s=&threadid=51597&perpage=6&pagenumber=1
It’s an interesting read. Enjoy.
December 22nd, 2006 at 10:46 am
Judging by your blog I can see you are a WORK in progress. Yes, you are right I am OVERCAPITALIZED.
December 22nd, 2006 at 11:11 am
@GX: yep, in a way that’s the point. I don’t ever plan to stop learning. You seem to be a good example of why that’s important. Feel free not to come back.
December 22nd, 2006 at 11:38 am
GX,
Your caps lock is stuck to “CAPS LOCK” ;)
December 22nd, 2006 at 11:57 am
Keep learning, it won’t change the fact you will always be a little leaguer at best.
Fortunately for you, you can always dream.
And yes, I won’t be back to engage you with your childish banter.
December 22nd, 2006 at 4:59 pm
T’Worm,
Your catfight w/ Fly seems to have spilled over onto this blog, even though the participants have changed. Quick, bring TraderX to beat some love into these combatants !
December 23rd, 2006 at 4:37 am
[...] Am I Negative on Futures Trading? [...]
December 23rd, 2006 at 7:03 am
I haven’t seen this comment yet but it was the first thought I had on reading caltrader’s I made X$ post.
One trade was for 99 e-mini contracts with only a 50k account. I have never traded more than 1 e-mini contract for every 15k of my account size, possible I’m the odd cog out here though. Trading 99 for only a 50k account is extreme leverage I think. I haven’t been bothered doing the maths on how great your ‘high probability’ setups would need to be to avoid risk of ruin on that account size but it would need to be ‘uber’ high probability I suspect. And who doesn’t think they just take high probability setups? :)
It will be interesting to see how this story develops, I’m sure to learn something new and probably be entertained in the process.
December 23rd, 2006 at 7:21 am
Actually it was only 90 contracts, not 99.
http://tinyurl.com/y4p9tx
Don’t trust anything you read in blogs, or in comments :)
December 23rd, 2006 at 5:24 pm
90 contracts on a $50K account is 127.8:1 margin assuming a 1410 S&P.
Too rich for my blood.
Good luck.