I'm just getting started. I'm trying to specify what markets, time frames, instruments, systems, and strategies will best suit my strengths and where the professional traders won't have as much of an advantage. I'll lay down some thoughts on each, but time frame is specifically on my mind and the reason I'm posting.
Time Frame: It seems that day trading is one of the most popular time frames here. That also seems like the exact time frame where retail prop traders are at an extreme disadvantage. Compared to other time frames, the moves are quick and relatively small. I'd think this would benefit the pros who can take advantage of small moves will their large volumes and low transaction costs, can react quickly because they are full time dedicated to trading and have superior data feeds / systems. Compared to them, we are slow and have high transaction costs. Our advantage is that we have no restrictions on what we can hold over night or over several days (where their risk departments might require them to liquidate and not hold overnight.) That would lead me to believe that trading trends over a weekly/monthly trend would be better for us. What do you think?
Markets: I would think that equities (technology specifically) would be the best market. Maybe throw a little commodity futures in. Forex, interest rate instruments, bonds, etc all depend on macro-economic factors that pros are going to be much better at estimating than me. The same is true for equity valuations, but there is a possibility that I'll have superior assumptions about technology trends (thats what I'm hoping.) FX would be good for someone who thinks they'll have superior assumptions of mass human nature (Hari Seldon style) and will know that Trump gets elected or Brexit goes through and can trade on those assumptions. Why did you choose your market?
Instrument So that means the instrument can be stocks, futures, or options. I'm leaning hard towards options. Stocks don't have enough leverage. When I was younger I tried futures a wee bit. I found that setting stops was one of the hardest parts. If you use enough leverage, there is a very good chance you'll get stopped out and lose money even if you were going the right way. Options allow you to just make your position such that the loss you're willing to take is the total price of the option. You completely eliminate a hard decision and source of stress. Also, there are an extremely diverse mix of strategies to fine-tune your risk/reward and to take advantage of different market scenarios. What do you think?
StrategyThere are a couple dozen option strategies that can be fine tuned in almost an infinite ways. The pros that we are competing against may not influence this aspect as much. Risk/Reward, movement predictions, and transaction costs are bigger factors. Naked calls/puts seem to be the best simply because they have the lowest transaction costs. Buuuut, we must utilize the entire arsenal. Are any best? Should some be avoided? (Other than naked writing)
SystemI think this is what really matters. This is where the abilities of the individual trader really make a difference. I'm not really sure where pros advantage is less here. I'm currently working on. I think I'll be using a mix of fundamental and technical analysis. First, trade with the trend. For the most part, the stock market goes up and technology stocks will capture a disproportionate percent of growth in the future (obv different in a bear market). The fundamental part is really just the backdrop that will hopefully increase my odds. Technical analysis will be the bulk of the decision. I'm working on what criteria I should use. Follow some weekly upward momentum when the underlying is below a several month high? Get in after a low week? Get in when it gets near a short term resistance? Use one of the many other methods? I'm not asking you for specific answers(although I'd love to hear your system.) I'd like to hear your thought process.
Where am I wrong? Where am I missing important factors? Am I at least thinking about it the right way?
Time Frame: It seems that day trading is one of the most popular time frames here. That also seems like the exact time frame where retail prop traders are at an extreme disadvantage. Compared to other time frames, the moves are quick and relatively small. I'd think this would benefit the pros who can take advantage of small moves will their large volumes and low transaction costs, can react quickly because they are full time dedicated to trading and have superior data feeds / systems. Compared to them, we are slow and have high transaction costs. Our advantage is that we have no restrictions on what we can hold over night or over several days (where their risk departments might require them to liquidate and not hold overnight.) That would lead me to believe that trading trends over a weekly/monthly trend would be better for us. What do you think?
Markets: I would think that equities (technology specifically) would be the best market. Maybe throw a little commodity futures in. Forex, interest rate instruments, bonds, etc all depend on macro-economic factors that pros are going to be much better at estimating than me. The same is true for equity valuations, but there is a possibility that I'll have superior assumptions about technology trends (thats what I'm hoping.) FX would be good for someone who thinks they'll have superior assumptions of mass human nature (Hari Seldon style) and will know that Trump gets elected or Brexit goes through and can trade on those assumptions. Why did you choose your market?
Instrument So that means the instrument can be stocks, futures, or options. I'm leaning hard towards options. Stocks don't have enough leverage. When I was younger I tried futures a wee bit. I found that setting stops was one of the hardest parts. If you use enough leverage, there is a very good chance you'll get stopped out and lose money even if you were going the right way. Options allow you to just make your position such that the loss you're willing to take is the total price of the option. You completely eliminate a hard decision and source of stress. Also, there are an extremely diverse mix of strategies to fine-tune your risk/reward and to take advantage of different market scenarios. What do you think?
StrategyThere are a couple dozen option strategies that can be fine tuned in almost an infinite ways. The pros that we are competing against may not influence this aspect as much. Risk/Reward, movement predictions, and transaction costs are bigger factors. Naked calls/puts seem to be the best simply because they have the lowest transaction costs. Buuuut, we must utilize the entire arsenal. Are any best? Should some be avoided? (Other than naked writing)
SystemI think this is what really matters. This is where the abilities of the individual trader really make a difference. I'm not really sure where pros advantage is less here. I'm currently working on. I think I'll be using a mix of fundamental and technical analysis. First, trade with the trend. For the most part, the stock market goes up and technology stocks will capture a disproportionate percent of growth in the future (obv different in a bear market). The fundamental part is really just the backdrop that will hopefully increase my odds. Technical analysis will be the bulk of the decision. I'm working on what criteria I should use. Follow some weekly upward momentum when the underlying is below a several month high? Get in after a low week? Get in when it gets near a short term resistance? Use one of the many other methods? I'm not asking you for specific answers(although I'd love to hear your system.) I'd like to hear your thought process.
Where am I wrong? Where am I missing important factors? Am I at least thinking about it the right way?
How do you choose what pond to play in?
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