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MadMarketScientist

Who Makes More Money?

Who Is More Profitable?  

46 members have voted

  1. 1. Who Is More Profitable?

    • Short term trading (shorter time frames, scalping)
      73
    • Long term trading (longer time frames, swinging)
      93
    • Investing (Warren Buffett style)
      36


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most powerful force in the universe - compounding interest/inflation :2c:

 

Unless of course you want to say i made 100% in a few days.

There are benefits to both depending on circumstance, but IMHO if you talk about absolutes and the most money - there is no debate assuming you are profitable - one has a 'glass ceiling'

 

For many of those really profitable scalpers - ask - are they scalping or market making, HFT?

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I saw a report on Bloomberg about a HFT firm that makes $300,000 on average EVERY DAY in the ES alone.

 

I thought that was pretty cool.

 

I think it's more about the velocity of money. You can certainly make a lot of money very quickly if you have developed a skill in short term trading - thats why so many are drawn to it.

 

However, the shorter the time frame, the more adaptable you have to be if you want to keep making money. This makes it more difficult as it's way more competitive.

 

Looking at the other end of the spectrum, investing is perhaps more certain, but the rewards will be lower.

 

SIYUA makes a good point about compounding interest for example. However, at the moment, that gig is bust. Consider this:

 

Inflation is approx 2-3% (assuming you're in the western world)

Margin rates are typically 4-6% to finance positions

Tax will be say 20-30% of any profit.

 

Given a bank deposit will be paying out around 3%, you will lose money (inflation will take away the returns - which will be taxed).

Given govt bonds are paying out 2-4%, you will lose money.

Good dividend paying stocks will return 5-6% - you will lose or scratch after bro' - assuming the price remains the same.

Given good investments (structured products, hedge funds etc) are yielding 10% if you're lucky, you may end up with say 2%. Most are returning 6% or so - so again, you will end up just above 0.

 

These figures are approximations - and just there to show that at the moment, yield investing is dead - until interest rates start to rise again. Speculation is the only choice at the moment.

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Tax will be say 20-30% of any profit.

 

Hi Dude,

 

My understanding was that the likes of Warren Buffet avoid taxation through a variety of measures, such as purchasing puts to lock in profit on a position rather than selling to close - with the profits insured in this way they then borrow against the stock they hold - and there's no tax on borrowed money (even though you can still buy mansions and yachts with it).

 

How easy it would be for the average investor to implement these measures I don't know.

 

BlueHorseshoe

 

ps. I continue to be mystified by the reported earnings of HFT firms in CME markets - they're FIFO - just how the hell do they do it!?!?

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Hi Dude,

 

My understanding was that the likes of Warren Buffet avoid taxation through a variety of measures, such as purchasing puts to lock in profit on a position rather than selling to close - with the profits insured in this way they then borrow against the stock they hold - and there's no tax on borrowed money (even though you can still buy mansions and yachts with it).

 

How easy it would be for the average investor to implement these measures I don't know.

 

BlueHorseshoe

 

ps. I continue to be mystified by the reported earnings of HFT firms in CME markets - they're FIFO - just how the hell do they do it!?!?

 

But you still have to pay borrowed money back - or do you let them keep the stock (purposefully default) and not roll over the puts?

 

BTW, my figure above re HFT was wrong - it was closer to $400k per day!!!

 

High-Frequency Trading Prospers at Expense of Everyone - Bloomberg

 

Although not a big fan of 'trading books', Irene Aldridge's High Frequency Trading explains the basic algorithms and concepts if you're interested and have a good understanding of maths, stats, equations etc.

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I think it's more about the velocity of money. You can certainly make a lot of money very quickly if you have developed a skill in short term trading - thats why so many are drawn to it.

...............

SIYUA makes a good point about compounding interest for example. However, at the moment, that gig is bust. Consider this:

 

 

Good point....absolutely the velocity of money is important if its profitable.......you will still hit the ceiling, plus scalping v HFT v market making - i think these need to have clear distinctions.

 

Re the compounding of interest - i should also have added the compounding of profits (either corporate or speculative).

 

for me the issue is the scalability will limit you.

Otherwise....who one scalper might make more than a swing trader for the same amount of money......until you change the amount of money.

 

Blue - a lot of taxation issues revolve around "where are trading decisions made/implemented" - the server might be in one country, the business might be in another.

The regulatory taxation arbitrage is pretty good (getting harder), whereas the effect of compounding often elinimates the requirement for taxation to reduce the long term profits.

ie; you as an investor are better than the government at making money.

 

So - leave tax out - too many variables

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My understanding was that the likes of Warren Buffet avoid taxation through a variety of measures, such as purchasing puts to lock in profit on a position rather than selling to close - with the profits insured in this way they then borrow against the stock they hold - and there's no tax on borrowed money (even though you can still buy mansions and yachts with it).

 

That is very interesting ... thanks for that golden nugget!

 

MMS

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But you still have to pay borrowed money back - or do you let them keep the stock (purposefully default) and not roll over the puts?

 

Thanks for the Aldridge tip - most of the better trading books that I've read have been those recommended to me on TL. :)

 

BlueHorseshoe

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I'm totally going to do this the next time I want to cash out my $200MM in company shares

 

MMS

 

Are moderators allowed to be sarcastic? :)

 

See the proviso at the end of my original post: "How easy it would be for the average investor to implement these measures I don't know" . . .

 

BlueHorseshoe

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See the proviso at the end of my original post: "How easy it would be for the average investor to implement these measures I don't know"

 

Average investors can totally do this, I was just being making reference at the fact some people are cashing out $200MM! Geez ...

 

MMS

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Average investors can totally do this, I was just being making reference at the fact some people are cashing out $200MM! Geez ...

 

MMS

 

Assuming there is some sensible postion sizing going on, then the mind really boggles when you consider the size of the portfolio they must hold!

 

BlueHorseshoe

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So what does everyone think? Do scalpers collect enough pennies throughout the day? Or do the swing traders make more compounding their position?

 

MMS

 

 

Maybe the questions should be more specific. Are we talking about retail traders or specialized firms?

 

E.g., retail traders cannot copy the trading techniques of HFT firms, but at least they have a fighting chance to copy swing trading or "certain" investing techniques.

 

Note: I say "certain" in the latter sentence, as the investing techniques of Buffett - to which the poll relates - are not that easily to copy... the various books describing his "value investing" style do not reveal in detail how he developed the foundations of his huge fortune. I've read once an interview with someone who followed his paths for many many years (forgot who it was) and this person said that Buffett made his fortune mainly by taking controlling interests in companies and influencing the way the businesses are run, which is basically the private equity model of investing; hence, difficult to copy by retail investors (yes, he must have been successful before in order to be able to buy controlling interests). Maybe there is even more to it, but what I'm saying is that there is more to it than just 'buy what you understand' and 'buy cheap' (I'm simplifying here) and you'll get rich... Not saying though, that this is a bad idea to invest like that, but many authors writing about Buffett's style sell it like everybody can do it... this sells the books much easier than telling everyone that it's "slightly" more complicated than that...

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Maybe the questions should be more specific. Are we talking about retail traders or specialized firms?

 

E.g., retail traders cannot copy the trading techniques of HFT firms, but at least they have a fighting chance to copy swing trading or "certain" investing techniques.

 

Note: I say "certain" in the latter sentence, as the investing techniques of Buffett - to which the poll relates - are not that easily to copy... the various books describing his "value investing" style do not reveal in detail how he developed the foundations of his huge fortune. I've read once an interview with someone who followed his paths for many many years (forgot who it was) and this person said that Buffett made his fortune mainly by taking controlling interests in companies and influencing the way the businesses are run, which is basically the private equity model of investing; hence, difficult to copy by retail investors (yes, he must have been successful before in order to be able to buy controlling interests). Maybe there is even more to it, but what I'm saying is that there is more to it than just 'buy what you understand' and 'buy cheap' (I'm simplifying here) and you'll get rich... Not saying though, that this is a bad idea to invest like that, but many authors writing about Buffett's style sell it like everybody can do it... this sells the books much easier than telling everyone that it's "slightly" more complicated than that...

 

I agree with what you're saying about the institutional/retail dichotomy. In fact, as far as HFT is concerned, even being 'institutional' is far from sufficient - the HFT firms basically make money by milking the liquidity provided by other institutions.

 

However, Buffet may be almost uniquely imitable amongst investors . . .

 

All institutions are required by the SEC to report long equity positions within 45 days of the end of each quarter using the 13F form. So shortly after Buffet/Berkshire buys shares in a company you can do the same. This wouldn't work for tracking a fund with shorter holding periods - they might already have closed out the position before the end of the reporting window. But Buffet's holding periods are famously "forever".

 

You can retrieve any fund's holdings by visiting the EDGAR database here:

 

Filings & Forms

 

BlueHorseshoe

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I agree with what you're saying about the institutional/retail dichotomy. In fact, as far as HFT is concerned, even being 'institutional' is far from sufficient - the HFT firms basically make money by milking the liquidity provided by other institutions.

 

However, Buffet may be almost uniquely imitable amongst investors . . .

 

All institutions are required by the SEC to report long equity positions within 45 days of the end of each quarter using the 13F form. So shortly after Buffet/Berkshire buys shares in a company you can do the same. This wouldn't work for tracking a fund with shorter holding periods - they might already have closed out the position before the end of the reporting window. But Buffet's holding periods are famously "forever".

 

You can retrieve any fund's holdings by visiting the EDGAR database here:

 

Filings & Forms

 

BlueHorseshoe

 

 

You are right about that. But doing that won't make you a billionaire within the next 40-50 years (he will be gone soon anyway and nobody knows whether his successor(s) can maintain the returns he was able to generate), i.e. his returns were much higher at the beginning of his career than they are now. Not saying that it does not make sense to copy his positions, though.

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So what does everyone think? Do scalpers collect enough pennies throughout the day? Or do the swing traders make more compounding their position?

 

MMS

 

Thanks for brainstorming! For me, both can make significant money. variable is time and price, but controllable factor is you. The contest is in the future.

 

Cheers,

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The Scalper trades with lower risk whereas the Swing trader has larger risk (Stop Loss) - so it is highly dependent on the risk tollerance of the trader.

Some scalpers can make +500% in 3/4 weeks and others struggle to make 25% in a week.

Swing traders can place trades on several charts and make good profits, perhaps not in a week but certainly over a month.

The pressure on a Scalper is enormous - that is why they, for my money, are the traders who can make the most.

No one can say with any certainty who makes more money over a given period, but short term potential it is the Scalper who will win out - but at a stress cost.

I always say, if you can trade the DOW, you can trade anything.....

TEAMTRADER

TL.pdf

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for me the issue is the scalability will limit you.

Otherwise....who one scalper might make more than a swing trader for the same amount of money......until you change the amount of money.

 

 

this is really the essence isn't it?

 

A competent trader will make the most money by trading the smallest time frame that can accommodate their account size and time allocated to trading.

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A competent trader will make the most money by trading the smallest time frame that can accommodate their account size and time allocated to trading.

 

As you reduce the timeframe though, and the average profit along with it, your costs (spread, slippage, commission, exchange fees etc) remain pretty much fixed per contract/unit.

 

BlueHorseshoe

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The best of the best ( Buffet, Soros, and similar) make on the average 25-35% per year over long term ( over their life time as traders). You have to keep that in mind when some claim 100% or more return, bcos it is not going to last ( if it is even true). Anyone can have a good run, for a while and project that long term, but it is not realistic.

 

Just imagine if you can do 500% a year... In short time you would be able to buy universe thanks to compounding effect :)

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I remember as a child debating with my buddies who was the best baseball player.

 

Then I grew up. :shrug:

 

And eventually the discussion lead to why one was better\different than the other ... and hopefully you remembered that lesson the next time you were on the field. And don't you have fond memories of being a kid? Growing up sometimes sucks doesn't it?

 

MMS

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And eventually the discussion lead to why one was better\different than the other ... and hopefully you remembered that lesson the next time you were on the field. And don't you have fond memories of being a kid? Growing up sometimes sucks doesn't it?

 

MMS

 

i did laugh at Suntraders comment however - never loose that sense of imagination, awe and wonderment MMS :) and even worse dont grow old before your time and become a grumpy old man claiming - it was better in my day......WALOR

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    • I'm gonna pull a crazyCzarina and reply to a long dead post ... One sure thing about trading forums - The great questions never get an answer.  Ask  even the greatest posters a great question... silence, no nothin’, not even crickets.          First a few comments about Elliott Wave Wave Theory is a ‘science’ of socionomics.  Socionomics is about how societal ideas ‘ideally’ or typically unfold -  wave 1 is the early adapters, wave 3 is broad collective acceptance, wave 5 is continuing valuation narratives but with narrowing collective assessment of actual value... with all kinds of ‘ideal’ sub patterns... Socionomics starts with a simple observation: For lots of issues, how people FEEL influences how they will BEHAVE.  (Equally true = How people BEHAVE influences how they will FEEL... but that’s for another topic) Anyways... Elliott Wave theory is an attempt to apply socionomics  to trading   - and  yes analyst75 “theory” is the key word.  Imo, it’s a jump too far.   First, price is not a good metric for socionomics.... especially across decades when currencies are being viciously  'corrupted'.   And practically, socionomics does not transfer over to trading nearly to the degree Ellioticians would like.   It simply does not deliver enough of those ‘ideal’ sub patterns because  crowds of traders’ behaviors and ‘feelings’ about pricing are not sufficient equivalents of broader collective behaviors / socionomic waves... ESPECIALLY as time frames shorten... (ie waves may appear to ‘fractal’ down ... but they really don’t.)   If you’re going to use EW to trade, probably the most important point you can acknowledge is that 5 wave patterns are EXCEPTIONS to normal trading crowd behavior ie  the best thing a 5 wave pattern indicates is that corrective patterns will soon resume.  I’ve described it differently in other posts*  ... but basically, at any given point in time it is possible to reasonably project that ANY freakin wave ‘count’ / pattern will enfold.   It is just as reasonable to project that a nice 5 wave completion will go on to a nice 7 or 11 or 17 or whatever wave count as it is to project that the market will now have a ‘trend’ change.  At the end of any nice 3 wave corrective pattern, either projecting a huge 5 wave pattern unfolding in the other direction or projecting a long flat congestive pattern or another 3 wave correction pattern... or... all are equally reasonable.  Or, a pretty wave 1, 2, and 3 doesn’t not mean a pretty wave 5 will unfold.  Ie it’s just as reasonable to count it over and project that the next sequence will be corrective or a 5 wave impulsive move in the opposite direction. etc etc       ... to get back to the unanswered question - So what do you propose as an alternate? Long ago I read Hurst.  In a short section of his book he mentioned it.  It didn’t sink in.  Then one day it really hit me.  There is no Elliott wave sequence or any other ‘technical’ price pattern that cannot be better explained via ‘summation of cycles’ ...   * fun example can be seen by searching for 'trading chaos by bill williams' thread on t2w ... TL is so special we don't even allow links to other trading forums? ... other snarky EW comments at http://www.traderslaboratory.com/forums/topic/7555-do-you-use-the-elliott-wave-to-trade/page/2/?tab=comments#comment-146022      
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