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> Where the
> difference was clear, however, was when the tourists were in town, it was
cold
> and rainy, and taxis were at a premium, which was largely unpredictable.
If it's raining in Newark, Jersey City, and Hoboken, I'd guess there's a
statistical
probability it'll rain in NYC soon too :-). I bet it'd pay for cabbies to
check the
NWS radar, sports and entertainment schedules, time off day, etc.... They
might
even want to run a hypothetical on "CabStation" or "NeoCab" software ;-).
On a similar note, assuming the original poster has a positive expectation
method,
I'd expect he'd see better performance if he drove the trade until it stops
"raining."
>From my experience, most of the time, holding winners into the close (or
beyond)
improves performance. That said, there's no free lunch: bigger drawdowns
often
come with holding "winning" trades longer. It's a trade-off and everyone
needs to
know their own tolerance for pain vs. gain.
Now, as Mark Simms pointed out, if you have a negative expectation method,
the
longer you hold, the faster you lose.
"It's simple, but it ain't easy,"
BW
----- Original Message -----
From: "TaoOfDow" <TaoOfDow@xxxxxxxxxxxxxx>
To: "Brian Keith Voiles" <admagic@xxxxxxxx>
Cc: "Rich Tuchow" <rtuchow@xxxxxxxxxxxxxxx>; <omega-list@xxxxxxxxxx>
Sent: Saturday, November 17, 2001 5:20 PM
Subject: Re: Profit Taking
> Dear Brian, Rich, Group, et al.,
>
> Brian, your note brought up for me an academic study that I read several
years
> ago about taxi drivers in New York City. There, the economics of being a
taxi
> driver is that one does not own one's own cab. Instead, one becomes
associated,
> as an independent contractor and not as an employee (for reasons of
minimization
> of the risk of legal liability), with one of several taxi companies in
NYC.
> Then, whenever one wants to drive a taxi (which, because the driver is an
indep
> contractor, is entirely in his or her discretion), one reports to the taxi
> company and leases a cab for what I recall is a 12-hour period, at a fixed
rate,
> something like $75 for the period, on the understanding that the driver
keeps all
> the fares he or she collects during the period. So, the deal is: A fixed
cost
> for the use of the cab during the period + 100% of whatever you collect.
These
> economics for taxi drivers are similar to those for private traders, such
as us.
> We put up $$$ for our equipment and real-time data for the day (in fees,
rent, or
> amortization of expenditure) and keep all the profits (or losses).
>
> What the academics found when they interviewed the drivers was that upon
leasing
> a cab for the 12-hour day, the drivers largely adopted one or the other of
two
> strategies:
>
> 1. Drive all 12 hours, in the attempt to maximize their total collections
for
> the day.
>
> 2. Drive until they collected an amount that each driver, on his or her
own, had
> predetermined, after which they would turn the cab back in and call it
quits for
> the day. Here, for example, if the driver's goal was to collect $200
during the
> day, if he did so before the end of the 12-hour period, he would quit
early and
> take home $125 for the day, after having paid the taxi company $75 for the
day's
> lease of the taxi.
>
> The academics then analyzed the statistics of who made what and how. What
they
> found was that the drivers who drove for the entire 12 hours consistently
not
> only made significantly more money on a daily basis but, as I recall, did
so even
> on the basis of hours driven. (This possibility arises because the
drivers who
> drove until they collected their predetermined amount necessarily quit
before the
> end of their 12-hour period if before then, they had collected their
> pre-determined amount). While the academics could not prove it, they
speculated
> that these results arose because of what they saw as a random fluctuation
in the
> demand for taxis from day to day --- specifically, they speculated that
such
> demand is largely a function of the amount of tourism in NYC: when there
are lots
> of tourists in NYC, the taxis are full and vice versa. This is random, in
the
> sense of being unpredictable, in that no one really knows when the
tourists are
> going to descend on NYC. Some days, particularly when there are lots of
> conventions or some other big event, like the World Series, they're there;
other
> times, they're not, leaving the taxis are largely empty. The academics
also
> speculated that demand turned as well on the weather, which may be even
more
> unpredictable --- when its cold and rainy, people want taxis; when it
isn't, they
> don't.
>
> What the academics furthermore found was that but for the periods when the
> tourists were in town etc., it really didn't make much difference which
strategy
> the drivers employed --- they all made about the same money per hour of
driving
> --- when you drive more, you make more money, as one would expect.. Where
the
> difference was clear, however, was when the tourists were in town, it was
cold
> and rainy, and taxis were at a premium, which was largely unpredictable.
But
> when one or more of these factors did occur, the 12-hour drivers made
> significantly more money than did the "drive to a pre-determined amount"
drivers,
> which seems to make sense --- one makes make money as a supplier when
demand
> increases.
>
> Now, I am assuming that one's purpose for driving a taxi is to maximize
one's net
> profit per unit of time expended, and not out of a desire for public
service or
> meeting people or the sheer pleasure of driving around town, by oneself,
with
> others, or whatever. Given that purpose, the first basic question facing
a taxi
> driver is "Am I going to drive today?" If you're not going to "drive"
today, it
> doesn't make any difference whether the tourists are in town or not, what
the
> weather is, or whatever --- you ain't gunna make any money because you
ain't
> drivin'. But as long as a driver has made the decision to "drive" today
in the
> attempt to maximize one's profits on a time basis, and as long as nobody
can
> predict when the tourists will hit town, or will it rain and be cold, and
if a
> driver has already paid the $75 for today and is now driving, then
according to
> what these academics found, the driver should continue to drive to the end
of the
> period no matter how much fares have been already collected today. This
is
> especially true if, during the day, the driver believes that the tourists
are in
> town, it cold, or its rainy. But it also makes sense to continue simply
in the
> hopes that the tourists will show up, or it will turn cold or rain during
the
> remainder of the period. Its makes sense at the margin --- it doesn't
cost you
> any more to continue driving because you have already paid your fixed
cost, so
> all the remaining profits are the driver's without any effective set-off
for
> costs. Regardless of whether the driver continues because he is having an
> especially good day or on the hopes that his day will become an especially
good
> day, it makes sense to continue, because that is when the demand for taxis
(which
> cannot effectively be predicted) increases and gives the driver the
opportunity
> to make unusually large profits. This opportunity will be forgone if the
driver
> call it quits early, after collecting a pre-determined amount, and turn
his cab
> back in. The nut of this situation seems to me to be that the time it
takes to
> collect some pre-determined amount of profits doesn't have anything to do
with
> the demand for taxis today. If anything, those two variables seem to me
to be
> inversely correlated. If demand for taxis IS high today, then one will
likely
> collect one's pre-determined amount more quickly, and given that
situation, that
> is the very time when one's expenditure of his or her own time driving
taxis will
> be exceptionally repaid in profits. As such, this is just the time when
it is
> the most economically counter-productive to quit driving --- this is the
time
> when one should drive no matter what, in order to maximize one's net
profits per
> unit time, and resist the temptation to quit early, after having made some
> predetermined amount especially quickly.
>
> This situation with the taxis sounds to me similar to the situation with
> trading. Who knows when a trend will begin, but for a trader, just like a
taxi
> driver, the time to be in the market is when it is trending, as it is then
and
> only then when the market gives a trader the opportunity to make unusually
large
> profits, which the trader will forego if he or she call it quits early,
after
> collecting a pre-determined amount, and goes on with the rest of his or
her day.
>
> The concern that Rich expresses in his note, in which you sound in
harmony, is
> the inability to predict whether an incipient market move will peter out
after
> 3-5 points or extend for 10-15. And the concern that you specifically
express is
> the efficiency of quitting the market after having made some
pre-determined
> amount of profits. These concerns sound similar to the questions facing
NYC taxi
> drivers: Are the tourists in town? Will it turn cold? Is it about to rain?
Does
> it make sense for me to drive today, and especially to continue to drive
once I
> have already paid my daily lease fee (regardless of how much I have
already
> collected today)? If these concerns are similar, then the results of this
study
> of NYC taxi drivers suggest that for taxi drivers as well as traders,
higher
> profits per unit time expended can be realized by employing a strategy of
working
> through the day as opposed to quitting after reaching some pre-determined
amount
> of profits.
>
> I hope the foregoing discussion provides some encouragement for you to
reconsider
> your decision and see if it best fits your goals.
>
> Sincerely,
>
> Richard
>
>
>
> Brian Keith Voiles wrote:
>
> > Rich,
> >
> > I am in the exact same boat as you. I think it's a personal matter,
really.
> > My daily goal is to make 4 handles... $1000 less commissions. I break
> > my daily goal into two, two-handle trades. Then I turn off the
computer.
> >
> > If I lose 4 points, I call it a day, as well. That's the max I'm
willing to
> > lose on any given day.
> >
> > As my account builds, it's my intention to trade 2 lots, 3 lots, and
> > eventually 4 lots. (Right now I can't "see" past 4 lots -- maybe when I
> > get there...).
> >
> > I think the reason I've chosen to do it this way is because I don't
really
> > perceive myself as a "real" trader. Let me put it differently: trading
is
> > not who I am -- it's what I DO to facilitate the living of my dreams.
> >
> > In other words, I don't want to eat, sleep, and breath trading 24-7.
> > I use the $1000 a day (soon to be $2000, then $3000, and then
> > eventually $4,000) to allow me the time freedom and money freedom
> > to live my dreams. Which for me is:
> >
> > 1) being a great "stay at home" dad for my kids
> > 2) writing and studying music
> > 3) writing inspiring stories and books about life
> >
> > Having said all this.... it would be really nice to let the profits run
> > on occasion. I haven't found a "real" answer to your question. For
> > I, too, have had the same experience in the past as you have... that
> > of:
> >
> > "It seems that every time I grab the 3-5 point profit the trade
> > goes on to 10-15 points and every time I let profits run, the 3-5 point
> > profit disappears. I am not particularly found of trailing stops
> > because I have to be willing to give back a fair amount of profit."
> >
> > This is my experience as well. BUT... that's what led me to the
> > decision I've come to: "Make 4 Points Today, Then Go & Play"!
> >
> > I'd love to hear what other feedback you get. Please keep in
> > touch... I'll add you to my list of S&P traders whom I try to keep
> > in contact with.
> >
> > Warmly,
> > Brian Keith Voiles
> >
> > At 08:34 AM 11/17/2001, you wrote:
> > >I am an S&P day trader and keep going back and forth in my mind my exit
> > >strategy. There are 2 schools of thought 1)let profits run 2)don't try
to
> > >be a pig on every trade. It seems that every time I grab the 3-5 point
> > >profit the trade goes on to 10-15 points and every time I let profits
run,
> > >the 3-5 point profit disappears. I am not particularly found of
trailing
> > >stops because you have to be willing to give back a fair amount of
profit.
> > >Others use a staggered exit strategy such as take 1 contract off at 3
points
> > >another at 5 another at 8 etc.
> > >
> > >I would be interested in hearing only from successful S&P day traders
which
> > >school of thought they follow.
> > >
> > >Thanks
>
>
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