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Howard,
Your thoughts are certainly just as insightful as Rich's initial taxi post!
There is a vast difference (in my mind) between driving and running
an independent taxi business and trading. Mainly the mental aspects
that come in to play along with the mental fatigue.
Thanks a ton!
Warmly,
Brian
At 09:51 AM 11/18/2001, you wrote:
>Hey Brian,
>
>Though the taxi driver example sounds like a good reason to trade all day it
>is not applicable to trading for the following reasons:
>
>1) Once the taxi drivers make $200 do they stand a chance of having to
>return part of that $200 (besides gas costs) if they don't generate any
>additional fares or have a couple bad fares (unhappy riders)? The answer is
>no. In trading you can give back your profit of $200 AND go debit! The
>taxi driver example doesn't take that into consideration.
>
>2) Though I've never driven a cab I have run retail businesses where you
>are deciding how many hours to put in to maximize revenues/profits. You can
>stay on the job longer as a taxi driver without losing money due to loss of
>focus or fatigue. Loss of focus and fatigue are destroyers of a trader.
>
>3) The taxi driver example is focused on maximum profit/revenue without
>regard to what satisfies the desires of the taxi driver. If he is happy
>with his $125 he will probably be a better taxi driver. If he's happier and
>nicer to riders he will probably get better tips and reach his goal that
>much faster. Plus don't forget an important thing, if he does his job well
>and riders reinforce the fact by giving better tips AND verbal appreciation
>he will probably take pride in what he's doing and feel good about himself.
>Why is this important for a trader to understand? Because I've been there
>many times mentally beating myself up for quitting too early and missing
>opportunities, staying around too long making mistakes and losing money,
>etc.. If you set a daily goal and reach it then you've done your job well.
> You can feel good about your trading and yourself and THIS is what the
>ultimate goal should be.
>
>4) This then leads to the real question we all must answer... What is our
>goal??? I've struggled with this in the past and am still struggling with
>it. I daytrade the S&P's and puke trades too quickly. The way that I've
>tried to overcome that is with exit rules (which I am still trying to
>consistently follow). FOR myself (and EVERYONE is different) I found that
>taking a multiple contract position is the best way to go. I usually take
>three contracts per account and peel them off one at a time. It feels great
>when I lock in a handle to handle and a half profit on my first contract.
>With a little profit in under my belt I'm more objective and less emotional.
> I then bring my stop up on the other 2 and look for my next
>support/resistance target to exit another one. Then I TRY to hold the last
>one for a big gain.
>
>5) I read a quote last night off www.innerworth.com. I don't have it in
>front of me but to paraphrase: 'The difference between a professional
>gambler and a professional loser is that a professional gambler gets up and
>leaves the table when he has reached HIS goal. The professional loser stays
>at the table until he's lost all his money and has got to stop gambling.'
>Taxi drivers don't have to combat the inner demons that may cause a trader
>to force himself out of the game.
>
>Just my thoughts,
>Howard Hopkins
>
>
> >From: Brian Keith Voiles <admagic@xxxxxxxx>
> >Reply-To: realtraders@xxxxxxxxxxxxxxx
> >To: TaoOfDow <TaoOfDow@xxxxxxxxxxxxxx>
> >CC: realtraders@xxxxxxxxxxxxxxx
> >Subject: [RT] Re: Profit Taking
> >Date: Sat, 17 Nov 2001 22:50:40 -0700
> >
> >Richard!
> >WOW!... thank you so-o-o-o-o much for your thoughtful, meaningful reply.
> >I really appreciate your insights, and I know they will benefit me greatly.
> >Warmly,
> >Brian
> >
> >At 06:20 PM 11/17/2001, you wrote:
> > >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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