Sources of Funding?
Hello everyone,
I've been extremely successful in paper trading for the past 4 months or so. I was up 35% after the first 2 and a half months, and then I got my system down much better. Throughout the last 6 weeks I've grown my portfolio by 113%. My gains were very steady during this period, usually between 1% to 4% daily gains. I haven't closed out of my trades at the end of the day in the red once for the past 6 weeks.
I am paper trading because I'm still a college student who doesn't have access to the funds required to day trade without commissions taking a big chunk out of any profits I could get. I'm wondering if there are institutions or individuals that would allow me to pitch an investment proposal to be funded. I know I can trade with an extremely odd amount of reliability, so I'm hoping there are places/people out there which I can attempt to convince. I've done my own research, but I figured you guys would have more insight.
Any suggestions?
Just keep growing your bankroll and work a job to have more funds to put towards it. If you work for that money you won't be as careless with it. I would advise against taking out loans or using margin at this point until you get some more experience. And just remember, it might get you some money in the short term, but don't drop out of college or anything for it. With that said, ride that wave and make it rain.
No worries, I plan on obtaining my undergraduate degree. I'll be working next year too, I was just hoping there might be a faster way to get the money. Excited to trade is all, so I'm also a bit impatient haha. But I might just have to suck it up and do some work.
Well, think about the inherent contradiction in what you have stated. You're paper trading successfully, but you think that commissions will take a big chunk out of your profits. As a potential funder for your strategy, I would immediately tell you to stop wasting my time. If I were feeling generous I would suggest you come back when you can come up with a more realistic estimate of your PNL.
At any rate, I have to tell you that what you have to show here is really not worth mentioning to anyone. Specifically, 4 months of "successful" paper trading conveys no information whatsoever about either your strategy or yourself. I am sorry to be so blunt, but I think it's important to manage your expectations.
No need to be sorry, the bluntness is welcomed. I don't have much to go off of here. But with that said, I think what I've been able to do during the 4 months is very promising. And if I were actually making a pitch to a potential funder I would certainly provide more information about my trading system and its results.
But there isn't a contradiction in being successful at paper trading but unable to actually trade due to commissions. I only have $2000 in my bank account. Even making 1% to 4% by the end of the day won't be of any help because it takes me 10-20 trades to actually do that. The lowest commissions I've seen for discount brokers is usually around $5. For a buy and a sell, each trade costs $10, and $10 multiplied by 10-20 trades is $100 to $200. Or 5% to 10% of my starting capital. Trading with such a small amount just can't be profitable under these conditions. Not for my system.
That's the reason why I'm curious to know if there are people or institutions that I could make a pitch to. I understand the chances are slim, but I'd like to give it a shot. Even if I were to be shut down it would be a good experience. In my opinion anyway.
Would you happen to know how I could contact such potential funders?
Like I said and with appropriate acknowledgement of hard work that you appear to have done... Please believe me when I say that you currently don't have anything to contact potential funders with, especially since your strategy is discretionary, rather than systematic. You need to collect a lot more metrics along the lines of what ArcherVice is talking about before your idea/pitch can become marginally viable. Most importantly, these metrics need to be based on the performance of your strategy in the actual mkt, rather than a demo platform (for instance, I am pretty sure that the only reason you could utter something disconcerting like "liquidity is not an issue" is that you're trading on a demo). Even after you do all this, the hurdles you would face would be great.
As to the specific transaction costs issue, I understand your point about the amounts you need to pay for execution. However, you have to realize that having more capital doesn't imply solely that your transaction costs are more "affordable" (lower as a fraction of capital). It also implies that you need to execute more size and would therefore require more liquidity. This is something that a demo platform would never convey accurately.
If memory serves, I had a couple of discussions like this with people who had somewhat similar questions on another board (Trade2Win), although it was a long time ago.
4% daily gains? son, that kind of leverage can get ugly fast...
I don't use any leverage, just my own (fake) cash. I'm good at reading daily charts, particularly when big upswings or downswings are about to occur. And I get out of the trade the moment it doesn't go the way I had anticipated, which happens around a third of the time. So losses are tiny, I use my own cash, and the gains are typically big and more frequent.
Like I said in another post though, it takes roughly 10-20 trades for me to have a 1% to 4% gain by the end of the day.
Alright I'll bite. What is your average MAE, MFE, BSO? (Maximum adverse excursion, maximum favorable excursion, best scale out). How many trades per day? How long do you hold trades? What product do you trade? Do you hold overnight? How many trades are in your sample size? How much leverage do you use? What is your maximum risk per trade? What is your profit factor? How do you size your trades? Is liquidity an issue? Are you micro day trading, scalping, macro day trading etc?
I don't know my MAE and MFE. I don't scale out on the trades. If I'm concerned about a slowdown in momentum and possible reversal, I'll just get out of the trade entirely.
I make roughly 10-20 trades per day. However, I do not trade 10-20 different stocks per day. I might run into one or two stocks every day that I'm in and out of throughout the day. I could buy it in preparation for an upswing or two and then sell it once the movement is completed. But then I may buy it back after a small correction, in anticipation of another rally. Then once the stock has reached a price where it begins to show reversal signs I may short it and ride it on the way down. So one stock could actually have 5 trades on it by the end of the day for me. But only if the chart is showing the right signs and I continue to have successful trades with it.
I probably trade 5-10 different stocks each day.
The length of time that I hold trades is usually very short. I would say under an hour, but under 30-45 minutes captures most of my trades. This is because I buy or short sell when I anticipate a big movement. If it stays flat for very long or it starts to move in the direction I didn't expect, I get out. If it moves in the way I anticipated, the movements usually don't last longer than 30-45 minutes.
I trade stocks, but 3 conditions have to be met before I look at a stock's daily chart and consider trading it. I don't care what industry it represents, what the company is, who runs it, or anything else about the company if it satisfies these 3 conditions. First, I wait until 10:00am. The markets are very volatile during the first 30 minutes, and often times movements that appear to be reliable patterns can suddenly plummet without warning. To avoid the opening chaos I wait these 30 minutes out. I don't even look at charts during this time. Second, I screen stocks by daily volume. I try to target the stocks with greater volume for the day so there is plenty of liquidity. Not that it really matters for paper trading, but whatever. I've also found these stocks to be more predictable. Third, after the volume screen is performed I will screen for percentage gains. I only observe stocks with that have greater than a 2.5% percentage gain for the day (after 10:00am).
I do not hold trades overnight, but I used to when I started. I was decent at trading when I held stocks for roughly a week, but I found that I really excelled at picking stocks during the day. So once I realized closing out of all of my trades by the end of the day would make my trading system much much more profitable, I committed to day trading. That process took me about a month to realize. I was up 12% during this month of my intraday trading.
How many trades are in my sample size? If you mean how many trades have I performed since I began, I can only provide you with an answer that covers 6 weeks of my paper trading. Luckily, they are the last 6 weeks, which provide the most accurate representation of my trading system at this time (the first month or two was a learning process in which I eventually formulated and more or less created my day trading system). Anyways, I've made just under 500 trades in the past 6 weeks.
I haven't used any leverage with my paper trading. Just the fake $100,000 I began with.
The maximum risk is very dependent on the trade at the time. Since my trades are so short I typically don't use stop losses. I prefer to watch the ticker and sell out the moment I get warning signals from the price movements. The warning signal could be a drop in price or it could be a back and forth movement that feels odd. So I could get out of the stock at the same price I got in at, or I could get out after it hits a certain price level below my buy-in point. If I had to give a general number, I'd put a stop loss at 0.25% to 1% below my buy-in point. I usually dump it between -0.25% and -0.5%, but sometimes it goes further before I dump it. I consider holding onto anything that drops more than 1% to be stupid for my trading system.
My daily profits are typically a 1% to 4% gain on my entire portfolio. Roughly one third of my trades are unsuccessful (make 0% or below), and the other two thirds will average out to be 0.5% to 1%. There are some trades at 0.1% gain while others at 3% gain, but on average the 0.5% to 1% range is what I get when I'm right.
Each trade will use one third of my total capital. However, yesterday I sized each trade with half of my total capital because I thought it would be more profitable due to the fact that my losses are much smaller than my gains. I was right and I will continue to split my total capital between 2 trades for a couple weeks. If it remains more profitable, I will continue to trade in this way. I think it will. I'll never use all of my capital in one trade.
Liquidity is not an issue.
I don't know which method defines my day trading strategy. I'm purely technical after I do my screens that I mentioned earlier. I go to Yahoo Finance Interactive Charts and watch the ticker and observe the daily chart. When certain price patterns arise and the ticker is acting appropriately I'll buy or sell short. Perhaps momentum trading is an applicable label, but I'm hesitant to place that on my trading system. While I am interested in the big movers of the day (2.5% or above after 10:00am), I don't speculate solely based on good performance thus far. I speculate when the ticker shows signs of a big move, up or down.
Let me know if you want me to explain anything better or in more detail.
I asked about liquidity due to getting your orders filled, some simulation platforms will automatically fill your order the second the price is traded, rather than through your traded price. I am just going to list notes in order of reading your post and do so as concisely as possible.
First, 25k minimum is required for pattern day trading unless you are trading futures. I gave the definition of MAE above. First 30 minutes of the day tends to have the best trading opportunity of the day FWIW. So you screen for stocks having an 'event driven day', got it. Not scaling is a mistake.
How many roundtrips have you made? Commissions are negotiable but the reason I was asking MAE, MFE and BSO was to get an idea of your average winning trade versus what you pay in commissions, also I wanted to know your average loser. No stops, interesting -- mistake. Reliable intuition is built after thousands of hours of screen time, given how much emotions run once you have live money on the line I would caution against using that as a frame of reference until you have been profitable with live money for 2-3 years.
Yahoo interactive charts are delayed and muted, how are you executing trades?
I suspect, based on what you've stated, your performance will drastically change as the market balances. With that said, sounds like you are having fun with it. I would keep a detailed journal about your prep heading into the day, and screenshots of the charts before, at the trigger and resolution of your trades. Also keep notes. It will prove invaluable down the road.
Take this from someone who has been in your shoes and lost time because of it. IF you are not maintaining at least a 3.5 GPA in school, do NOT waste time paper trading or trading for that matter. You have bigger concerns and the markets will always be around. As I said, have fun with it!
Sorry to be a naysayer but thinking you are good based off paper trading is absolutely garbage. I was a college student until last year too and being in the west coast I'd wake up at 630AM every day to trade starting with a $2000 capital. Until you start trading your own money, you won't understand the emotions and psychology involved compared to paper-trading. Try to build and trade your capital despite the limitations of PDT. Yes making 7% sucks on $2000....but you can learn to adapt a strategy of 3 day trades in 5 days or big returns. Even if you lose your 2k capital, take it as market tuition. It will be the cheapest compared to the rest of your future.
I eventually built that 2k capital to 10k(heavenskrow investments) by the time I graduated and now trading 35k but managing a 100k portfolio. My other friend is very similar to you. He would boast about his paper trading and I kept telling him stop being a little bitch and start trading real. Even to this day he says he is about to breakeven on real account while being up 25% in paper trading.
Nonetheless, listen to others on this thread. Keep working hard in school, get a good job(unlike myself), and if you believe in your system use your capital you saved from that job and become the next Soros. You seem to have a better grasp compared to most wannabe traders however. If I was a HF manager, I'd actually have you throw your pitch at me because you remind me of myself.
Keep doing what you are doing, but open a real account and start trading with real money. Psychology is a huge factor when real $ is at stake. CHeers
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