Dec 292010

This blog post started as a comment in yesterday’s post, specifically in response to a comment from Jan.  I felt it deserved its own post:

Jan – Thanks for the references & link to Don Miller.  I took his 2008 P&L and divided by the contracts traded:

$1,635,103 / 586,184 = $2.79/contract

A more realistic benchmark for me would be the figures he gave for non-member rates:

$1,125,052 / 586,184 = $1.92/contract

I originally incorrectly labeled those as pts/contract and I thought “Wow, that’s awesome”.  Then I realized pts was no where in the equation and that it’s $/contract.  $2/contract doesn’t sound so good.  In fact it sounds bad, so bad that I wonder how someone could make over a million dollars averaging $2/contract.

In How Large An Edge Do You Need to Succeed at Daytrading? Dr. Steenbarger examines the edge of one of his followers and comes to the conclusion that the edge is 1 tick. he says that’s enough to cover costs but one would have to trade large size or frequently to make a good income.

So how does Don Miller make just $2/trade (per contract)?  That seems very low to me.  Suspiciously low.  As in “I must have made a mistake somewhere”.

I was calculating expectancy differently, but in order to simplify comparisons with other traders I have added back in the simple net profit / total contracts calculation (calling it PL/Contract):

For ES it’s $14.25 which is basically 1 tick/contract.  For Bund it’s 18 euros which is 1.8 ticks/contract.  I’m still going to try and increase this but I’m not going to obsess about it.  My primary focus is to do at least 1 tick/contract with a minimum risk.  In November I used loose stops and sometimes averaged down.  For January I want to to have at least the same performance with tight stops (6 ticks max).  Once risk is under control I can focus on increasing the profit per contract.

Also note that my expectancy & PL/Contract are not the same – this is due to different position sizing and scaling in & out.  For example if on one trade I average down (trading 2 + 2 contracts) and scratch the trade my expectancy on that trade is 0 and is equally weighted with another trade that had 2 contracts.  However it I calculate PL/Contract the 4 contracts will drag the average down.  In January I plan to go back to 1 contract and will not average down so these two should be the same going forward.

  21 Responses to “Comparing my performance with Don Miller”

  1. Michael, reread the email I sent you on Dec 20. You made a mistake here. You took the 586k lots as roundturns. Here’s my calculation again:

    I guess you are familiar with Don Miller. His best year has been 2008 when he made +$1,635,103. Till November he traded a little less then 300 k roundturns:

    That means his average was about $5.33 per contract after commission. His commission should not be more than $2 (I checked VelocityFutures commission for lessees). So his expectancy is about 7.33/12,5 which is 0.59 tick per contract before commission.

    On his best day in 2008 he made $76,652 on 3047 rt in the ES which results in an expectancy of about $25 or 2 ticks:


  2. I see an important concept in Dr. Steenbarger’s post.

    It’s not the size of the edge, but the FREQUENCY with which the EDGE can be exploited–and the SIZE with which it can be exploited–that makes the trader a living. Most of the pros that I’ve personally known and worked with *don’t* have a huge edge in absolute terms. But they have an edge that they can exploit frequently and with size.

    Seems as if the concept of compounding trades with a small profit target is not only possible but essential for success.

  3. Hey,

    In your calculations you mentioned 14.25$ as “basically” 1 tick/contract, but actually it is closer to 2 ticks, 1 tick is “only” 8.7$ (I assume your commission is 3.8).

    Say you go for 1 tick (or 8.7$ net) and 1 contract, you would need lots of trades, do you get so much opportunities using FT’s method? I know I don’t (or I completely didn’t understand what you mean…).

  4. TheMults – The number of opportunities depends on how picky I am. I’ve been fading naked VPOCs (most often it’s yday VPOC), yday High/Low, etc. and that gives more trade opportunities. But I think I will be a bit more selective and try to get a higher win rate while observing some of these “riskier” setups.

    Good point about commissions. I’ve been tracking everything net of commissions because that’s what really matters. I know that if I become very successful commissions will go down so I think that if I can make it trading a few lots with retail then I’ve got it made.

  5. Markus – sorry your comment was held for approval because it contained links, and I didn’t notice it. I now get email when that happens so it won’t happen again.

    It’s not clear if his contracts traded is round turn or one way. I assumed round turn and if it is indeed contracts traded then that would double the PL/contract which would result in $2.79 * 2 = $5.58. Still seems like a very small edge but it is better than $2.79.

    I’m curious how many trades per day he makes. it’s not clear if he’s doing hundreds of trades for a few ticks or if he’s doing a few big trades. From the avg profit I’m guessing he does lots of small trades but I’d like to know.

    I emailed him to clarify on the avg profit per trade and will share what he responds.

  6. Ok this Don Miller guy has me intrigued. Some searching turned up this post which answered some of my questions:

    In this post his contracts traded is stated as 637,766. He estimates his average size is 40 contracts. So 637,766 / 40 = 15944 one way trades. Divide by 2 for round trip and one gets 7972. Now divide that by 252 days (he traded every day) and that gives 31.6 trades/day.

    This makes a lot of sense now.

    31.6 trades/day * $5.58/trade (per contract) gives $176.33/day net of commissions per contract. From there it’s just a question of increasing size to 40 and that makes $7053/day which is $1.7 million per year.

    Pretty amazing that one can make that much from $5.58 net per trade. That’s awesome.

    The next question I have in this investigation is how does he average $5.58/trade? I’d like to know his average win & loss. I haven’t been able to find that on his website.

  7. Hi Michael,

    for me in trading the most important was always to have high win ratio and that is how I found this guy

    He also uses MP as a road map, kinda like FT71.

    I believe, like those 2 guys (Miller, Electroniclocal), that unless trading is our second nature we can’t be successful in it. For that to happen we must train our “muscle memory” pretty intensely and that requires a lot of real life samples, real trades taken in the heat. In past when I tried to take only standard 3:1 or better reward/risk ratio trades I didn’t have much success because after losing 3 or 4 times in a raw (which is pretty common) I wasn’t able to take another signal. It was just too tough for me. Not to mention that those setups (3:1) don’t occur that often. And here is a paradox, on surface 3:1 makes sense and all books teach just that but (at least for me) this way is almost impossible to get to the point of trading intuitively (from this “muscle memory” so to speak). I rather have very small targets (3-5 ticks) and high win ratio over 70% on individual basis (contract by contract) or about 90% on trade by trade (meaning end of sequence or cash to cash) with “poor” reward/risk ratio of 1:1 (or even worse) knowing that the next trade almost “for sure” will be a winner. It helped me tremendously, especially mentally.

    If I’m not mistaken FT71 program teaches his traders similar way, lots of trades, lots of scalps, even starting with coin exercise. If some of them evolves into swing daytrader shooting for 5-8 points thats great but meanwhile after executing thousands of trades (low comm/big acct a must) they’re proficient/profitable with properly molded “memory”.

    By targeting 3-5 ticks I end up with 1 tick average (expectancy) before commission. That might not sound like a lot but think about it, to make circa $1000/day all you need is 10 times/day find high opportunity of making 3-5 ticks (very easy even in recent low volume days) using 10 contracts.

    I know I can find each day many more and am sure many pros at proprietary firms are busy all day long too.

    Currently I’m trying to incorporate VP in my trading (mainly as a targets) for scaling bigger position (in SIM) but without much success so far.

    But than again, that’s just my opinion/approach.

  8. Hi Jan,

    I also follow EL (and FT) and I wonder where do you find 10 opportunities a day, especially with the criteria of 70%+ win rate. Are you watching multiple markets?

  9. I can’t find any evidence that this “Electronic Local” actually trades. Everything in his blog smells fishy. I feel 100% certain that he is just another liar like so many others who sell their made-up materials online. FTC really should require anyone who sells trading “how to’s” to disclose whether they had actually traded real money and to make the P&L statements available to buyers.

  10. [quote]If I’m not mistaken FT71 program teaches his traders similar way, lots of trades, lots of scalps, even starting with coin exercise. If some of them evolves into swing daytrader shooting for 5-8 points thats great but meanwhile after executing thousands of trades (low comm/big acct a must) they’re proficient/profitable with properly molded “memory”.[/quote]

    The vast majority of prop shops operate on high frequency scalping model, it’s model that works with the prop shop structure: the shop provides the capital needed for high frequency scalping, in return for taking the risks, the shop takes a cut of profits.

  11. kt-ny, I don’t know about Electroniclocal, you might be right, his expectancy is suspiciously high, I’ve never met or heard of anybody averaging more than 4 ES ticks consistently (maybe FT71?),


    on average I locate 70-90 trade opportunities per day, just ES only. My target is 3-5 ticks, my method is ridiculously simple. To make any money with 1 contract I literally force myself to trade. I need a lot of trades/day so almost any excuse is good for me to be in (talking of coin toss exercise!

    mainly I look for price to make any micro divergence (also hidden) with TICK, MACD and TRIX at one of two extreme points: at exhaustion or at pullbacks. Remember, I talk about micro moves. Out of those 80 opps I usually take no more than half, pretty often less and always feel like I’m undertrading.

    I’m aware that not too many people would be even interested in that kind of trading/scalping but if someone like it maybe we could meetup somewhere (Skype?) and in live call trades to each other, or something like that…just thinking aloud…

    We could create virtual like SMB type environment, think how motivational is when 4-6 like minded traders are simply calling what they’re seeing, one can react or skip it and that way we could all have lots of potential signals…just a thought.

    here are random samples of my trades with some stats, on very busy days pics are too blurry to make any sense to anybody but me, last few days I helped myself with TF but that’s rare

    in regard to VP why I can’t succeed, I don’t know for sure but for one it confuses me a bit how to best approach FT71 method,

    I think his strategy is great, levels are very accurate but devil is in details.

    Levels are only levels and when I consider that 1-2 ticks above/below is still OK then I have 5 ticks spread, add to that 5-6 ticks stop and we have pretty much another level, and then what do you do, stay put, add to your position, lighten or take a full stop?

    So many decisions that can only be answered by proper money/risk management. Problem is that for scaling out one needs to be each time fully position at the start, that by itself requires high level of sophistication in money management and in pinpointing entry location. And that’s only the beginning, now one has to skilfully do the scaling out so that the mathematical equation for expectancy is not upset.

    Remember, one has to overcome the impact (also emotional) of full stop on ALL contracts by having enough fortitude to follow each scales to it conclusions. You have to be as disciplined as FT71 if not more (you pay more comm and probably have smaller account i.e less than 8 scales).

    If your entries are less than ‘perfect’ resulting in win ratio being less than 70-80% and/or you’re not letting your runners run than your expectancy is dramatically lower than his ……..

    OMG, it’s midnight here…will continue tomorrow.

    if there is any interest of course….and it all is just another persons opinion.


  12. I agree with kt-ny regarding electroniclocal (I have read all his posts from the start untill summer this year). If you like to see spaghetti charts look at his blog. Imho the only stuff worth reading are his anectdotes.

  13. I never found anything of value in EL’s blog. It was supposed to be about him teaching his daughter to trade but he never explained what he was doing. He claims to use order flow yet we see CCI and other squigglies on his chart. I’m glad I never invested any time trying to figure out what he was doing because it seems most traders agree on this point.

  14. @jan
    Very nice sample. How an important part is DOM reading for your trading?


  15. Jan – Thanks for sharing. Your results are impressive. I’m really impressed by the fact that you don’t stop out more often. You have a good read of the market, maybe even subconciously. What kind of stop do you use? How do you decide if you take 3 or 5 ticks?

    I like your idea of a virtual trading floor. I posted a poll about that a few weeks back and I’m definitely interested in the idea. But I’m worried it will impact my trading. When my trading is more stable and consistent I’d like to give it a try. Have you thought about this issue?

  16. Markus, no, I hate to even look at DOM, makes me always somehow nervous, I keep it partially hidden – but I watch prints w/one eye, mainly for speed, if there is a speed then I briefly check how many very big, like 1,2,4 or 700….you know …OTF…

    Michael, I’m also aware of pitfalls of any chatrooms, can’t focus while reading or writing…but am thinking of natural voice (skype?) flying in a air, like SMB, not really even comments, why’s…but short market calls, like: “I see + div” or “hidden div on 5 min” or “TICK + 500”, “big lots, OTF”, “#’s in 1 min” or VPOC, LVN, yday low/high very close”…etc

    it would be even better than in real office – one can mute any time!

    but you right, I think first I would try it in sim….

  17. Jan – doing it audio only via Skype is an interesting idea. I think it would work if everyone was trading the same method. If everyone is trading different methods then it can be confusing. This is the case with the #FT71 stream on twitter. I have put a few people on “ignore” and then later stopped watching #FT71 while trading totally. Just too many ideas that may be good but are not related to my trading. I now just listen to those I “follow” which I try to keep to a minimum and then if I want to see the conversation I can check the #FT71 stream.

    But the idea has a lot of potential, just have to take it slow and keep everyone focused so that people don’t start talking about other things. Imagine I’m waiting for my level for 1 hour and someone starts talking about an MA crossover at a fib level and I go look at it and miss my setup at my level. 😉

  18. Jan – a few more ideas on the group idea:

    Here are a few comments based on what I was planning to do for my own method. I put it on hold frankly because I need to improve and be consistent and I want to give myself a few months to do that. I feel I’m not ready for it and it could adversely affect my trading and could also lead others astray as I make mistakes. Since you’ve been doing the same thing all year and are consistent, I think you would be ready for it – if you keep distractions to a minimum.

    Anyway, my idea is to start with a few people and make a simple rule that they can ask questions but cannot comment about setups they see or indicators they use etc. That will stop them from distracting you. For example I can say “is that a divergence there on your trix?” (refering to your indicator) but I can’t say “I see a bearish engulfing bar on the 10min chart” as that’s totally different from what you do.

    If you ever get distracted, you can mute as you said. And on our end if we get distracted we can mute as well. Which I would do for example if price came to my level and I was ready to enter a trade.

    If you decide to give this a try I’d be very interested. We could do a trial with the people participating in this discussion.

  19. I was in a room that scalped. The hard part is not letting other calls affect what you are doing. We traded off of primary 30 second chart with T&S,dom. Muscle memory like Jan said is key I struggled with this because I was always changing .


  20. Hey Jan, I’m interested but with 70-90 potential setups I might be overwhelmed at first. It’d sure be interesting to watch how you do it. Your performance is impressive.

  21. I will be interested in the said FOCUSED, non-chi-chat skype group, let’s do it! 2011 is tomorrow, well, already 2011 for some parts of the world as of now.

    Happy New Year to all! May all your dreams in trading come true in 2011.

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