I was mainly a longterm investor in stocks like INTC AMAT SUNW ORCL AOL, but started daytrading aggresively in 1999.
Initially, I was overconfident due to my 'edge' working in SiliconValley and having an excellent understanding of tech and the companies..
Lessons I had to learn the hard way:
1) Minimize Losses. If you only invested for longterm based on fundamentals, and viewed a drop in one of your portfolio companies as another buying opportunity, this will kill you if applied to shortterm trading. Generally, if you entered a trade for a shortterm gain, you should have a mental stop at which point you consider you're bet to be wrong, and take the loss. Taking the loss quickly limits your downside and frees up your capital to take another trade.
2) Patience. A shortterm trader shouldn't feel they always have to be in the market. There are many opportunities every single day.
3) Margin. Never ever use margin, except in *extremely* high reward / low risk situations, e.g. the day FOMC announced 50 bp rate cut! Get off margin as soon as the
special situation is no longer present.
4) Position sizing and Money management is very important to limit your risk. You should take into account the price and volatility of a stock when sizing a position. For example, a 200k account should not buy 1000 shares of JNPR at 130/share.
5) Don't trade if you aren't mentally and physically prepared. If you have a streak of losing trades, it is best to watch more, and do less (fewer trades, lower lot size) until your confidence returns.
Once I had learned these basic tenets, combined with my knowledge of technology companies, I was able to try different trading strategies like playing market swings,
news plays, sympathy plays, IPOs, index rebalancing, etc. At the same time, it takes awhile to find a good broker(s) for shortterm trading, and to understand the ins and outs of marketmakers, order routing, etc.
I initally tried to watch a few stocks and trade them, but I found that trying to scalp 1000 shares for 1/4 or 3/8 is a) very stressful b) limited downside but limited upside also c) commissions become a bigger factor. d) watching Level2 screens to game the marketmakers is difficult, and actually not that useful for very liquid bigcap tech stocks.
Over time as I learned more and constructed a better trading platform (Ravenquote(QCharts/QFeed derivative), CyberX order entry + custom order entry application for basket orders routed to NDB and DLJ, running on PIII 850 MHz, 512 MB, DSL modem, 2 22" Mitsubish 2040u monitors running 1600x1200), I have developed a more opportunistic strategy.
One my two monitors I have displayed 40 charts of the top bigcap tech stocks + particular stocks I am watching that day. This allows me to get an overall pulse of NASDAQ beyond what you see just from the index +/-.
My favoriate and most lucrative play is buy a basket of stocks at a market bottom, esp. after a sharp drop, or when market moving news stories are released. For example, Friday Jan 12th, NASDAQ tested 2700 and then fell sharply almost back to 2600. A sharp bounce pulled the index back up 20-30 points. I bought about 20 stocks 500-1500 shares right around that bottom and made a nice gain.. Examples of market moving news would be the FOMC 50 bp rate cut a couple weeks ago, and the Bush-Gore FL supremet court and US supreme court decisions.
I've learned that there are many opportunites every day, and rather than having your head stuck in the sand staring at a Level2 screen on one stock, it is better to be scanning the entire market, news, etc. for opportunities. The 'Very ShortTerm Down', 'Very Short Term Up', and 'Trade Rate' HotLists in QCharts are very useful for finding special situations.
In general, I graviate to the stocks which are the most liquid and have large daily trading ranges. These stocks are the riskiest, but I try to look for low risk entry points. I usually don't use alot of indicators for my entry point; mainly the overal market, and price/volume patterns.
In 1999 I had a large longterm and a small shotterm account so I could start trading. I returned about 120% which was good, but not great considering NASDAQ was up 80-90% that year! In 2000, I was very fortunate because I liquidated most of my longterm portfolio when NASDAQ hit 5000 and pulled back, and the huge up and down swings of 2000 was ideal for shortterm trading. I still can't believe it, but I made 1100% last year; Some of that was from that huge pop in Jan-Mar of 2000 and the rest is from daytrading. This year is already off to a great start, with the highlight being a +22% day when the FOMC lowered rates by 50bp.
The best advice I can give is to read enough to get started, and then start trading small until you start becoming consistent. Start with max 20% of your working capital and with 100 share lots. Try to keep fixed and commission costs low, until you get a better handle on what works for you.
Fleance
Initially, I was overconfident due to my 'edge' working in SiliconValley and having an excellent understanding of tech and the companies..
Lessons I had to learn the hard way:
1) Minimize Losses. If you only invested for longterm based on fundamentals, and viewed a drop in one of your portfolio companies as another buying opportunity, this will kill you if applied to shortterm trading. Generally, if you entered a trade for a shortterm gain, you should have a mental stop at which point you consider you're bet to be wrong, and take the loss. Taking the loss quickly limits your downside and frees up your capital to take another trade.
2) Patience. A shortterm trader shouldn't feel they always have to be in the market. There are many opportunities every single day.
3) Margin. Never ever use margin, except in *extremely* high reward / low risk situations, e.g. the day FOMC announced 50 bp rate cut! Get off margin as soon as the
special situation is no longer present.
4) Position sizing and Money management is very important to limit your risk. You should take into account the price and volatility of a stock when sizing a position. For example, a 200k account should not buy 1000 shares of JNPR at 130/share.
5) Don't trade if you aren't mentally and physically prepared. If you have a streak of losing trades, it is best to watch more, and do less (fewer trades, lower lot size) until your confidence returns.
Once I had learned these basic tenets, combined with my knowledge of technology companies, I was able to try different trading strategies like playing market swings,
news plays, sympathy plays, IPOs, index rebalancing, etc. At the same time, it takes awhile to find a good broker(s) for shortterm trading, and to understand the ins and outs of marketmakers, order routing, etc.
I initally tried to watch a few stocks and trade them, but I found that trying to scalp 1000 shares for 1/4 or 3/8 is a) very stressful b) limited downside but limited upside also c) commissions become a bigger factor. d) watching Level2 screens to game the marketmakers is difficult, and actually not that useful for very liquid bigcap tech stocks.
Over time as I learned more and constructed a better trading platform (Ravenquote(QCharts/QFeed derivative), CyberX order entry + custom order entry application for basket orders routed to NDB and DLJ, running on PIII 850 MHz, 512 MB, DSL modem, 2 22" Mitsubish 2040u monitors running 1600x1200), I have developed a more opportunistic strategy.
One my two monitors I have displayed 40 charts of the top bigcap tech stocks + particular stocks I am watching that day. This allows me to get an overall pulse of NASDAQ beyond what you see just from the index +/-.
My favoriate and most lucrative play is buy a basket of stocks at a market bottom, esp. after a sharp drop, or when market moving news stories are released. For example, Friday Jan 12th, NASDAQ tested 2700 and then fell sharply almost back to 2600. A sharp bounce pulled the index back up 20-30 points. I bought about 20 stocks 500-1500 shares right around that bottom and made a nice gain.. Examples of market moving news would be the FOMC 50 bp rate cut a couple weeks ago, and the Bush-Gore FL supremet court and US supreme court decisions.
I've learned that there are many opportunites every day, and rather than having your head stuck in the sand staring at a Level2 screen on one stock, it is better to be scanning the entire market, news, etc. for opportunities. The 'Very ShortTerm Down', 'Very Short Term Up', and 'Trade Rate' HotLists in QCharts are very useful for finding special situations.
In general, I graviate to the stocks which are the most liquid and have large daily trading ranges. These stocks are the riskiest, but I try to look for low risk entry points. I usually don't use alot of indicators for my entry point; mainly the overal market, and price/volume patterns.
In 1999 I had a large longterm and a small shotterm account so I could start trading. I returned about 120% which was good, but not great considering NASDAQ was up 80-90% that year! In 2000, I was very fortunate because I liquidated most of my longterm portfolio when NASDAQ hit 5000 and pulled back, and the huge up and down swings of 2000 was ideal for shortterm trading. I still can't believe it, but I made 1100% last year; Some of that was from that huge pop in Jan-Mar of 2000 and the rest is from daytrading. This year is already off to a great start, with the highlight being a +22% day when the FOMC lowered rates by 50bp.
The best advice I can give is to read enough to get started, and then start trading small until you start becoming consistent. Start with max 20% of your working capital and with 100 share lots. Try to keep fixed and commission costs low, until you get a better handle on what works for you.
Fleance