Quote from oilfxpro:
This article sums up why day trading is difficult.
This article sums up
the author's opinion of why day trading is difficult. It's full of opinion and void of facts, starting with the title "The Only Way To Day Trade".
There are many ways to day trade successfully; there's no
only way to do it.
Think about that statement logically: If there was only a single way to day trade successfully, as soon as a successful day trader was identified, everyone wanting fast money would simply mimic that method and become wealthy.
The first paragraph lists four cardinal principles, which are quite valuable for beginners, but the fact is there are extremely successful day traders who trade ranges and reversion-to-mean (counter-trend). Both of these methods are advanced and require ample market experience, but they are highly profitable in experienced hands.
The second paragraph is totally off base.
"Trade with the trend relates to the decision of how to initiate trades. It means you should always trade in the direction of recent price movement."
Trading with the trend is just as effectively done by initiating trades in the opposite direction of recent price movement (entering with-trend off a pullback) as it is by initiating trades in the direction of recent price movement (with-trend breakout of previous high/low).
"Since market price action is mostly random, successful trading methods must somehow exploit a non-random feature of market price action."
Brilliant observation, Mr. Babcock! A non-random feature of market price action is commonly referred to as a "pattern" which is detected using an analysis of past price action, which is frequently identified by discretionary traders using a "chart" of price action (and possibly related influential components such as volume and technical indicators).
If you trade manually you use a visual chart; if you set up automated trading, your program is coded to identify patterns using variables such as price, volume, indicator values, etc. and acts on the patterns it's looking for.
These non-random features of market price action are the foundation for a trader's "edge" and one should not even consider a live trade in any time frame until an edge has been identified, researched, back tested, forward tested, and risk management rules put in place for trading the edge.
"Commodity price action is fractal. That means that as you shorten or lengthen the time frame, price action remains similar in behavior. Thus, five-minute charts have roughly the same appearance as hourly charts, daily charts, weekly charts and monthly charts."
Yes, and one-minute charts have roughly the same appearance as five-minute charts, and 10-tick charts have...and so on.
Now, it's not easy to do the work necessary to create a trading plan, but that work applies to any trading time frame. It's also not easy to stay focused for intraday trading using small time frames such as five- and one-minute charts. But the mechanics behind trading trading trends (or ranges or reversion-to-mean) in these time frames are the same and the advantage of day trading is you avoid overnight gap risk.
As for
"...the trend component is so very small in short-term data that you must use a highly effective method to overcome the costs of trading", that's known as position sizing.
Why do pattern day traders get twice the buying power of swing traders and as soon as a position is closed this full buying power is immediately restored so they can do it again and again all day long? Because they need to trade larger size than a swing trader to compensate for the fact that letting a profit run might be a 1% move during an intraday trend as compared to a 10% move during a multi-day trend as compared to a 50-100% move during a multi-week/multi-month trend.
If I'm day trading a volatile $40 stock in a $50K trading account, I'll have no problem trading 1000 shares for a 1%-5% intraday move, but if I want to hold that same stock for days or weeks, I'm going to trade far smaller size because of the overnight risk (earnings, global economic news, takeover bids, black swan event).
The first difficult task of short term trading is developing and properly testing a complete trading plan. Once that's accomplished the most difficult part of trading is ensuring that your big brain stays out of the way during active trading hours.
The irony that's easily found in this brief article is a delight for those who enjoy laughing their asses off:
"There are plenty of people out there ready to sell you a day trading course or system for thousands of dollars that will show you how to implement this fantasy. The only problem is they haven't been successful traders. They make money only by selling their losing methods to others."
"I have been day trading successfully for the past couple of years using a system that trades on average only two or three times a month. I have also recently published a second day trading system that trades only once or twice a month. These systems are available from our company."
Hope this helps; it helps me.
