Daytrading leads to Inevitable Failure? Is Swing Trading the only Viable Path?

Quote from heynow:

Now when I say all daytraders, I'm talking about independent discretionary daytraders. I'm not talking about HFs running algo bots and doing market making, arbitrage, etc.
The reasons why I feel a daytrader is ultimately doomed for failure:

1 Limiting profits. The very nature of daytrading means that you are cutting your profit potential short by not holding for more than a day or a few hours. There are are moves that go on for days, weeks, and months with only the slightest pullbacks. These are the moves that make your year.

2 Daytrading is a very addicting and can become compulsive. The more frequently you trade the more addicted you become to the action. Also the more frequently you trade the more compulsive your actions become.

3 Irrational fear of holding overnight. Many daytraders think that daytrading is actually less risky than holding overnights because they think they have too much "headline" or "overnight" risk even when they have a position that is deep ITM.

4 Daytraders often use excess leverage. Futures and options offer so much leverage that an intraday move can blow u out.

5 Daytraders don't often diversify. Its really hard to intraday trade a portfolio, so most guys just concentrate positions in one or two instruments.

6 Great profit potential also means greater loss potential. Sure you can make 2x the daily range daytrading but more often you can lose 2x the daily range.

7 Daytrading is ultimately a non scalable skill.


I admit I'm flat YTD and thus in a long slump. I had three 25k losses in the past three months. But my average for the past 240 sessions is still 600/day. I want to finally give up daytrading and start swing trading but don't want to give up my "bread and butter". And I feel i can't grow my account swing trading as fast as I can daytrading.
Has anyone successfully made the transition? Is swing trading better? I'm just tired of trading intraday noise.
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This site is supported by brokers and a whole cottage industry that thrives off day traders and scalpers. You will most likely catch a lot of flack about your assumption.

That being said, I see day traders run in and out of the market for crumbs. Had they just sat there they would have had steak.

Brokers love day traders.
 
Quote from Arjun1:

That's right no retail trader has a real risk management (RM) plan unless:

1 He has RM built into his trading platform which enforces risk limits. The platform also can't allow the trader to increase risk limits in the heat of the moment, there has to be a cooling off period before increases in risk limits take effect.
And/Or
2 He only has 20% of his net worth in his trading account and 80% in illiquid assets.
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1. An issue of discipline, as I'm assuming your comment relates to a trader "snapping" and doing something wreckless. If so, why do you assume everyone is capable of this?

2. Why do you assume that all traders have their balance in their trading account?

You contradicted yourself in your original post because you stated absolutely that no retail trader truly practicses appropriate risk mangement. Are you at least going to admit there are exceptions, or state it's a generalisation that includes all of the losing and poorer traders?
 
Quote from Dustin:

For good traders this isn't the case. After many thousands of trades you hardly experience anything whether it's a winning or losing trade.
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+1

by the time i'm out at dinner, i don't even remember whether i ended the day up or down, let alone how much. all i know is that the omakase dinner at masa is going down quite nicely (as it always does) and that i'll be paying with my black amex.

the key is to trade small enough to not really notice, but big enough for it to make a difference in the long run. and yes, if you do this long enough you'll realize that trading is nothing more than a grind.
 
Quote from ventus:

+1

by the time i'm out at dinner, i don't even remember whether i ended the day up or down, let alone how much. all i know is that the omakase dinner at masa is going down quite nicely (as it always does) and that i'll be paying with my black amex.

the key is to trade small enough to not really notice, but big enough for it to make a difference in the long run. and yes, if you do this long enough you'll realize that trading is nothing more than a grind.
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nerves of steel are an essential ingredient to trading.
 
Quote from IShopAtPublix:

nerves of steel are an essential ingredient to trading.
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Ahhh, I see. That explains the occasional pain I feel. Those sharp steely nerves.
 
I skipped over most of the posts in this thread so no doubt someone else has already said what I am going to say.

The shorter your timeframe the farther each trade starts in the red if you consider spread and commisions. Let's say you are trading a forex pair with a spread of 3 ticks and you are on 1 minute bars and looking for 10 tick profit. You need to make 30% just to break even on each trade (not even considering comissions and slippage). Now compound that negative expectation for how many trades you will execute during the day and you are up against significant odds. This doesn't even consider that 1 minute bars are largely random with a massive amount of fat tail on a bar by bar basis.

Now contrast this with same forex pair and 4 hour bars. If your average profit goal is around 100 pips (very reasonable with 4 hour bars) then you only need to make 3% per trade to break even. You probably only make one trade per day at this rate as well so that 3% is not going to be compounded. The bars are far more orderly and with greately reduced occurences of fat tail on a bar by bar basis.

It's a sliding scale, and I know at which end of that timescale I prefer to operate. Furthermore, I know at which end of that scale my broker would prefer me to operate.
 
You are 100% correct.

The reason 98% of day traders fail? It is so simple that it is stupid:

1. The odds for average day trader are much much worse than blackjack, consider this:

You trade 200 share lot, average stock price: $20, commission $2.00/RT, spread 0.02. You hope to catch 0.20 moves (1%). So:

Win or Loss: $0.20x200 = $40.00, per BET
Cost: $2.00 (Commission) + $4.00 (Spread cost if you use market order to take liquidity) = $6.00

Odds of Winning for the AVERAGE: $34:$46 normalized to 74:100

And for a good blackjack game? 98:100

Would you want to play at a table that every time you bet $40 and have to pay $6.00 to the dealer? How many can walk away winning?

2. Now for the winning day traders, you can chose:

a): high volume scalper: super low commission w/prop shop + be liquidity provider and collect the spread. I bet 100% that all large volume winning traders on P/L thread trade this way most of the time.

b): play a few swing trades with good set up intraday.
 
Quote from Love Trading:

You are 100% correct.

The reason 98% of day traders fail? It is so simple that it is stupid:

1. The odds for average day trader are much much worse than blackjack, consider this:

You trade 200 share lot, average stock price: $20, commission $2.00/RT, spread 0.02. You hope to catch 0.20 moves (1%). So:

Win or Loss: $0.20x200 = $40.00, per BET
Cost: $2.00 (Commission) + $4.00 (Spread cost if you use market order to take liquidity) = $6.00

Odds of Winning for the AVERAGE: $34:$46 normalized to 74:100

And for a good blackjack game? 98:100

Would you want to play at a table that every time you bet $40 and have to pay $6.00 to the dealer? How many can walk away winning?

2. Now for the winning day traders, you can chose:

a): high volume scalper: super low commission w/prop shop + be liquidity provider and collect the spread. I bet 100% that all large volume winning traders on P/L thread trade this way most of the time.

b): play a few swing trades with good set up intraday.
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I partially agree with 2(b), and disagree with 1.

I would argue that a trader with a target of .20 (ideally greater) should have a stop loss strategy that is substantially lower than .20, perhaps .05 or so. Implementing this type of strategy also requires spending some time locating the right types of stocks to trade and being familiar with the stock (e.g. how quickly does it move, what is the typical intraday range, what is the spread if any, how does it move compared to sector peers).
 
Quote from Dustin:

For good traders this isn't the case. After many thousands of trades you hardly experience anything whether it's a winning or losing trade.
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Ditto to that. After thousands of trades, it becomes mechanical and unemotional.
 
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