Quote from Traden4Alpha:
Were I of a paranoid mindset, I might even think that the PDT rule is tailor made by the institutional traders to drive out hobbyist traders because of hobbyist's unfair below-minimum wage labor rates.
I think this might be closer to the truth than you think, but not out of any desire to maintain rationality on the part of institutionals. I doubt there is much rationality to maintain in the first place, even in professional circles. They are like a bunch of drunks all assuming there is some other designated driver behind the wheel. (If everyone is too dumb to be allowed a contrarian opinion, or any opinion at all for that matter, from whose forehead is the rationality springing forth?) Plus, mutual funds and investment banks want stocks to go in one direction- UP- at all times. What is rational about that?
There is an old joke, why did the redneck marry his sister-
because he had to.
In that same line of thinking, why do goliath institutionals hold for long periods of time? Because they have to.
When it takes you three to five days to unload a substantial position, you have to take a longer term view of that position whether you like it or not. You just can't trade around girth like that, the slippage would eat you alive, as Soros learned when he got shredded on his mammoth S&P exit in the aftermath of the '87 crash. You always give some up on the way in and out- but to who?
The big guys hate the little guys because the big guys know that their inside knowledge and staying power and marketing muscle comes at a price- the price of inflexibility and bulk and girth, which necessitates slowness of movement. And slowness of movement means you are vulnerable to being repeatedly picked off by faster, nimbler foe. Not much more than a nick or a cut, but those little nicks and cuts can add up very quickly when they are coming from all sides, especially in an environment that has moved from benign to threatening.
My guess is that the average mutual fund manager hates small traders, and his real fear is not that the small trader is irrational- but rather that small traders are ganging up on him and clawing him down on his ins and outs, and that the multiple nicks and cuts will add up to real bleeding over time. He may exaggerate in his own mind, especially if this helps to shift blame away from his own ineptitude- but the suspicion remains. This natural bias on the part of the mutual fund industry (us against them, long term buy and hold against the forces of evil, damn mercenary gunners should be outlawed!!), combined with arrogance, fear and a need to place blame somewhere other than Wall Street when things were falling apart, led naturally to the PDT rule imho. It's of course obvious that 99% of successful traders operate well above the 25K line, but hey, it looks good for us to be "doing something," it's a blow against those $#%@#$ traders, and why not kill the next generation before they hatch? Like Herod trying to insure the safety of his throne, three for the price of one.
p.s. I may be biased, as beta ripping, window dressing, benchmark loving, relative performance touting money managers with no respect for their clients and no respect for risk pretty much make me sick in general.
