Stuff I've wondered about
- Thread starter IronFist
- Start date
Quote from IronFist:
1. Is it possible to successfully daytrade making only 1 or 2 traders per day? It seems like all the posts I read on here where someone relates a day's experience involve scalping and making 100s of trades per day. I don't want to do that.
"Daytrade" should really be banned from the language
There are as many strategies as there are traders, and people that make a living at it may trade anywhere from once a day to thousands of times a day, with volumes from a couple thousand shares a day to millions. It doesn't really matter - the object is to make money, not be like everyone else.
1.5 If someone is making 100s of trades per day, if they messed up, wouldn't they be absolutely killed by the wash sale rule? That has got make taxes impossible.
Anyone for whom it's an issue will elect to mark-to-market to make it a non-issue. Personally, the only way I take home a position at the end of the year is if I want to do it for tax reasons, or if it's a real gimme (and I've done a quick scan to see if there's a wash sale issue). Of course, taking the other side of trades that people want to clean up at EOY can be a nice opportunity, but for the most part, it's not worth the hassle.
See IRS Topic 429.
2. When I paper trade I make 1 or sometimes 2 trades per day, trying to get a .20 cent move or so. Is that realistic for live trading? I don't want to scalp or make lots of trades per day.
Assuming you are successful 66% of the time, with a strategy of winning 0.20 or losing 0.20, and pay $0.005/share (a reasonable rate), at 30 trades per month, if you traded 2500 shares at a time, you'd make about $4K/month:
20 winners x $500 each = +$10K
10 losers x $500 each = -$5K
30 trades x 2500 = 150K shares @ 0.005 each = -$750
Misc expenses = -$250
Obviously, your target/stop ratio and your winner/loser ratio are the key factors here. Depending on what/how you trade and how much capital you have (or can get, if you want to trade prop), this may or may not be a realistic goal.
3. When you guys day trade, do you only trade a particular stock once per month? Say you mess up one day and take a loss... do you not touch that stock again for 30 days to avoid the wash sale rule, or are have most people here made the necessary elections to be exempt from that?
3.1 Or does the wash sale rule not apply to intraday positions? (this probably isn't the case, but I figured I'd ask anyway)
See 1.5.
4. What are the rules for shorting on a downtick? Are ETFs the only thing with which you can do this? On what timescale is "a downtick?"
See "Regulation SHO". A lot of stocks are now exempt from the tick test. ETFs are as well, though you'd do better to trade NQ/ES/YM futures instead of QQQQ/SPY/DIA because they have better tax treatment, lower trading costs, etc.
5. Do most day traders use 1 minute charts? Is there anything faster than that? I paper trade with 5 min charts, but that's paper trading...
People use whatever charts are appropriate for their time frame, ranging from tick charts to dailies. I don't use charts at all for 95% of my trades. If you're in a trade for hours, 3-15 minutes seems about right, depending on what your strategy is.
6. Are level II quotes only necessary for scalping? I don't use them when I paper trade, but like I said, I make like 1 trade a day and hold it from a few min to a few hours.
I can't trade without seeing what the market looks like, but then a penny is a lot to me. If you're trying to win 0.20, it sounds like you need to be able to execute efficiently, too, making L2 important.
7. Do most traders trade the same stock day after day? I guess this is kinda related to quetsion 3.
It seems that most have a core group of a few to a few hundred stocks. It's tough to trade a stock if you're not familiar with its volatility, nature of the other traders in the stock (pros, MMs, specs), etc.
8. Do all prop firms scalp? It seems like everything I've read here about prop firms involves scalping, and like I said, I'm not too keen on that idea. Maybe just cuz I don't know much about it, but I like my 1 or 2 trades a day style better.
Mostly, it's just about volume, which is the problem for a newbie. The example above, with 150K/month, is probably not going to cut it. I expect most firms want you to do at least 3-6x that. You might do better to bootstrap yourself into your own retail bankroll with a job and small trades, particularly if you already have a winning strategy. There are certainly some prop firms that have turned newbies into winners. Probably depends on the exact office, the other traders there, etc.
1. Is it possible to successfully daytrade making only 1 or 2 traders per day? It seems like all the posts I read on here where someone relates a day's experience involve scalping and making 100s of trades per day. I don't want to do that.
"Daytrade" should really be banned from the language
There are as many strategies as there are traders, and people that make a living at it may trade anywhere from once a day to thousands of times a day, with volumes from a couple thousand shares a day to millions. It doesn't really matter - the object is to make money, not be like everyone else.1.5 If someone is making 100s of trades per day, if they messed up, wouldn't they be absolutely killed by the wash sale rule? That has got make taxes impossible.
Anyone for whom it's an issue will elect to mark-to-market to make it a non-issue. Personally, the only way I take home a position at the end of the year is if I want to do it for tax reasons, or if it's a real gimme (and I've done a quick scan to see if there's a wash sale issue). Of course, taking the other side of trades that people want to clean up at EOY can be a nice opportunity, but for the most part, it's not worth the hassle.
See IRS Topic 429.
2. When I paper trade I make 1 or sometimes 2 trades per day, trying to get a .20 cent move or so. Is that realistic for live trading? I don't want to scalp or make lots of trades per day.
Assuming you are successful 66% of the time, with a strategy of winning 0.20 or losing 0.20, and pay $0.005/share (a reasonable rate), at 30 trades per month, if you traded 2500 shares at a time, you'd make about $4K/month:
20 winners x $500 each = +$10K
10 losers x $500 each = -$5K
30 trades x 2500 = 150K shares @ 0.005 each = -$750
Misc expenses = -$250
Obviously, your target/stop ratio and your winner/loser ratio are the key factors here. Depending on what/how you trade and how much capital you have (or can get, if you want to trade prop), this may or may not be a realistic goal.
3. When you guys day trade, do you only trade a particular stock once per month? Say you mess up one day and take a loss... do you not touch that stock again for 30 days to avoid the wash sale rule, or are have most people here made the necessary elections to be exempt from that?
3.1 Or does the wash sale rule not apply to intraday positions? (this probably isn't the case, but I figured I'd ask anyway)
See 1.5.
4. What are the rules for shorting on a downtick? Are ETFs the only thing with which you can do this? On what timescale is "a downtick?"
See "Regulation SHO". A lot of stocks are now exempt from the tick test. ETFs are as well, though you'd do better to trade NQ/ES/YM futures instead of QQQQ/SPY/DIA because they have better tax treatment, lower trading costs, etc.
5. Do most day traders use 1 minute charts? Is there anything faster than that? I paper trade with 5 min charts, but that's paper trading...
People use whatever charts are appropriate for their time frame, ranging from tick charts to dailies. I don't use charts at all for 95% of my trades. If you're in a trade for hours, 3-15 minutes seems about right, depending on what your strategy is.
6. Are level II quotes only necessary for scalping? I don't use them when I paper trade, but like I said, I make like 1 trade a day and hold it from a few min to a few hours.
I can't trade without seeing what the market looks like, but then a penny is a lot to me. If you're trying to win 0.20, it sounds like you need to be able to execute efficiently, too, making L2 important.
7. Do most traders trade the same stock day after day? I guess this is kinda related to quetsion 3.
It seems that most have a core group of a few to a few hundred stocks. It's tough to trade a stock if you're not familiar with its volatility, nature of the other traders in the stock (pros, MMs, specs), etc.
8. Do all prop firms scalp? It seems like everything I've read here about prop firms involves scalping, and like I said, I'm not too keen on that idea. Maybe just cuz I don't know much about it, but I like my 1 or 2 trades a day style better.
Mostly, it's just about volume, which is the problem for a newbie. The example above, with 150K/month, is probably not going to cut it. I expect most firms want you to do at least 3-6x that. You might do better to bootstrap yourself into your own retail bankroll with a job and small trades, particularly if you already have a winning strategy. There are certainly some prop firms that have turned newbies into winners. Probably depends on the exact office, the other traders there, etc.
^ Thank you for the replies!
How are taxes different on ETFs vs. regular stocks? I thought ETFs were the same as stocks for all intents and purposes. They were for me when I did my taxes last year
And my other question:
Is there a significant difference between stocks on the different markets? Why would someone only trade NYSE stocks but not AMEX, for example?
I think that's most of my questions for now. It looks like I have a bunch of research to do still on wash sales. So wash sales still apply to intraday positions, right? Oh, and is it still a wash sale if you sell short and then cover at a loss and then take another position with that same stock within 30 days?
How are taxes different on ETFs vs. regular stocks? I thought ETFs were the same as stocks for all intents and purposes. They were for me when I did my taxes last year
And my other question:
Is there a significant difference between stocks on the different markets? Why would someone only trade NYSE stocks but not AMEX, for example?
I think that's most of my questions for now. It looks like I have a bunch of research to do still on wash sales. So wash sales still apply to intraday positions, right? Oh, and is it still a wash sale if you sell short and then cover at a loss and then take another position with that same stock within 30 days?
Quote from IronFist:
^ Thank you for the replies!
How are taxes different on ETFs vs. regular stocks? I thought ETFs were the same as stocks for all intents and purposes. They were for me when I did my taxes last year
And my other question:
Is there a significant difference between stocks on the different markets? Why would someone only trade NYSE stocks but not AMEX, for example?
I think that's most of my questions for now. It looks like I have a bunch of research to do still on wash sales. So wash sales still apply to intraday positions, right? Oh, and is it still a wash sale if you sell short and then cover at a loss and then take another position with that same stock within 30 days?
ETFs are equities, and as such they are taxed just like stocks. Alanm was referring to futures which have much better tax treatment than equities (ES, NQ, and YM are different equity index futures). Regardless of how long you hold a futures position, on gains you pay 60 percent long-term rates (currently 15%) and 40 percent short-term rates (whatever your marginal rate is -- 25, 28, 30). For equities 100 percent of gains are taxed at short-term rates. There are no wash sale rules for futures, and you don't have to itemize trades for tax purposes (just report the bottom line numbers). However, if you take 60/40 tax treatment you can only deduct losses against 60/40 gains (rather than against ordinary income). Also, futures don't have an uptick rule for shorting (or specialists/MMs).
In the end, I think stocks versus futures for intraday trading comes down to personal preference. If your current charts are working for you while paper trading, then I don't see any reason to change. The difference between paper and real is all mental, so it shouldn't influence your strategy.
Good luck.
Alan covered it for you IronFist.
Regarding wash sales. First rule? Know the rules.
http://www.fairmark.com/capgain/wash/
Second rule. If you're going to trade intra day via whatever time frame: 6 ticks, 60 seconds, 60 minutes, you have to be present at the open. This is when the majority of caca goes down. Which means you have to be ready 30-60 minutes prior to that.
Look at the attached chart. Range. Volume. 3 days. 3 trades. You want fewer trades, but better set ups. All stocks are not equal nor are all times equal to trade stocks. Focus. Become either market specific or technique specific. And you cannot trade what does not move. Or you must trade SIZE if it moves little. You cant do either if there is no water in the pool when you dive in(liquidity).
All you need to know right here. Post by Maverick. If you have the discipline to do that, you might have a chance.
http://elitetrader.com/vb/showthread.php?s=&postid=1088461&highlight=vehn#post1088461
Regarding wash sales. First rule? Know the rules.
http://www.fairmark.com/capgain/wash/
Second rule. If you're going to trade intra day via whatever time frame: 6 ticks, 60 seconds, 60 minutes, you have to be present at the open. This is when the majority of caca goes down. Which means you have to be ready 30-60 minutes prior to that.
Look at the attached chart. Range. Volume. 3 days. 3 trades. You want fewer trades, but better set ups. All stocks are not equal nor are all times equal to trade stocks. Focus. Become either market specific or technique specific. And you cannot trade what does not move. Or you must trade SIZE if it moves little. You cant do either if there is no water in the pool when you dive in(liquidity).
All you need to know right here. Post by Maverick. If you have the discipline to do that, you might have a chance.
http://elitetrader.com/vb/showthread.php?s=&postid=1088461&highlight=vehn#post1088461
Quote from IronFist:
^ Thank you for the replies!
How are taxes different on ETFs vs. regular stocks? I thought ETFs were the same as stocks for all intents and purposes. They were for me when I did my taxes last year
And my other question:
Is there a significant difference between stocks on the different markets? Why would someone only trade NYSE stocks but not AMEX, for example?
I think that's most of my questions for now. It looks like I have a bunch of research to do still on wash sales. So wash sales still apply to intraday positions, right? Oh, and is it still a wash sale if you sell short and then cover at a loss and then take another position with that same stock within 30 days?
I see what you mean about all the action in the open.
What do the lines you drew over volume mean? Why are they opposite of the channels you drew on the price?
I'm confused. What is the "tape?" The ticker tape? I didn't think they used that anymore. If I trade online where can I see tape?
I think over time you may discover some things.
1. Day trading profitably is very difficult
2. Big profitable moves happen over time
3. Most of the big pros dont exclusively daytrade, dont close yourself off to holding a position for a few days, weeks, or months if it is working out for you.
1. Day trading profitably is very difficult
2. Big profitable moves happen over time
3. Most of the big pros dont exclusively daytrade, dont close yourself off to holding a position for a few days, weeks, or months if it is working out for you.
Post cut off.
?.
What do the lines you drew over volume mean? Why are they opposite of the channels you drew on the price?
Answer: Nothing. Just to point out INCREASING volume. Look at any chart. Very unusual to have volume peaks mid day. Open and close is where the interest is shown. Also to show relative LEVEL of volume. You mentioned trading 1000 shares for .20 Cant do that if only 1000 trades in time frame X or doesnt move considerably more than 20 cents. Look at the chart again. Each volume bar is per 5 min. 10's of thousands of shares are changing hands. Easier to get filled at your prices with less slippage. Also, tighter spread is more likely
?.
What do the lines you drew over volume mean? Why are they opposite of the channels you drew on the price?
Answer: Nothing. Just to point out INCREASING volume. Look at any chart. Very unusual to have volume peaks mid day. Open and close is where the interest is shown. Also to show relative LEVEL of volume. You mentioned trading 1000 shares for .20 Cant do that if only 1000 trades in time frame X or doesnt move considerably more than 20 cents. Look at the chart again. Each volume bar is per 5 min. 10's of thousands of shares are changing hands. Easier to get filled at your prices with less slippage. Also, tighter spread is more likely
So you're saying trading 1000 shares for 20 cents is only possible if there is a ton of volume, right? I usually follow stocks with volume of at least 1-5M. Is that enough?
I've also heard of people paper trading successfully but then losing money when they go to start for real because they say as soon as they place an order the market turns against them. That's kinda scary.
Sorry, I gotta ask again:
Is there a significant difference between stocks on the different markets? Why would someone only trade NYSE stocks but not AMEX, for example?
Thanks to everyone who has helped me in this thread so far.