You won't get rich daytrading - my story

[tradermike]

sniper says:

"Mike says,

"I don't think I've had a day where I made more than 10% so far this year, but I'm up almost 150% so far. (the miracle of compounding) "

In the book "The Stock Trader" by Tony Oz he makes 56% return in one month trading short-term something like 100 trades or so. Now if you compound this return over 6 months, you will get 1440% return. Almost TEN times better than your returns with limited overnight risk. If I had a choice of one of the two, I'd rather have his daytrading returns over investing returns anytime "

I didn't write what you quoted. That was someone else who replied to what I said who wrote that. I'm guessing that Oz picked his best month for his book. How much money was he using and how much did he make?

 

[tradermike]

"I disagree about the time frame comment. The shorter your timeframe is, the better your odds of success are.. ..There are too many opportunities for news to affect the market. I definately think that the shorter your timeframe, the better your odds are."

This is completely false and to hold this belief is to deny reality. For whatever reason you are trying to deny the difficulty of daytrading. You either want lurkers to think daytrading is easy or else you are trying to tell yourself that it is easier than it really is.

TheStreet.Com just ran a series of articles about daytrading. So many got blown up in the rubble and the ones left that are successful are switching to a longer time frame. They've been forced to adopt to the changing market conditions. Stocks no longer go up as much as they during the go-go days so to get much of a move often means holding overnight or for a few days. You can read it yourself:

http://www.thestreet.com/funds/toolsofthetrade/1481635.html

http://www.thestreet.com/funds/toolsofthetrade/1487227.html

"Bourquin believes that the post-crash market has forced many daytraders to give up on "scalping" and other extremely short-term strategies that served them well in the past. Such strategies work by chiseling off tiny profits -- sometimes just pennies a share -- from round-trip trades. In the past, these strategies succeeded because pricey technology stocks often jumped several dollars or more each day. This made it relatively easy to follow a stock's momentum for short periods -- sometimes five minutes or less -- then exit quickly before a reversal occurred.

The problem now, however, is that many of these same high-volume stocks are selling in single digits. CMGI (CMGI:Nasdaq - news - commentary) is perhaps the most extreme example. Shares of the Internet incubator company were trading at more than $300 in January 2000 and moving up or down by $20 or more in a single day. A stock split and the Internet rout have since brought the price down to under $3.

When stocks sell at lower prices, their daily moves tend to be measured in pennies instead of dollars, which of course makes it tougher to carve out a decent profit during the regular trading day. "

 

[Wet]

Originally posted by Sniper_Trader1

Originally posted by Babak
tradermike,

There have been no studies as the one I suggested. Risk of ruin is basically nil if you are implementing sound money management (lets say 1/2% risk on trade). To blow out would require that you make a massive amount of incorrect trades, one after the other!

Technically this is incorrect. You can lose everything you have on a single trade even if you utilize the 1/2% rule. Suppose you have $6,000 in your account and you buy ABCD stock at 60 on 2 to 1 margin. You plug in the risk management into your formula and you can lose $30.00 on the trade (1/2% of $6000). If you were to buy $12,000 worth of ABCD (200 shares), you'd have to place a stop loss 15 cents below your entry (too tight of a stop, but 1/2% is your rule, so let's stick with it). You buy it at 60 and it goes up to 60.11 and then it is halted news pending intraday (it happens all the time). The stock has really bad news and it opens for trading at 25. You just lost 35 X 200 = 7000. But you only have $6000 in your account. You now owe your broker $1000.

So, the true risk in a trade is not 1/2%, it is always the amount of money you have on the line. When the EMLX hoax took place, stops that were placed at 99+ were executed at 45-50.

It isn't until you get caught in one of these disasters that you understand the true risk.

Bill

Sniper,

You make a good point. ALL of what you trade really is "at risk". You never know what will happen.

However, there are many ways to mitigate this.

First, a 15 cent stop isn't always "too tight". It depends on what kind of trade you are taking. There are times when I play retracements, and 15-25 cents is plenty to capture the swing low. Also depends on the price of the stock. For a 100 dollar stock, you're right. If I'm capturing the swing low, it's an awfully tight one! But in a 10, 20 or 30 dollar stock, it can be done.

Second, don't use margin. I never use it myself. I have margin coverage -- for the possibility of shorting -- but I never buy anything in excess of my capital. I miss out on possible gains, sure, but I don't have to worry about the disaster scenario you outline either with owing more than I have.

Third, I never put all of my capital in one stock. At the most, sometimes I'll have 1/3 of my capital in one stock. But I'm never comfortable with doing that, and so I don't usually do it (I'm comfortable with 1/6, or 1/5).

So if you don't use margin, keep a sound position sizing percentage (0.50% say), and spread around your capital, you are utilizing sound money management.

Does it mean you CAN'T blow out? No. I could have 3 trades, each with 1/3 of my capital and all three of them meet the disaster scenario you outline. So it's possible.

But it is pretty unlikely.

Wet

 

[tradermike]

Using marign is not always risky or dangerous. As long as you balance out your account and have short positions in it. Than you are better of using margin than not. Problem is most people's idea of margin is "hey I think JDSU, ORCL, JNPR, EBAY are cheap now and Maria Bartiromo says the market has bottomed some I'm going to load up." If you aren't using margin than you aren't taking full advantage of your account. Although of course there are times to go on margin and times to raise cash.

 

[Wet]

Mike,

Using margin is always risky, let's face it. You are not trading with your own money. So there's a chance you could wind up losing more than you actually have. Of course there are smart and stupid ways to use it. But, as I said, I'd rather miss out on possible gains and play it safe.

But that wasn't my point anyway. I was simply saying that it WOULD be hard -- very hard -- to blow out if you did not use margin, had conservative position sizing and spread out your risk across a few positions.

Wet

 

[huby]

Tradermike,

It seems to me that you are trying to accomplish one of two things. 1) Hype your website. or 2) Create a controversial thread just for fun. If number two was your goal, then you certainly accomlished it. Congratulations. I hope you got your jollies off of it.

Based on the fact that you only have 12 posts in elitetrader (and most of those are on this one thread), I would put my money on number one. So like someones said earlier: "You're fishing in the wrong pond". This site was created for traders to exchange ideas/thoughts/and experiences to become better TRADERS. You haven't contributed to any of those. You seem to think that we are all losing money. Even if we are, why should you care? Are you are savior? Are you here to turn us from the dark side? I think we all know why you're here.

So TAKE A HIKE!!!

Go promote your site on SI or yahoo. You'll find more dummies there who will sign up!!

 

[qwiktrade]

Originally posted by tradermike
"I disagree about the time frame comment. The shorter your timeframe is, the better your odds of success are.. ..There are too many opportunities for news to affect the market. I definately think that the shorter your timeframe, the better your odds are."

This is completely false and to hold this belief is to deny reality. For whatever reason you are trying to deny the difficulty of daytrading. You either want lurkers to think daytrading is easy or else you are trying to tell yourself that it is easier than it really is.

lol.. completely false? i assume you base this on your subjective experience as a failed daytrader?

i certainly have no motive (UNLIKE SOME) for pushing my ideas.. i am a profitable intraday trader.. was it easy to achieve this? of course not.. but it can be learned.. its obvious that you are just scrounging for struggling daytraders to hear you piss and moan about how daytrading cant be done, so they will "email you at tradermike@timingwallstreet.com" and join your service..

i have read the articles that you mentioned by Mark Ingbretson.. in fact, he quotes me in his second article.. ive also read his new book.. its important to remember that Mark is a writer and an editor, NOT a trader.. i agree with him that some strategies have changed as a result of the crash and decimalization.. but the opportunities are still abundant for those willing to find them.. i would also point out that his strongest arguement for a tougher environment is that prices dont move as much.. well guess what? they dont move as much for investors and swing traders either.. (btw, i also asked him to consider writing an article about the new margin rule change since it hasnt recieved much news coverage.. he wrote me back and said he would check into it..)

why are you so against daytrading? is it because the market beat you? and you dont want to admit that it can be done because you dont want to take responsibility? why is it that people would rather see themselves as suckers rather than losers.. im really not trying to be offensive, but you are trying to convice people who make their living trading stocks that daytrading cant be done.. i dont think i am the one who is denying reality..

good investing

-qwik

 

[Hitman]

Mike:

First of all I don't think you are hyping your site as nowhere in your post you advertised it, having the e-mail address as your signature or even the name of the site is ok in my book.

Saying you can't make money day trading is going to generate a lot of flames on this board, and I think that statement is a bit too general. I mean, 85% of the professional money managers can't beat the S&P 500, why don't we all just DCA SPY and go play golf?

Here is my experience with swing trading, I don't think it is any easier than day trading because I did it back in 2000 and honestly I couldn't get anywhere with it. Am I going to say you can't make money in swing trading? Of course not. I tried it, it wasn't for me, I got chopped up and broke even after six months, I tried day trading, and I said "you know I like to work with this time frame", that was it.

The making 1 point or 18 point comment is irrevalent. We are not in 99/00 anymore, stocks don't move that much anymore. You also forgot that to make that 18 point you have to hold for days, weeks, months, when a day trader's money is always efficient, always performing at the hot spot of the moment. Of course, it can be the wrong spot, but so can any given trade be for a swing trader. Day Trading Versus Swing Trading is quantity versus quality, and quality doesn't always win over quantity.

I also don't understand why you generalize day trading to be someone scalping JNPR all day (and I have no doubt that someone can make mid-high six figures doing just that alone), that once the stocks no longer move 10-20 points a day, all day traders are going broke. Some of the best day traders at my firm come to work at 6AM every day and do their research, and they will load up 30-50 positions during the first hour and go home flat. They are like portfolio managers who puts together the best possible portfolio in their eyes for a day, and it is a lot of fun to watch them amking/losing six figures a day.

Yes, I do admit that there is a limit to how much capital you can trade at once without overnight positions. For 99.99% of us we will never get to that point, and even if we do, why take on the additional stress? For me having a quality night of sleep knowing if I am sick tommorrow morning I don't have to show up to play, is a great benefit.

I don't believe the success rate of swing trading is ANY BETTER than day trading, it comes down to your personality and whatever is the best for you. Although I do give the nod to swing trading for newbies in that you can actually hold a second job doing it, and you can get by with just IB/Quote Tracker on a single monitor.

99.99% of the people don't graduate from Harvard and make 200K first year as an investment banker, 99.99% of the guys don't play in the NBA, 99.99% of the girls can't model for a living, 99.99% of the people don't make it to Hollywood, (and last time I checked) 80-90% of the people don't make six figures a year.

Does that mean stop dreaming? Of course not, it is precisely what we pride in, because it actually takes heart and effort to get there.

 

[vvv]

well...

i'm neither selling nor hyping anything...

no commercial interest what so ever...

one thing i have to agree with however is that when daytrading, and never mind the risk of ruin etc for the momement, you cannot achieve geometric growth of your capital due to liquidity etc considerations...

marty schwartz from "pit bull" fame may achieve something like a couple hundred percent return p.a., but he does not geometrically grow his capital, ie he takes out his profits and starts fresh each year...

now, who can honestly claim that he has the abilities of a marty schwartz??

probably very few...

but it's not even all that important...

it's not really the percentage you **may** achieve p.a...

it's what you are able to achieve with geometric, ie compounded annualised growth...

warren buffett, working with a long term time frame, who started out with a relatively small capital of USD 105,000, became the second richest man in the world with an average annual compounding rate of return of a **mere**23,8%...

vs marty schwartz, intraday trader, who started out with a similar sum but achieved 100% plus p.a...

proving that it's not short term non-geometrical hyper growth rates that really matter, it's just a decent rate of return that carries the potential for geometric growth.

 

[Wet]

Originally posted by Hitman
...and you can get by with just IB/Quote Tracker on a single monitor.

Good God, Hitman! Say it ain't so! You can succeed trading with such meagre tools???

: 0

Wet