Day Trading - learning to "feel" the market?

Disclaimer: I am a medium-term fundamental value investor and don’t plan on changing that. However, I had a long talk with our best guy in Trading and he said that even a “fundi” should have practiced day trading for a while. He claimed, that would help me make more timely decisions of my investments after I determined their investmentworthiness via fundamental analysis and give me a “feel” for the market (emotions and such). He said he’d help me set up an account with a reliable direct broker and show me a thing or two. He also said I’d have to trade with my own real money, rather than a training account. He wants me to “feel the pain” :). Your thoughts?

Blind sheep stumbling around trying to find a clue. That’s day traders in general, not referring to you specifically.

Be careful. I have some day trader friends who say their trading “education” cost about 50k each.

You ready to “feel that burn” when you don’t plan on changing your investment strategy?

You don’t need to day trade to get a feel of the market, you can get a feel of the market by stay current with the news and trade your own stocks(not day trade because that takes alot of attention away from your work unless you are a trader).

Trading is hazardous to your wealth.

If it were swing trading, I think there might be a case (though not a strong one), but I really have a hard time imagining the value of day trading.

Trying to predict and work the hour-by-hour flow of orders? There really is no way to predict that unless you happen to know that a major trade is going to push things one way or another, and that requires different information. You might be able to get a feel for how long uptrends and downtrends continue before they reverse themselves, but for medium or long term investments, but that will be with a ton of noise, the difference of a few cents likely doesn’t move the needle much.

The one thing that you could possibly learn from day trading is what times of the day you get the best liquidity and execution, but you probably don’t need to day trade to learn that (you can just ask other day traders, or if you are an institution, you probably have execution traders anyway to do that). If you are a fundamental investor, it’s unlikely that the price between 9am and 4pm on a particular day is relevant to your decision to pull the trigger, unless there is an unexpected corporate event or announcement, and day trading isn’t going to help you with that. Your time trying to manage the trade may well be better spent finding the next mispriced security before it corrects.

(Edit: the other thing that might be useful is the money management rules that a trading system requires, e.g. things like position sizing rules and stop-loss rules. Many day traders don’t have a good position sizing methodology. Fundamental investors don’t always either, although if you use optimizers to construct your portfolio, that basically handles the position sizing issue for you with its own particular methodology)

Also, if you are managing institutional sized funds, it seems to me that you’re seldom going to be able to complete execution of major positions in a single day anyway.

My suspicion is that your friend would like you to acknowledge that they have skills just as valuable and profitable as yours, which - I suspect - is not really true.

as an ex-, just barely successful, day trader for a short period of time, who mostly just scalped Ford shares for pennies, i can tell you that day trading makes you look at the market very differently than those who did not trade. with algos running wild, day trading experience helps you identify algos quickly which is very important when placing orders for small cap stocks, particularly in Canada. my best fundamental, swing trade ever was greatly influenced by my identification of an algo which was selling a 5% holder’s stake, after which, the stock went through the roof. identifying such things can be very important in timing buys and sells in microcap and small cap stocks.

outside of the bottom end of the market, day trading experience provides very little in competitive advantage. trying to judge order flow without being able to identify a market moving algo is impossible.

as for general market “feel”, i like to think that i can feel it better than the average joe but probably only 51% of the time, which doesn’t really help much.

thanks for that insight, but I take it, you were trained in trading by a knowledgable person. In my case it would be a brief 101 and after that it would be learning-by-doing, although the trading guy said he would occaisonally monitor me and tell me AFTERWARDS what I could have done better (he probably just wants to see my cash balance dwindle). I guess you would need some formal training in order to not get munched by the market.

the formal training helps a little bit but it really is mostly learned through personal experience. its more about just actually putting in the time to watch the market for hours and hours, at which time you start to notice things. having help identifying those things may help initially but its not hard to just make assumptions and run with it. if you’re proven wrong, adjust your assumptions and move on. thus why its costly whether you have help or not.

that said, day trading is more about watching markets than actually taking part. “feeling the pain” helps with “making split second decisions” which can be positive or negative depending on your strategy but the actual skills in identifying entry points is learned from watching.

Don’t day trade. That’s not where the money is. Money is in these intermediate swings. You won’t get the ‘feel’ by day trading. Day traders’ vision is too narrow. They don’t see anything.

Timing is everything in the market. Even for hedge funds. Day trading will not teach you to time your purchase.

The only way you learn is by trading with real money. “Feel the pain.” We remember our losses more than our wins.

I bumped my old thread. Anyways, I’m not going to tell you what to do, I tried my luck in trading and learned a lesson rather than earned any income. Day traders typically do not need estate planners.

4% of day traders make it in the long run. And those that do make it big. I don’t know of any successful stock day traders, but I know quite a few successful futures and options day traders. And when I mean successful, I’m talking at least half a million a year for close to a decade now.

I know a couple of people who can consistently make a decent living day trading. The problem is that algos these days are designed to rip their faces off. They basically wait for an extremely volatile move (NQ, PLUG, etc.) and hop on the train for an hour or less. You make a little bit here and there with the risk of giving all of it back and more very quickly. It’s not sustainable for the vast majority of people.

On the other hand I know quite a few people who have made millions (or tens or hundreds of millions) from intelligent buy and hold over a long time period. That is a much harder skill to learn and is difficult to execute, but some people can do it. It helps to have a hedged book with well chosen shorts too.

^ A lot of the big profits from day traders come from economic releases (non farm payrolls, CPI, Fed statements, etc). There will always be a knee jerk reaction when the number or statement is way out of line. If you’re glued to your PC, you will clean up.

As I said, I don’t want to switch careers. I just want to expand my horizon so to say. The guys setting things up for me told me to go for large index or commodity futures, because there is more movement and thus more excitement.

I guess the big problem with successful day trading is what happens when your luck runs out. Imagine you have traded successfully for ten years and then went broke because of some new thing in the market, what kind of job would you get after that? Maybe at the trading desk of a larger institution, but aside from that with a massive gap in your cv no one will hire you.

I would agree that it’s good to gain a feel for the market regardless of your style, short-term, swing, etc… if you can’t sit in front of TT ladders or level 2 and make money without looking at charts or anything else you don’t have a good enough feel for the market.

now I agree that not all styles necessitate a short-term feel but it certainly can’t hurt. it’s always good to understand all the players in the market. Most people on here are bankers or analysts and not traders so don’t listen to these people saying “day traders don’t make it etc…”.

In regard to your last comment about luck running out and going broke after 10 years of successful trading…thats just crazy, use some common sense, good money management skills and make sure you have an edge in the market and you’ll be fine. Become a prop trader or trade for a hedge fund. print 7 figures and work 20-30 hours a week, never work past 4 and no weekends.

I think you give too much credit to those guys. If you can make tens or hundreds of millions of dollars, you must have deep pockets. When you have deep pockets, you don’t have to worry about price going against you a few points or tens of points. Since you are a long term investor, you can just wait it out. It is actually easier to make money when you have deep pockets. But obviously you have to understand certain things.

Algos play very little. Either you understand the market or you don’t. Many people don’t honestly want to put in the effort to understand the market. It is much easier to just do than to understand because understanding takes great effort.

This

Less deep than you think though

the best way to learn is from someone else. :slight_smile:

As long as they don’t use leverage. Ask LTCM.