Is this just an oxymoron? One of my hardheaded friends is convinced he’ll be able to scrape some extra return by daytrading the market swings. I’ve insisted it’s very difficult to time the market with any degree of consistency or accuracy.
Throwing my guidance to the birds, does anyone here know of anyone who daytrades their own capital via discount broker? It just screams anguish, grief, and lost cash.
He’ll probably win a bit once or twice then think he can repeat it and eventually lose money. Sounds a bit like a guy I worked with at my last job who thinks he knows all about the stock market, but his only examples of greatness are buying thinks like Yahoo, HP, and these things that cratered. He bought in only because they fell a bunch, then rode them back up, yet he knows nothing about anything, just luckily timing momentum stocks.
It’s stuff like that that makes me think F it and just buy SPY and give up on spending time trying to find stocks worth buying and owning from an investment perspective, not momentum trading.
The only things I “daytrade” are muni closed end funds. Whenever they sell off to a certain yield level, I load up on them for tax free dividends out the wazoo. Last year I was buying NY munis to the tune of 8%+ tax free current yields, or 15%+ tax equivalent for the top tax bracket. There’s the obvious mark to market risk and interest rate risk, but worth it for me to get a solid tax free annual income stream for doing nothing but hitting a mouse button a few times.
I’ve got a coworker that tries it, but he’s way over his head and is now spending most of his time watching tasty trade youtube videos so he can work all sorts of option strategies and bore me with his tales of success.
I think a person can be successful, but the skills necessary are better served earning a paycheck.
I’m with you. I can see for equity analysts picking stocks, because that’s what they do all day. But if you aren’t doing that all day, it seems like it’s too much effort to me. When I was in college, it was much easier becauuse in my finance classes and internship I was constantly analyzing stocks, following the news, etc. I may get sector exposure to things I think are favorable but I rarely buy individual stocks – although I keep some cash just in case.
I was a fool once. Thought I will make it big… made six figure paper profit in the first 6 months (post crisis)… lost it all in the next 6. Tried again couple of times but got my ass handed to me. So now I focus solely on losing my client’s money. Fk the market.
I have a friend that uses Interactive Brokers to trade levered ETF’s. He basically watches them tick up and down all day, grabbing gains wherever possible, using some basic technical analysis and mostly just keeping an eye on the charts.
He seems to do OK but there have to be more interesting and easier ways to make money.
Some people who do this will definitely make money, some persistently. But how do we prove that this is not just a dice roll?
Agreed. It’s like these dudes who scalp order books. Some do make a good living I guess, and the good ones bear acceptable risks.
However, is it really worth it given that they literally spend their days looking at nothing else but ticks & bid/ask data ?
I am not sure that I would find this really rewarding.
I just did a tax return for a day trader. Dude makes good coin, $1.3m last year. But I only got to see the 1099’s, not the year-end statements, so I don’t know how much capital he has. He had $275m in sales last year, but that may be the same million dollars sold 275 times.
Interestingly enough, he seems to have some kind of “edge” on IPO’s. I saw one stock that he bought for $17 and sold later in the day for $22. (Yes, he made 30% in a day.) But when I looked up the stock, it looked like it actually IPO’ed at $21, not $17. I don’t really know what happened there…
If I had his 12/31 bank statements, I would actually like to do the math and find out how he compared to simply buying-and-holding an index fund.
This
I agree. I’ve spent quite a bit of time with scottrade elite, watching the quotes go up and down by the tick and during the day and have never ever been able to distinguish a trend. More power to those who can.
I tried my hand at this before, it’s essentially gambling. Sometimes you make money, sometimes you lose money, sometimes you think you are about to make money but end up losing because some giant player decides to make the market move the opposite direction.
Now I just stick to live gambling while watching sport instead, at least that usually makes some sense.
A guy I used to work with played momentum on the index, maybe 5-10 trades per month. He had five straight years of outperformance last I talked with him. Substantial outpeformance in some years. Luck or skill, who knows.
That’s always my viewpoint as well. We are so easily fooled by randomness
For what it is worth, I do think some institutions who master the markets can make money off others. Big market making firms probably know how to spot tiny tiny trading opportunities to make money from other people. It is just hard to believe that a retail trader can do the same without the same speed, quant resources, cost advantages or market visibility.
Tradestation is now part of a larger group, but a few years ago I saw their financials. Their revenues were five percent of the assets they had on deposit. That is one huge hurdle to overcome.
What do you mean by ‘retail’? Are we talking platform/infrastructure or experience/skill? While there are certainly some advantages to professional platforms, there are many (perhaps most) strategies where retail is all that’s necessary.
What is considered worthwhile extra return as well…10bps, 100bps, 1000bps, 10000bps? IMO, retail vs. pro the evaluation criteria should be the same and always ends with risk adjusted returns.
I will say that ‘daytrading’ in the stereotypical context has long been dead and replaced by skynet…there’s no one manually buying the bid and selling the offer anymore.
In theory, if he uses high probability setups and sticks to his stoplosses, he should make a killing or at least break even.
In practice, fat chance! You’re risking a large amount of your capital in every trade. You may need to make 1000 or more trades to make any sort of respectable return and any one of those 1000 trades could wipe out your entire capital if you screw up (i.e. forgot to set a stop loss.) Basically, you don’t need every one of your trades to be profitable but you do need perfect execution on every single one of the countless trades you need to make (especially the stoploss part) or else you’re toast.
The nice thing about index investing is that you can be “average” with zero skill or knowledge of trading.
Greenman - Was he independent or working for a firm? Do you happen to know the asset/strategy?
Interesting to see a legit example of success…thanks for sharing.