11/14 Interesting stock trader psychology I noticed today. The markets
were mixed and I was pulling for a huge $$$ day (as opposed to the
so-so one I ended up with) but when it became clear that was not
going to happen and the rally died then everyone just stopped
buying, which led to the bloodbath at the close. If you just
looked at the open and close you would think there was a crazy
sell-off, but the reality is that most of the eventual losses were
over the last 10-15 minutes when the bulls decided to call it a week
and the shorts continued to sell. Given that I expect a rally on
next week at some point, because "it was not as bad as it looked".
That plus the G20 meeting over the weekend. Even though my positions
are still positive (and I usually sell at the end of every day) I will
hold them overnight. No point selling into the hands of the shorts
and I'm still green on the day even after the sell off.
\_ I enjoy reading your motd posts about day trading. Do you do this
as a full time job? Or do you have your brokerage account web
site open at work at all times? I don't have the world's most
demanding job, but I would go insane doing my work and managing
my account all day like you do.
\_ All you have to do is watch a handful of stocks on a ticker.
It's not much time at all. I get up before the markets open
and see what's up. Then I go about my regular business until
8am or so when I check again. Between then and lunch I just
glance at the ticker every few minutes and then at lunch
time I really watch intently for a time to get out (if I
haven't already and still have a position open).
\_ Most day traders end up losing their shorts.
\_ This can't be true, because for most of history the market
has risen. A rising market erases a lot of mistakes. It's more
challenging now than it typically is. If the market is up then
you will be up even if your buy and sell signals are goofed
and if the market is down then you will be down no matter
what you do.
\_ No, it is true. Volatility + leverage + frequent trading
by an amature leads to most of the money ending up in the
hands of the pros, over time. I can show you how this works,
but I think you can figure it out for yourself pretty
easily. If you have real talent at this, you should try
to get a job with a brokerage and use OPM. But they aren't
really hiring right now.
\_ 1. No one said you need to use leverage. I think it
would be foolish to even for buy-and-hold. I don't.
2. You have a point that transaction fees can eat up
profits, but I don't pay any and "Lower profit because
of fees and taxes" is not the same as "losing your
shirt". It's just less profit (all else being
equal) - during a rising market, of course.
\_ How do you avoid commissions again?
\_ Maintain a certain balance in my account
\_ All right, both you guys put forth excellent reasons.
Is there any data?
\_ Yes, but nothing really great and it is contradictory.
Part of the problem is defining what a "day trader" is.
There are many strategies that involve buying and selling
on the same day and many studies are not careful about
differentiating. Someone making money on spreads and
trading 400 times per day is doing something very different
from a person range trading, for instance. Leverage plays
a big part in it, too, because you can be wiped out very
quickly if you buy $100K of stock with just $25K in your
account if it goes against you. That's why I don't use
leverage, although I do use margin for legal reasons. |