Monday, March 29, 2010

NYT: Daytraders 2.0 - Wired, Angry, and Loving It

A fun piece in the New York Times, especially interesting for those of us around for Daytraders 1.0.  As anyone who has been in the market a long time, you try just about everything once; I found daytrading to be the most stressful methodology even though you hold the positions the shortest amount of time.  Each time someone asks me "what style should I do?" my answer is simple - find what works best for you.*  Daytrading doesn't fit well for those with perfectionist tendencies.  Also, with the increasing dominance of algorithims I expect the game has become even harder in recent years than when I was trying it a long time ago.  The computers know the historical pattern, so it's very easy to go opposite to the pattern to stop people out, grab their shares, and then continue back in the original direction. 

*in the current market, any strategy works - we're all geniuses circa 1999 again.

Some snippets of a lengthy article:
  • REMEMBER the day traders?  They were hard to miss during the tech-stock mania a decade ago, when the Nasdaq seemed like a casino built by morons and a chimp with darts could pick winners. You would hear about these guys — nearly all of them were guys — and wonder: Could anyone make a living this way? And if the answer was yes, why were the rest of us suckers still holding down regular jobs?
  • Perhaps you assumed that the twin calamities of the Internet crash and the Great Recession had doomed the day-trader species in the unruly jungle of American capitalism. But some dreams refuse to die, and few, it seems, are more resilient than the dream of beating the market while wearing nothing but tighty-whities.
  • (Today's daytraders) are harnessing all the crowd-sourcing features of the Internet circa 2010: YouTube, Twitter, and companies like GotoMeeting, a Web conferencing service.
  • They are also harnessing a lot of market-related rage. The gruesome stock plunge of late 2008 and early 2009 was a searing, fool-me-twice moment for many people. The market again seemed hopelessly treacherous, a mug’s game.
  • It is hard to say how many day traders are currently plying their craft, if that is the right word, in this country. Brokerage firms track the activity and demographics of their customers, but they have been reluctant to share that data. About the most we know is that the day traders skew male, and the number of trades per $100,000 in client dollars is a little less than half what it was back in 2000, according to the Charles Schwab brokerage firm.  Even that figure seems high.
  • Many of the new day traders are people who recently lost jobs and can’t find work.  “They’ve got a severance package or a nest egg that they want to invest themselves.” (not a recommended adventure for those just 'starting out', as the market does a great job of stealing your money the first few years)  “It’s not impossible to make money actively trading,” Mr. Barber continues. “There are slivers of people out there who are quite good. And everyone thinks they will be in that group of 1 percent.”
  • “There’s an adrenaline rush. And the thing about day trading is that it gives you pretty quick feedback. If you buy and hold, a lot of things need to happen before you see a result, and much of what happens relates to external factors that are beyond your control. With day trading, you’re in charge.”
  • Mr. Gomez says that day trading has become far trickier in recent years because of the rise of robo trading — the use of computers to automatically buy and sell huge numbers of shares in superfast bursts, based on algorithms.
  • Big, muscular Wall Street veterans like Goldman Sachs have the money, smarts and brute power to dominate this computerized battle, and many day traders may not even be aware how outgunned they now are.  (amen - and that holds true for everything, not just daytrading.  As I've said in the past, we are but mice scurrying at the feet of the elephants - with it comes more agility but also the danger of being stomped on)
  • “It’s not something we fully understand, but algorithms don’t have emotions,” (sound familiar?) says Mr. Gomez. “It’s like these machines can smell a human. ....what used to be a waltz is now more like mosh pit.”
  • Mr. Lindloff buys shares in Patterson-UTI Energy, because he thinks it looks ripe for an uptick. Instead, it dives a few cents, and because Mr. Lindloff has an automatic stop on the trade — which sells the shares if they dip below a certain threshold — they are sold for a loss. A moment later, the shares shoot up. Mr. Lindloff thinks he has been juked and jived by a robo trader.
  • ... the most Mr. Bettinger will say about day trading is that it’s a “tough gig.” “You’re competing against mega-institutions that are trading in hundredths of a second.”

What a classic line:
  • If the motto of the original day-trade boom was, “If the pros can do it, so can we,” the motto today is, “We can’t do much worse than the pros.”

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