I'll be the first to point out that day trading really is a full-time job. You have to spend the time to do a lot of research, follow your purchases, and make the right decisions when it comes to holding or getting out.
But let's say I have $1000 set aside and I can make purchases through my brokerage account without any transaction costs. Would it make sense to maybe try to make some money with individual stocks? I wouldn't be heartbroken if I lost the money, and at the same time I imagine I could make a decent amount if I picked a good stock.
Just looking for some opinions. I likely won't do it, but I think it makes a good topic of conversation.
Day Trading for Fun and Profit
I know that Wells Fargo offers 100 free trades a year through their PMA brokerage account:
https://www.wellsfargo.com/jump/investm ... 779-3408-3
But the questions I must ask on such offering is first and foremost what is the slippage and how fast is the execution? Is direct access trading available?
For daytrading, slippage and speed of execution can mean a great deal, as slow speed means limiting one's profit or even incurring loss.
Many daytraders are scalpers, sort of like a "micro" version of HFT that's going on currently (it's been said that nearly 80% or more of market trade volume is done via HFT now) with computer algorithms written by PhD's working for banks designed to rip off the general public while limiting bank's exposure to market risk (often measured in milli-seconds) - the principle is somewhat similar and scalpers make money by engaging in multiple, quick trades and target small gains that add up over time, often aided by a trading software (i.e., "button trader" if using interactive brokers for example). So execution speed means a great deal. But even with direct access trading, which is measured in sub-second, I do not think it's a match for speed of programmed trading infrastructure with direct "fiber connection" to NYSE itself that bankers have setup and utilize. One's simply out-gunned in terms of resources, support and technology.
The only way is to take on risk by longer market exposure, for several days to as long as weeks or months and take advantage of perceived market inefficiencies before anyone else by engaging in swing trades. But if anything like the day when Dow dropped literally 1000 points in a matter of minutes happens again, (and it will) that is the market risk one is exposed to and could lose everything in a blink of an eye. (remember, 80% of market trade volume is done by computer algorithms now that are capable of tens of thousands of trade executions in milli-seconds or less. When the algo says to sell, one will see massive sells with other algos that will follow if conditions are just right).
Until measures are taken to eliminate such scams as programmed trading and HFT, IMHO, it's best to steer clear of the markets. Or at least know the risks when one's participating in the markets today.
Related article:
http://pointsandfigures.com/2011/01/03/ ... the-money/
https://www.wellsfargo.com/jump/investm ... 779-3408-3
But the questions I must ask on such offering is first and foremost what is the slippage and how fast is the execution? Is direct access trading available?
For daytrading, slippage and speed of execution can mean a great deal, as slow speed means limiting one's profit or even incurring loss.
Many daytraders are scalpers, sort of like a "micro" version of HFT that's going on currently (it's been said that nearly 80% or more of market trade volume is done via HFT now) with computer algorithms written by PhD's working for banks designed to rip off the general public while limiting bank's exposure to market risk (often measured in milli-seconds) - the principle is somewhat similar and scalpers make money by engaging in multiple, quick trades and target small gains that add up over time, often aided by a trading software (i.e., "button trader" if using interactive brokers for example). So execution speed means a great deal. But even with direct access trading, which is measured in sub-second, I do not think it's a match for speed of programmed trading infrastructure with direct "fiber connection" to NYSE itself that bankers have setup and utilize. One's simply out-gunned in terms of resources, support and technology.
The only way is to take on risk by longer market exposure, for several days to as long as weeks or months and take advantage of perceived market inefficiencies before anyone else by engaging in swing trades. But if anything like the day when Dow dropped literally 1000 points in a matter of minutes happens again, (and it will) that is the market risk one is exposed to and could lose everything in a blink of an eye. (remember, 80% of market trade volume is done by computer algorithms now that are capable of tens of thousands of trade executions in milli-seconds or less. When the algo says to sell, one will see massive sells with other algos that will follow if conditions are just right).
Until measures are taken to eliminate such scams as programmed trading and HFT, IMHO, it's best to steer clear of the markets. Or at least know the risks when one's participating in the markets today.
Related article:
http://pointsandfigures.com/2011/01/03/ ... the-money/
Read Marcel Link's High Probability Trading. He gives you a realistic expectation of how a beginner fares in the market...
If you consistently risk over 2% of your capital, odds are very good your account will go bust. 2% of $1000 is $20, which is very likely less than round trip commission and the spread.
... Not saying there isn't money to be made in trading. But the studies don't lie, at least 95% lose. About half of those lose their entire accounts at least once.
If you consistently risk over 2% of your capital, odds are very good your account will go bust. 2% of $1000 is $20, which is very likely less than round trip commission and the spread.
... Not saying there isn't money to be made in trading. But the studies don't lie, at least 95% lose. About half of those lose their entire accounts at least once.
-
VicTimRetire
- Posts: 7
- Joined: Tue Jan 11, 2011 7:38 am
Day trading is an addiction - not a way to make money! Unfortunately I know this from experience. I had a taste of success in 1997 and have been chasing it off and on ever since. I would suggest you read any of Van Tharp's books - and he has an excellent website: www.iitm.com
He describes in detail position sizing, etc. - but more importantly, trading psychology. I wish I'd started out reading his books - would have saved me a lot of time and money!
Best of luck!
He describes in detail position sizing, etc. - but more importantly, trading psychology. I wish I'd started out reading his books - would have saved me a lot of time and money!
Best of luck!
-
jacob
- Site Admin
- Posts: 15980
- Joined: Fri Jun 28, 2013 8:38 pm
- Location: USA, Zone 5b, Koppen Dfa, Elev. 620ft, Walkscore 77
- Contact:
Most importantly ... imagine the tax hassle reporting a great deal of trades to earn or lose a few hundred bucks a year. Stocks won't give you more than 50% margin. On this other hand, if you stay with thinly trade issues (volume <10000) you might have an effect. Trades happen so infrequently, i.e. only 10-20 times per day, that you have a fighting chance.
I do think this is the way to do it. If you go with commodities you can get a much higher margin, but here you'd be playing against the big boys and likely get slaughtered.
In defense of HFT it does serve some function in that it provides some liquidity to the market thus decreasing the spread. Fundamentally there are only two kinds of orders: market and limit, that is, either meeting the ask or bid respectively or waiting for it to come to you. HFT makes this happen sooner than it otherwise would and thus turns limit orders into market orders in a sense. This reduction of the spread has some value in terms of "unsticking the market", that is, limit orders sitting on each side waiting for someone to cross. A perfect HFT operation would extract all this value for itself, essentially eliminating the difference between limit and market orders on its frequency. On the downside, by reducing the spread, the slippage goes to zero and this in turn can make the market very volatile in the short term. The only difference being that thanks to HFT this volatility now becomes highly visible.
However, considering the flash crash --- if you were a person who only checked the market once a day, you wouldn't really have noticed it. The crash happened because the high frequency suddenly resonated with a lower frequency so to speak, when orders could no longer be filled at the higher frequency, thus causing mayhem.
HFT likely has taken some business away from the mid-frequency, that is the day traders who essentially do the same thing but on a timescale of minutes and hours instead of milliseconds.
I do think this is the way to do it. If you go with commodities you can get a much higher margin, but here you'd be playing against the big boys and likely get slaughtered.
In defense of HFT it does serve some function in that it provides some liquidity to the market thus decreasing the spread. Fundamentally there are only two kinds of orders: market and limit, that is, either meeting the ask or bid respectively or waiting for it to come to you. HFT makes this happen sooner than it otherwise would and thus turns limit orders into market orders in a sense. This reduction of the spread has some value in terms of "unsticking the market", that is, limit orders sitting on each side waiting for someone to cross. A perfect HFT operation would extract all this value for itself, essentially eliminating the difference between limit and market orders on its frequency. On the downside, by reducing the spread, the slippage goes to zero and this in turn can make the market very volatile in the short term. The only difference being that thanks to HFT this volatility now becomes highly visible.
However, considering the flash crash --- if you were a person who only checked the market once a day, you wouldn't really have noticed it. The crash happened because the high frequency suddenly resonated with a lower frequency so to speak, when orders could no longer be filled at the higher frequency, thus causing mayhem.
HFT likely has taken some business away from the mid-frequency, that is the day traders who essentially do the same thing but on a timescale of minutes and hours instead of milliseconds.
@akratic -
"The nature of ethics in an electronic environment becomes critical. There is no such thing as a gentleman’s agreement, peer pressure or the old standard of pit etiquette. Electronic trading is anonymous. It’s also a zero sum game. If my algo is faster than yours, I make all the money. If I can develop a quote stuffing algo to screw your system up, I win. If I can develop a worm to destroy your systems, I win. In loose terms, think of the ethics of electronic trading versus human trading to the way the internet has changed human discourse on computers. Comments on blogs and articles are much coarser and abrupt than if those same humans were having a discussion in a coffee shop. The same with electronic trading. The way the rules of trading are currently written by regulators, and by exchanges, are not up to snuff to stop nefarious practices from many electronic trading outfits. This has caused damage to the marketplace.
What does all this hyper electronic trading mean for the market? As the article correctly points out,
“it affects nearly everyone who owns shares of stock or mutual funds, or who has a stake in a pension fund or works for a public company. For better or for worse, part of your wealth, your livelihood, is throbbing through these wires.”
So, this isn’t small potatoes.
The cash equity market is designed to be a place for companies to raise capital, and individuals to build wealth. Contrary to populist opinion, it’s not a regulated casino. Structure was also totally ignored by legislators and the SEC in the recent Dodd-Frank bill. Changes in structure mean big changes to the way firms compete. The current structure of the cash equity market is not competitive today.
If structured correctly, electronic trading and hyper competition are good for the market. Things happen faster. Volume increases and participants are able to enter and exit efficiently. The speed is why structure becomes crucial to good clean markets. The way the market is structured today is incompatible with the speed that the market trades. This is why the potential for another adverse event, like the flash crash, is always clear and present. The current structure and rules are also why a firm like Goldman can bat 1.000 when supposedly undertaking the “risky” job of trading.
High Frequency Traders (HFT) are not necessarily the core of problems in the marketplace. HFT guys are just doing what locals did for years on exchange floors. They are able to respond quickly to events and make money off of them. HFT guys are in and out. Milliseconds mean billions to them. Think of them as the grease that allow the wheels for the market to go. Not many people understand HFT, so they decry it. Older traders like myself don’t like them, because exchanges have created an unfair playing field with co-location. Electronic markets also move faster than humans can react to them, so many old timers hate the HFT guys. HFT decreases the amount of breadth of participation in a marketplace. Eventually, it can collapse upon itself.
How should the market be structured for the best price efficiency, risk/reward, and competition? In a perfect academic world, it should be left for the market to sort out. That’s not going to happen in the real world. This means regulators should ban the practices that allow for competitive disparities to occur. For example, trading against your own customers order (internalization) allows banks to shave pennies off big orders from their own customers. Shave enough pennies and it’s billions in risk free profit."
http://pointsandfigures.com/2011/01/03/ ... the-money/
"The exchanges have gone warp speed because traders have demanded it. Even mainstream banks and old-fashioned mutual funds have embraced the change.
“Broker-dealers, hedge funds, traditional asset managers have been forced to play keep-up to stay in the game,” Adam Honoré, research director of the Aite Group, wrote in a recent report.
Even the savings of many long-term mutual fund investors are swept up in this maelstrom, when fund managers make changes in their holdings. But the exchanges are catering mostly to a different market breed — to high-frequency traders who have turned speed into a new art form. They use algorithms to zip in and out of markets, often changing orders and strategies within seconds. They make a living by being the first to react to events, dashing past slower investors — a category that includes most investors — to take advantage of mispricing between stocks, for example, or differences in prices quoted across exchanges.
One new strategy is to use powerful computers to speed-read news reports — even Twitter messages — automatically, then to let their machines interpret and trade on them.
By using such techniques, traders may make only the tiniest fraction of a cent on each trade. But multiplied many times a second over an entire day, those fractions add up to real money. According to Kevin McPartland of the TABB Group, high-frequency traders now account for 56 percent of total stock market trading. A measure of their importance is that rather than charging them commissions, some exchanges now even pay high-frequency traders to bring orders to their machines.
High-frequency traders are “the reason for the massive infrastructure,” Mr. McPartland says. “Everyone realizes you have to attract the high-speed traders.”
As everyone goes warp speed, a number of high-tech construction projects are under way.
One such project is a 428,000-square-foot data center in the western suburbs of Chicago opened by the CME Group, which owns the Chicago Mercantile Exchange. It houses the exchange’s Globex electronic futures and options trading platform and space for traders to install computers next to the exchange’s machines, a practice known as co-location — at a cost of about $25,000 a month per rack of computers.
The exchange is making its investment because derivatives as well as stocks are being swept up in the high-frequency revolution. The Commodity Futures Trading Commission estimates that high-frequency traders now account for about one-third of all volume on domestic futures exchanges.
In August, Spread Networks of Ridgeland, Miss., completed an 825-mile fiber optic network connecting the South Loop of Chicago to Cartaret, N.J., cutting a swath across central Pennsylvania and reducing the round-trip trading time between Chicago and New York by three milliseconds, to 13.33 milliseconds.
Then there are the international projects. Fractions of a second are regularly being shaved off of the busy Frankfurt-to-London route. And in October, a company called Hibernia Atlantic announced plans for a new fiber-optic link beneath the Atlantic from Halifax, Nova Scotia, to Somerset, England that will be able to send shares from London to New York and back in 60 milliseconds.
Bjarni Thorvardarson, chief executive of Hibernia Atlantic, says the link, due to open in 2012, is primarily intended to meet the needs of high-frequency algorithmic traders and will cost “hundreds of millions of dollars.”
“People are going over the lake and through the church, whatever it takes,” he says. “It is very important for these algorithmic traders to have the most advanced technology.”
The pace of investment, of course, reflects the billions of dollars that are at stake."
http://www.nytimes.com/2011/01/02/business/02speed.html
(subscription required)
Difference between theory and reality. And greed.
"The nature of ethics in an electronic environment becomes critical. There is no such thing as a gentleman’s agreement, peer pressure or the old standard of pit etiquette. Electronic trading is anonymous. It’s also a zero sum game. If my algo is faster than yours, I make all the money. If I can develop a quote stuffing algo to screw your system up, I win. If I can develop a worm to destroy your systems, I win. In loose terms, think of the ethics of electronic trading versus human trading to the way the internet has changed human discourse on computers. Comments on blogs and articles are much coarser and abrupt than if those same humans were having a discussion in a coffee shop. The same with electronic trading. The way the rules of trading are currently written by regulators, and by exchanges, are not up to snuff to stop nefarious practices from many electronic trading outfits. This has caused damage to the marketplace.
What does all this hyper electronic trading mean for the market? As the article correctly points out,
“it affects nearly everyone who owns shares of stock or mutual funds, or who has a stake in a pension fund or works for a public company. For better or for worse, part of your wealth, your livelihood, is throbbing through these wires.”
So, this isn’t small potatoes.
The cash equity market is designed to be a place for companies to raise capital, and individuals to build wealth. Contrary to populist opinion, it’s not a regulated casino. Structure was also totally ignored by legislators and the SEC in the recent Dodd-Frank bill. Changes in structure mean big changes to the way firms compete. The current structure of the cash equity market is not competitive today.
If structured correctly, electronic trading and hyper competition are good for the market. Things happen faster. Volume increases and participants are able to enter and exit efficiently. The speed is why structure becomes crucial to good clean markets. The way the market is structured today is incompatible with the speed that the market trades. This is why the potential for another adverse event, like the flash crash, is always clear and present. The current structure and rules are also why a firm like Goldman can bat 1.000 when supposedly undertaking the “risky” job of trading.
High Frequency Traders (HFT) are not necessarily the core of problems in the marketplace. HFT guys are just doing what locals did for years on exchange floors. They are able to respond quickly to events and make money off of them. HFT guys are in and out. Milliseconds mean billions to them. Think of them as the grease that allow the wheels for the market to go. Not many people understand HFT, so they decry it. Older traders like myself don’t like them, because exchanges have created an unfair playing field with co-location. Electronic markets also move faster than humans can react to them, so many old timers hate the HFT guys. HFT decreases the amount of breadth of participation in a marketplace. Eventually, it can collapse upon itself.
How should the market be structured for the best price efficiency, risk/reward, and competition? In a perfect academic world, it should be left for the market to sort out. That’s not going to happen in the real world. This means regulators should ban the practices that allow for competitive disparities to occur. For example, trading against your own customers order (internalization) allows banks to shave pennies off big orders from their own customers. Shave enough pennies and it’s billions in risk free profit."
http://pointsandfigures.com/2011/01/03/ ... the-money/
"The exchanges have gone warp speed because traders have demanded it. Even mainstream banks and old-fashioned mutual funds have embraced the change.
“Broker-dealers, hedge funds, traditional asset managers have been forced to play keep-up to stay in the game,” Adam Honoré, research director of the Aite Group, wrote in a recent report.
Even the savings of many long-term mutual fund investors are swept up in this maelstrom, when fund managers make changes in their holdings. But the exchanges are catering mostly to a different market breed — to high-frequency traders who have turned speed into a new art form. They use algorithms to zip in and out of markets, often changing orders and strategies within seconds. They make a living by being the first to react to events, dashing past slower investors — a category that includes most investors — to take advantage of mispricing between stocks, for example, or differences in prices quoted across exchanges.
One new strategy is to use powerful computers to speed-read news reports — even Twitter messages — automatically, then to let their machines interpret and trade on them.
By using such techniques, traders may make only the tiniest fraction of a cent on each trade. But multiplied many times a second over an entire day, those fractions add up to real money. According to Kevin McPartland of the TABB Group, high-frequency traders now account for 56 percent of total stock market trading. A measure of their importance is that rather than charging them commissions, some exchanges now even pay high-frequency traders to bring orders to their machines.
High-frequency traders are “the reason for the massive infrastructure,” Mr. McPartland says. “Everyone realizes you have to attract the high-speed traders.”
As everyone goes warp speed, a number of high-tech construction projects are under way.
One such project is a 428,000-square-foot data center in the western suburbs of Chicago opened by the CME Group, which owns the Chicago Mercantile Exchange. It houses the exchange’s Globex electronic futures and options trading platform and space for traders to install computers next to the exchange’s machines, a practice known as co-location — at a cost of about $25,000 a month per rack of computers.
The exchange is making its investment because derivatives as well as stocks are being swept up in the high-frequency revolution. The Commodity Futures Trading Commission estimates that high-frequency traders now account for about one-third of all volume on domestic futures exchanges.
In August, Spread Networks of Ridgeland, Miss., completed an 825-mile fiber optic network connecting the South Loop of Chicago to Cartaret, N.J., cutting a swath across central Pennsylvania and reducing the round-trip trading time between Chicago and New York by three milliseconds, to 13.33 milliseconds.
Then there are the international projects. Fractions of a second are regularly being shaved off of the busy Frankfurt-to-London route. And in October, a company called Hibernia Atlantic announced plans for a new fiber-optic link beneath the Atlantic from Halifax, Nova Scotia, to Somerset, England that will be able to send shares from London to New York and back in 60 milliseconds.
Bjarni Thorvardarson, chief executive of Hibernia Atlantic, says the link, due to open in 2012, is primarily intended to meet the needs of high-frequency algorithmic traders and will cost “hundreds of millions of dollars.”
“People are going over the lake and through the church, whatever it takes,” he says. “It is very important for these algorithmic traders to have the most advanced technology.”
The pace of investment, of course, reflects the billions of dollars that are at stake."
http://www.nytimes.com/2011/01/02/business/02speed.html
(subscription required)
Difference between theory and reality. And greed.
Re: Day Trading for Fun and Profit
Hello, my fellow archeologists 
This quite silly, but I need to state this question.
After reading this topic I've lost interest in market - how can I beat so many computers programmed by so many brilliant people?
Coming back to earth. Can anyone explain me if we entered the matrix? Article suggests that we live in reality where computers algorithms fight other algorithms. And it was 6 years ago! (this graph about HFT share in market play on wikipiedia is crazy for me). I feel so old! Back then I have not even graduated high school
.
Is interest rate (or boomer's withdrawal) the only main factors which influence market?
I feel so overhelmed.
Anyone wants to cheer me up?
Edit: sorry for this bump. I found this topic in search for my questions and I didn't want to create new one.
This quite silly, but I need to state this question.
After reading this topic I've lost interest in market - how can I beat so many computers programmed by so many brilliant people?
Coming back to earth. Can anyone explain me if we entered the matrix? Article suggests that we live in reality where computers algorithms fight other algorithms. And it was 6 years ago! (this graph about HFT share in market play on wikipiedia is crazy for me). I feel so old! Back then I have not even graduated high school
.Is interest rate (or boomer's withdrawal) the only main factors which influence market?
I feel so overhelmed.
Anyone wants to cheer me up?
Edit: sorry for this bump. I found this topic in search for my questions and I didn't want to create new one.