The Truth
about Day Trading
On a popular stock board recently, a
serious-minded trader noticed just how much the "house" was
stacked against him trying to earn a living in the markets. Given all the
recent negative publicity, can ANYONE really succeed at this fascinating
discipline?
Here is my response:
Good instruction on short-term trading
techniques has been available for years. While it often focused on the
futures markets, stock traders knew they could apply those same principles
to their own game.
Teaching of scalping strategies based on
fast execution systems is a relatively new phenomenon. EDT (electronic day
trading) brokers did not invent day trading. Nor was it discovered by the
masses that have taken it up as a hobby the last 18 months. Expensive
Level 2 training has always had the taint of being a front to sell you a
broker's software system. Scalping was how the principals at these BDs
(broker-dealers) made their living before they bought the brokerage. For
most of them, it's all they know so they can't teach you anything else.
Unfortunately, scalping is the last
technique that should be taught to a new trader. Forget the quick trigger
stuff. Scalping at every level requires a seasoned instinct for how the
markets move in waves of buying and selling behavior. New traders need
years to comprehend and act on that flow.
Success in trading is not about ECNs,
SOES, BDs, MMs, etc. It's about buying low and selling high, period. It
doesn't take a rocket scientist to understand that this
"technique" is easier the longer that you hold a stock and
harder the shorter you hold it. Most of us who found success in the
markets started by investing or position trading, not day trading. It's
close to suicide to day trade before learning longer holding techniques as
position trading teaches you all of the skills that you'll need to know in
day trading but at a pace your brain can assimilate them.
When day trading, you must apply all
that stuff at an accelerated pace. That takes many years of experience for
most people. To jump into the day trading game with a lack of seasoned
market-based skills, acquired through experience, is like getting thrown
into a meat blender.
Think market-wide and not industry-wide.
The EDTs are a transitional industry. Their proprietary product is slowly
being absorbed into the mainstream. And the extreme business sloppiness of
a few has brought wrath upon all of them. But they did not invent nor do
they control this game or ever will.
New traders should seek out classic
forms of teaching and training and avoid the video game suicide trap.
After you learn how, what and when to buy and sell, the use of software
systems becomes so much easier. The natural flow of trading opportunity
will have you acting contrary to the ISLD, ARCHIP and SOES order flow that
mindlessly chases small shifts in momentum.
(Author’s note: See you at the
Daytradingexpo in Ontario, CA 9/25 and 9/26!)
An hour of EBAY can last a lifetime.
Scalping techniques teach new traders to take advantage of short swings in
price and momentum. But it can take years to develop the finely tuned
instincts required to make quick and accurate jumps in and out of fast
moving stocks.
